SYSTEMATICS We are now ready to tum our attention to the principal theme, that of project evaluation. The first two chapters were in the nature of a prelude, an introduction that hopefully contributed to the student's perception of the nature of the industrial environment, and that additionally laid down a mathematical foundation for some of the evaluation techniques which will follow. In this chapter we return to the concept, initially explored during our cursory review of the economic basis of industrial projects (Sec. 1.3), of project economic analysis as a blending of invest- ment and income analyses pointing toward the examination of a criterion of eco- nomic performance. We will examine the preferred sequencing of such an eco- nomic analysis as a first step leading to a more detailed exposition of methodology in subsequent chapters. We will also examine methods of assembling background information required for the proper definition of the nature of the project. Specifi- cally, we will explore ways of making product pricing and demand projections by using the techniques of marketing research, and we will also examine some of the ways of defining a processing scheme that can serve as a basis for subsequent investment and income analyses. The differences among various project types will be pointed out, but the exposi- tion of project evaluation systematics will emphasize those aspects which are common to all projects. 3.1 PRINCIPLES OF PRELIMINARY PROJECT EVALUATION. Project Types: Similarities and Differences No two projects are alike. Each one differs in nature and scope, and each one Presents its own set of challenges. And yet, as we attempt to evaluate projects to 122SECTION 3.1: PRINCIPLES OF PRELIMINARY PROJECT EVALUATION 123. establish their economic promise, we find that the mechanism of evaluation has a number of elements, as well as sequencing of elements, most of which are common to each project regardless of the project’s nature. Even one particular project changes in nature in the course of project devel- opment. For example, the overall process to manufacture a particular product, spanning the gamut from raw material preparation to final product purification, may change in such a way as to be virtually unrecognizable during its progress from the laboratory bench to the pilot plant. We begin by focusing upon project evaluation at the preliminary stage of development. By prefiminary stage we refer to the stage of a project when it is still in the laboratory, the product preparation appears to be technically feasible, and the product itself holds promise of more than casual acceptance in the world of commerce. We will find that these preliminary-stage techniques and sequences can be used throughout the lifetime of a project, through- out the various stages of project development and “fine-tuning,” perhaps with some refinements. We emphasized in the first chapter that the decision as to when refinements and more thorough evaluation techniques are to be used is primarily a matter of judgment and experience. We should perhaps emphasize again that project evaluation must be attempted at the earliest possible stages of development, Just as soon as some processing scheme can be visualized, to avoid catastrophic development expenditures on a project with a dismal economic prospect. The nature and scope of a project are distinctly influenced by the history of the product in the corporation, and a product-oriented project classification is a useful one: Existing products in company. These projects involve new plants to manufacture an existing company product on an existing site (for example, to expand production capacity), new plants in new locations, and plants to produce an existing product but utilizing a new process. Existing products but new to company. Even though a great deal of information may be available on the existing products, the very fact that they are new to the company increases the complexity of this type of project. Entirely new products. These projects involve the greatest number of unknowns and are therefore the most difficult to handle. Limited-scope projects. There are, of course, those projects which do not really fit into any of the previous categories, principally because of their limited scope. ‘These include (1) existing plant changes and improvements and (2) pilot plant arid semiplant projects. Sequence of Preliminary Project Evaluation ‘The following steps describe the normal sequence used during preliminary project evaluation. Ay the project progresses toward more advanced stages of develop- Ment, one OF Another of the sequential items may receive special emphasis, but the total sequence should be kept up-to-date; it applies to projects up to the stage ofg research sell at what price?” 3 Process choice. For a new product, this step may be more a matter of process definition rather than process choice. 4 Flow sheet synthesis, material and energy balances. In preliminary stages, flow sheet synthesis may involve a great deal of speculation. 5 Equipment choice and design. Shortcut methods or rules of thumb are partic- ularly useful in preliminary stages. 6 Plant investment estimate. Estimate of the capital required to build a plant to meet the likely demand. 7 Manufacturing cost estimate. Projection of how much it will cost to produce the product in the specified plant. 8 Profitability evaluation. Project profitability based upon a chosen criterion of economic performance. Some of the sequence items will constitute the subject matter of separate chap- ters. Follow-up Evaluation The product and process development which characterize successive stages of a project do not occur as quantum jumps but rather as a developmental continuum. Nevertheless, discrete states of advancement may be approximately identified and described on the basis of firmness of process, degree of backup toxicological work, scale-up status, and many other criteria. Often the stages of development are formally described and numerically identified, although the methodology differs among corporations. One may speak, for example, about a stage 0 or a stage 1 project, the latter corresponding perhaps to the preliminary stage previously de- scribed. Projects may also be identified by reference to the status of the corre- sponding capital investment estimate. In Chap. 1, four estimate categories were identified. These estimate categories are sometimes characterized as “class levels” IV (order-of-magnitude) down to I (project control) (Maples and Hyland, 1980). A project development sequence may be described in terms of a few develop- mental landmarks: * Laboratory development work Definition of desirable product characteristics. Measurement of physical properties. Reaction definition, usually batch reaction, often in glass equipment. Separation studies in laboratory equipment. Purification studies. Satellite studies: toxicology, product performance, safe handling, waste disposal.