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Introduction The geographical location of the final plant can have

strong influence on the success of an industrial venture.Considerable care must be exercised in selecting theplant site, and many different factors must beconsidered. Primarily, the plant should be located wherethe minimum cost of production and distribution can beobtained, but other factors, such as room for expansionand safe living conditions for plant operation as well as

the surrounding community, are also important.

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Factors Affecting the Plant Location The following factors should be considered in selecting a plant

site:1. Raw materials availability2 . Markets3 . Energy availability4 . Climate5 . Transportation facilities6 . Water supply7 . Waste disposal8 . Labor supply9. Taxation and legal restrictions1 0 . Site characteristics11. Flood and fire protection .1 2 . Community factors 3

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Roll of Chemical Engineer The chemical engineer will be making economic

evaluations of new processes, designing individual piecesof equipment for the proposed new venture, ordeveloping a plant layout for coordination of the overalloperation.

A chemical engineer Specializing in the design Aspects Isreferred to as a design engineer

A chemical engineer specializing in the economic aspectsof the design is often referred to as a cost engineer

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General Overall DesignConsiderations

Record keeping and accounting procedures are alsoimportant factors in general design considerations, and itis necessary that the design engineer be familiar with thegeneral terminology and approach used by accountantsfor cost and asset accounting

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Cost estimation Evaluation of costs in the preliminary design phases is

sometimes called guesstimation but the appropriatedesignation is predesign cost estima tion.

The chemical engineer (or cost engineer) must be certainto consider all possible factors when making a costanalysis. Fixed costs, direct production costs for rawmaterials, labor, maintenance, power, and utilities mustall be included along with costs for plant and

administrative overhead, distribution of the finalproducts, and other miscellaneous items.

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PROFITABILITY OFINVESTMENTS

A major function of the directors of a manufacturing firmis to maximize the long-term profit to the owners or thestockholders. A decision to invest in fixed facilities carrieswith it the burden of continuing interest, insurance,taxes, depreciation, manufacturing costs, etc., and alsoreduces the fluidity of the companys future actions.Capital-investment decisions, therefore, must be madewith great care.

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Time value of Money Money, or any other negotiable type of capital, has a time

value. When a manufacturing enterprise invests money, itexpects to receive a return during the time the money is beingused. The amount of return demanded usually depends on

the degree of risk that is assumed

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Taxes and Insurances Expenses, for various types of taxes and insurance can

materially affect the economic situation for any industrialprocess. Because modern taxes may amount to a majorportion of a manufacturing firms net earnings, it isessential that the chemical engineer be conversant withthe fundamentals of taxation.

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Depreciation Since all physical assets of an industrial facility decrease in

value with age, it is normal practice to make periodic chargesagainst earnings so as to distribute the first cost of the facilityover its expected service life.

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Optimum Economic Design If there are two or more methods for obtaining exactly

equivalent final results, the preferred method would be theone involving the least total cost. This is the basis of anoptimum economic design

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Optimum Operation Design Many processes require definite conditions of temperature,

pressure, contact time, or other variables if the best resultsare to be obtained. It is often possible to make a partialseparation of these optimum conditions from direct economic

considerations

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Engineering EconomicDecisions

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Planning Investment

Marketing

ProfitManufacturing

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Predicting the Future Estimating a Required

investment Forecasting a product

demand Estimating a selling price Estimating a

manufacturing cost Estimating a product life

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Role of Engineers in Business

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Create & Design

Engineering Projects

Evaluate

ExpectedProfitability Timing of

Cash Flows Degree of

Financial Risk

Analyze

Production Methods Engineering Safety

Environmental Impacts Market Assessment

Evaluate

Impact onFinancial Statements Firms Market Value

Stock Price

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Accounting Vs. EngineeringEcom.

16PresentFuturePast

Engineer ing Econom yA c c o u n t i n g

Evaluat ing pas t performance Evaluat ing and predic t ing fu ture events

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Two Factors in EngineeringEconomic Decisions

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The factors of time and uncertainty are the defining aspects of anyengineering economic decisions

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A Large-Scale Engineering Project Requires a large sum of

investment Takes a long time to see

the financial outcomes Difficult to predict the

revenue and cost streams (Remember Cash flow discussedearlier)

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ypes o trateg c ng neer ngEconomic Decisions in

Manufacturing SectorService Improvement

Equipment and Process Selection

Equipment Replacement

New Product and Product Expansion

Cost Reduction

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Equipment Replacement Problem Now is the time to

replace the old machine? If not, when is the right

time to replace the oldequipment?

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New Product and ProductExpansion Shall we build or acquire

a new facility to meet theincreased demand?

Is it worth spendingmoney to market a newproduct?

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Cost Reduction Should a company buy

equipment to perform anoperation now donemanually?

Should spend money nowin order to save moremoney later?

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Course outline Characteristics of Chemical industry; Market survey; Plant location; Estimation of capital investment; Physical-plant cost; Manufacturing cost; General expenses; Sales and profit; Organization and management;

Cost accounting; Research and development; Marketing.

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Books Chemical engneering Economics by Donald e Garrett Plant Design and Economics by Timmerhaus

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