W16_Candra Nugraha_Sensitivity Analysis


Opportunity Statements

Project Proposal should consist of the feasibility studies which include technical concepts, budgetary and the most important thing is the economic calculation. One of my job functions is to evaluate the options and come up with recommendation by considering sensitivity analysis

This Compressor station will be developed due to gas sales opportunity to public electrical  company for their Gas Turbine Generators. This analysis will give us the idea of economic limit of the project.

Root Cause

  • The uncertainty of gas price against the capital investment, operating expense as well as proven certification reserve.
  • The Compressor Package shall fulfill the technical requirements as Basis of Design and economically feasible based on the capital investment, operating expense and revenue generated.

Develop Alternatives

Table below is showing Production Profile for 5 years service life, forecast of investment, opex and method of depreciation.

How do we know the sensitivity against gas price (from US$4.5 – 6 /MBTU), NPV@10%, IRR, capex and opex ? The table below is showing calculation of those parameters.

 

 

Development of the outcomes

The graph below is indication of sensitivity analysis:

 

Minimum Acceptable requirements

The criteria of economic selection are:

  • The Highest Net Income for Government.
  • Life Time for 5 years.
  • NPV calculated at 10% Discount.
  • Cost Depreciation is applied for Double Declining Balance which is 5 years for production facility.

Analyze and compare the alternatives

Based on the alternatives as given, we come up with the preliminary economic calculation based on the sensitivity analysis US$4.5 /MBTU gas price for the given surface facility investment:

The projected cost for compressor station for US$3.1 million is still acceptable for the worst case gas price US$4.5 /MBTU.

Develop preferred alternative

Gas Compressor Station for US$3.1 million , is this worth Doing?

Estimated revenue generated at NPV10% for Government Take is US$3.247 million for 5 years operation. The Pay Out Time is 2.83 years with IRR17.62%.

The following summaries the information considered before it made as Go or No Go Decision:

Monitor and Evaluation (Post Mortem)

After the Authorization for Expenditure (AFE) is approved, the following Success Planning is monitored and shall be achieved.

Success Metrics

  • Spills – zero.
  • Industrial Accident / LTI  – zero.
  • Cost performance – +/- 10% of budget.
  • Schedule performance – +/- 10% of milestone dates.

Success Factor

The following action items are a must for achieving the Success Metrics above:

  • Good team work & coordination – meet on regular basis, good cross functional participation and good team commitment.
  • Follow the project management practices.
  • Follow HES procedures and approved standards & codes.
  • Utilize VIP’s & Best Practices.
  • Involve the right resources (e.g., contract development).

References:

  • Peters, Max S & Timmerhaus, Klaus D. (1991), Plant Design and Economics for Chemical Engineers 4th Edition, Singapore: McGraw-Hill, Inc.
  • Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick (1942), Engineering Economy 15th Edition, Singapore: Prentice Hall, Inc.
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About Candra Nugraha

I'am living in jakarta, indonesia
This entry was posted in Candra Nugraha, Week #16. Bookmark the permalink.

One Response to W16_Candra Nugraha_Sensitivity Analysis

  1. DrPDG says:

    OUTSTANDING as usual, Mas Candra!!! Can’t wait to see your paper!!!

    Given you clearly understand the problems in Engineering Economy, as soon as your paper is done, you will need to focus your efforts on the problems in Humphrey’s, as Part III of the CCC/E exam is on applied project management.

    Keep up the great work!!

    BR,
    Dr. PDG, enjoying the fishing on Cape Cod.

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