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For assessing the attractiveness of a proposed new or retrofit project, the capital cost estimate is just the first element in the picture. The profitability of the proposal hinges on the operating costs it will incur
During evaluation of investment proposals, preparation of budgets, or other activities, chemical engineers often have a need to estimate operating and maintenance (O&M) costs, also referred to as direct operating costs, for existing or proposed chemical-process-industries (CPI) plants. Depending on their underlying purpose, such estimates can be made with varying degrees of accuracy. The estimating procedures presented below are appropriate for developing "budget" or "study" cost estimates, the accuracy of which typically ranges from plusor-minus 20 to plus-or-minus 30%; estimates of greater accuracy involve too much case-specific detail to allow generalized treatment.
Direct operating costs include the following variable and semivariable costs:
* Operating and supervisory labor
* Maintenance (labor, materials, and contract maintenance)
* Overhead (plant and payroll)
* Raw materials
* Utilities (electricity, fuels, water, steam, compressed air, other)
* Laboratory charges
* Royalties
* Pollution control (air, water, and solid waste)
The variable costs are those that vary proportionately with the process annual operating hours. At zero operating hours (that is, when the process is inoperative), variable costs are zero as well. Operating and supervisory labor, raw materials, utilities, royalties, and pollution control fall into this category. Semivariable costs (maintenance, overhead, and laboratory charges) also vary with the annual operating hours, but not proportionately. For example, even when a process is inoperative, a minimal amount of maintenance is needed. By the same token, the amount of maintenance needed when a process is running at, say, 8,000 h/ yr is less than double the amount required for 4,000-h/yr operation.
The so-called fixed (indirect) operating costs - taxes, insurance, administrative charges, finance charges, and depreciation - involve other than engineering considerations and lie outside the scope of this article. These expenditures are incurred even if the process facility is completely shut down. Note that of these, depreciation is unlike the other fixed costs (and unlike the direct operating costs), in that it is not a real expenditure, with funds being transferred from one entity to another. Rather, depreciation is an accounting ("book") entry, made to offset taxable...