Thursday, March 5, 2009

What Standard to Apply for IST – Cost Estimates

In yesterday’s discussion of establishing limits for the feasibility decision on IST implementation we talked about determining the costs of implementation for establishing the financial feasibility. Estimating future costs of any project are always an interesting challenge. I am not a chemical engineer and have never actually been responsible for project cost estimations, but I have participated in a number of new process introductions where cost estimations were used to justify proceeding with, or killing, the process introduction. Looking at that cost estimation process will be valuable understanding the cost estimation process for IST implementation.

Editorial Note: The more I look at the details of potential IST implementation requirements the more it looks like this is going to be an extensive series of blogs. Just to help people keep track of the on-going discussion I will ‘officially’ call this a series of blogs and provide a list of the previous blogs in the series:

Writing IST Legislation Reader Comment – 02-24-09
What Standard to Apply for IST - Limits


A typical process introduction goes through a number of formal evaluations typically called gates. At each gate there has been more work done on developing the process and the cost estimates get more accurate. The first estimates are based on general ideas of the time, raw materials, and capital equipment required and always include a significant fudge factor that varies with the organization involved (I have heard factors as low as 20% and as high as 50%).

As more information about the process is obtained those estimates are refined and the fudge factor is reduced. Even the final budgeted figure is an estimate and includes a contingency factor. The purpose of the gate process is to require periodic re-evaluation of a new process to ensure that an uneconomic project is killed as soon as possible to reduce the amount of money spent on such projects. If the IST process mandated in the new legislation does not take this process into account facilities are going to have to use a larger fudge factor on the evaluation upon which DHS will base its regulatory decision.

Chemical Process Refinement 

At each stage of chemical process development (I’ve described the process used at companies for which I worked in an earlier blog) new problems and solutions are identified. Process safety and quality issues require the addition of new controls and equipment that were not considered before those issues were identified. EH&S personnel learn more about the health and safety issues involved in the process. Potential chemical reactions with other on-site chemicals may require safety modifications of other on-site processes.

I have seen a number of projects killed midway through the development process. We’ve discovered process upsets could lead to the uncontrollable evolution of heat and pressure that would endanger the process equipment; the added equipment to prevent those potential upsets doubled the cost of the project. Other projects could have led to chemical reactions in our waste water streams that would evolve toxic gasses; a complete new water treatment process killed that project. Another project was killed when the supplier of a raw material came in and briefed us on the handling requirements for that chemical; the added safety equipment costs were too high for that project.

Escape Clause 

The earlier in the IST evaluation process that a facility is required to provide DHS with their evaluation data the more likely it is that unsuspected complications will negate those findings as the implementation process proceeds. It is unreasonable to expect that Congress will allow DHS to wait until the IST process is ready to go into full scale operation before they order the facility to implement the project.

That would defeat the whole evaluation/implementation requirement. This means that there will have to be provisions for subsequent data submissions on IST evaluations requiring periodic re-evaluations of implementation orders. It might make more sense to require periodic updates of the IST data submission, in effect establishing a DHS gate process. This way DHS could track the progress of the implementation process and the evolution of the cost estimate.

Process Research

Frequently chemical process introductions are canceled because there is no clear way to proceed while keeping costs within reasonable bounds. In many cases industry is aware of research options that might lead to ways around the restrictions, but just cannot justify the time and money required to proceed with that research. This would seem like an excellent place for the government to step in and assist the development process with grants for process research. In some cases, where multiple facilities from a variety of companies reach the same roadblock, it may be appropriate to form a government and industry research consortium to conduct the necessary research.

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