'PROCESS INDUSTRY ECONOMICS': A Book review
15 Jan 2000
The problem with a book entitled 'Process Industry Economics' is that the field it addresses is extremely broad and further complicated by its interdisciplinary nature. This difficult task has been tackled by Dr David Brennan and published by the Institution of Chemical Engineers at £59.50.
In his preface, Dr Brennan states that 'this book is directed at engineers and scientists entering and already working in the process industries, and at senior undergraduate students in chemical engineering'. Later in the book, we read that the 'worked problems are derived from examination questions and class exercises for process economics taught at the Royal Melbourne Institute of Technology'.
Therein lies the question of the focus of this book: to the industrial practitioner and his acolytes working in this area, its value is questionable; to the student, on the other hand, it offers a number of valuable insights and a useful overall picture f the scope of the economics of the process industries.
{{In 267 pages, the nine chapters cover:* market evaluation and forecasting* capital and operating cost evaluation* evaluation of profitability* the influence of process technology* investment decisions and planning.}}
The panel amplifies these contents in a little more detail.
To clear some negative or misleading points first, a multinational perspective is claimed. However, this is principally devoted to experience and data based on the USA and Australia. Scant attention has been paid to the rest of the world. Even the brief mention of our own Predict Indices (see facing page) states that they are published quarterly (when, as regular readers know only too well, they are monthly) and that they refer to the UK's trading partners. In fact, Costimator believes that they are the most comprehensive and reliable set of indices published worldwide, as attested by their growing use in multinational contracts.
It has to be said that little new work is quoted, as illustrated by the references at the close of chapters 2-5 and 7-9. In other words, 40 per cent of the listed literature is dated prior to 1980 and only 19 per cent originates after 1990. Even then, some of the material used is not accredited to its originators.
The chapter on capital cost estimation is also severely limited. Again in Costimator's view, this chapter should have been shorter, making references to more recent detailed texts, or longer by covering the subject in greater depth.
Process engineers are often deeply involved in capital cost estimation and, therefore, a relatively simplistic overview is of little benefit. The now well-dated (but still useful) IChemE's 'A guide to capital cost estimating' appears to be Dr Brennan's principal source of hard cost data and factors.
Incidentally, the graph (referenced Figure 3.2) originally produced by Park showing the cost of estimates as a function of accuracy is also 'growing whiskers'. Indeed, the only comment made by the author on the accuracy of estimates is that 'the bulk of experience would indicate accuracies more realistically of +A, -B per cent, where A>B'. When estimating error can amount to, say, 10 per cent of the total, this aspect should have been further explored.
Finally, for a thorough insight into the various techniques of the economic evaluation of projects, Costimator suggests that Prof Derek Allen's book (also published by the IChemE) is difficult to better. Dr Brennan's chapter 5 is a useful reinforcement of these concepts and methodologies.
Much more positively, the descriptions of market evaluation and forecasting, operating cost estimation and the worked problems, should prove to be very helpful to the student.
Likewise, the overview given in chapters 7, 8 and 9 covering process technology development, investment decision making and industry planning and structure provide a survey which is not usually available to students and junior engineers.
On balance, therefore, I would recommend this book, which contains a generally adequate and helpful text. It fills a long-standing gap in the literature and, as such, is welcome. The reader must, nevertheless, be aware of the shortcomings mentioned above particularly those relating to capital cost estimation.
Contents Summary
Chapter Main subjects covered
1 Introduction
The whole subject matter of this book is described (together with the Preface), amplifying its objectives.
2 Market evaluation and forecasting
Market volume, pricing, forecasting, data and case histories.
3 Capital cost estimation
Extrapolation of existing data, sources of data, factor methods, computer applications, start-up and working capital.
4 Operating cost estimation
Raw material, utilities, personnel, depreciation and other costs. Factored approach, influences of scale and inflation, data sources.
5 Evaluation of project profitability
Measures of profitability, cash flow, discount methods, effects of inflation and financing, sensitivity and risk assessment, competitive analysis.
6 Worked problems
Reflects the above.
7 Process technology evolution and adoption
Time dependence of process technology. Intensification and the economies of scale. Technological forecasting.
8 Capital investment decisions
Various factors which contribute to this area, including project scope, replacement projects, environmental and safety issues, comparisons of old and new plants.
9 Industry planning and structure
Industry structure and taxonomy, integration, local influences, ownership. Data sources.
