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Following are the essential features in Identification of a project:
1. Market and Sales - Justification of Project.
2. Methods of PrOduction
(a) Process flow diagrams - with mass and energy balance.
(b) Chemical reactions.
3. Chemical Engineering Problems
(a) Manufacturing
(b) Economics
4. Land requirement and Land development
5. Raw material storage and handling system
.
6. Utility sources etc.
The most important aspect of any project is
the identification of the busi'ness need not
necessarily anything related to engineering or
construction. This is the conclusion of studies
by various organizations. This documented
business need is commonly called the business
case, the project charter or the business
statement. The business case mu~t relate to the
end result and be based on the business
expectations. The overall Return On
Investment (ROD, a key decision parameter, is
defined by determining the capital cost, and the
time-to-market. A well-developed business
case should also identify the risk posture of the.
business, the required economic return and
other business-oriented parameters;
The longer the construction time, the lower
is the rate of return. Our society produces
PROCUREMENT &
buildings, roads, dams, missiles, ships CONSTRUCTION
and other products of large;-scale projects.
Fig. 8.1 : Project Identification Path
The problems of managing such projects stem from their great complexity and the non-
repetitive nature of the required activities; when the lot size is only one, there is little
chance to take advantage of learning E;[Link] are produced by process focussed
systems.
8.2 PRELIMINARY TECHNO-ECONOMIC FEASIBILITY REPORT
This report basically consists of -
(i) Process Description and Flow Diagrams
(i i) Expected Performance Parameters
(iii) Brief Equipment List
(iv) Estimated Project Investment
(v) Profitability Analysis
A typical example of refined sugar manufacture from sugar -is considered below:
Flow diagram:
ACTIVATED
CARBON
Fig. 8.2: Process Block diagram for Refined Sugar manufacture
Brief Equipment Test: .
(1) Sugar lloelter
(2) Various storage tanks
(3) Elevator
(4) Vacuum pan with condenser
Process Economics & Project Engineering
(5) Receiver
(6) Hyflo preparation tank
(7) Activated carbon treatment tank
(8) Boiling pan
(9) Pressure filter
(0) Batch type centrifugal machine
(11) Boiler
(12) Piping, valves, pumps with motors etc.
(13) Miscellaneous, dryer etc.
8.2.1 Estimated- Proiect Investment
Capacity of Plant: 10 MT refined sugar per day.
Table 8.1: All estimates in Indian Rupees
1\ 1. Land and Land development "<.; 10.00 lacs ~
2. Civil and Structural 15.00 lacs
3. Plant and Machinery 115.00 lacs
4. Engineering charges 10.00 lacs
,
5'. Erection and Commissioning 5.00 lacs
\
6. Contingencies 10.00 lacs
7. Miscellaneous, fiX,edcosts and working capital 30.00 lacs
TotalRs. 195.00lacs
Sr. No. Type ofProduct Qt~ MT/annum Rate Sales 1Annum
Rs./MT (Rs. in lacs)
1. Refined sugar 2000 23,500 479:.00
2. Yellowish sugar . (85.7 ) 12,000 (102.81-1
.'
~~-:r TotalRs. 572.84 lacs
Table 8.2 : Sales Revenue
Note: Recovery of refined sugar: 70% in terms of raw sugar, and processing loss: 1.5%.
2. Expenses (Per A.m1;uin):
(A) Variable Expenses
2.1 Raw material 2900·65 MT @ Rs. 14,0001MT 406.09 lacs
2.2 Steam: 3000 MT @ Rs. 4001 MT 12.00 lacs
2.3 Electricity: 3,0.0,000 units @ Rs. 41 unit 12.00 lacs
2.4 Chemicals 3.00 lacs
2.5 Packing 40,000 bags per annum containing
each bag 50 kg refined sugar @ Rs. 8 1 bag
Total variable expenses (406.09 + 12.00 + 12.00 + 3.0 + 3.2)
Process Economics & Project Engineering
(B) Fixed Expenses
2.6 Total Investment: 195.00 lacs
Equity (40%) : 78.00 lacs
Term loan (60%) : 117.00 lacs
Working Capital:
Raw Sugar: 5 Days Stock
406.09
2QOx5
)5 days Stock
3.2' 5
200 x =
Fixed Expenses Per Annum :
(A) Interest on term loan (117.00 lacs) @ 15% 17.55 lacs
(B) Interest on working capital (12.73 lacs) @ 15% = 1.91 lacs
(C) Administrative expenses = 10.00 lacs
(D ) Sales expenses (3 % of sales) 17.18 lacs
(E) Salary and Wages 10.00 lacs
56.64 lacs
Variable Expenses + Fixed Expenses
436.29 + 56.64
= 492.93 lacs
572.84 - 492.93
79.91 lacs
4. Depreciation @20%of investment :
.195x 0.2 = 39.0 lacs
(3) - (4)
79.91- 39.0
40.91 lacs
Process Economics & Project Engineering
6. Tax (@ 22% on gross profit) :
= 40.91 x 0.22
9.00 lacs
= (5) - (6)
= 40.91- 9.00
= 31.91 lacs
= Profit after tax (7) + Depreciation (4)
= 31.91+ 39.0
= 70.91lacs
Investment
= Money generated
195
70.91
2.75 years
i.e. Two years, nine months
Note: Taxes and interest rates may change from time to time.
1. What are the essential features in the identification of a project?
2. Explaiil the role ofa Project Manager.
3. Write short notes on Variable expenses and Fixed expenses in a project.
4. What do you understand by "Contribution" and "Depreciation" in a project
viability report ?
5. What is payback period?
6. Make a block diagram for "Project Identification Path".