Chemical Engineering December 2016 - 53

Part 2
Evaluating Preliminary
Investment Feasibility
Before any engineering or design work can take place, a project's feasibility must be
considered. Reasonably accurate costs can be obtained using the preliminary estimate
methodologies presented here
Alejandro Anaya
Durand, Raúl
Fernández
Marbán,
Mauricio Galicia
Armas, Itzayana
Montesinos
Aguilar
National Autonomous
University of Mexico
IN BRIEF
PROJECT SELECTION
PRODUCT QUALITY
CAPITAL COST
ESTIMATIONS
PRODUCTION COSTS
AND REVENUES
DEPRECIATION
PROFITABILITY ANALYSIS
E
valuating
the feasibility
early in an
investment
project's timeline is
critical for streamlining
decision-making
and avoiding unnecessary
efforts. This
article presents a
combination of estimation
methods and
calculation examples
that can be used as a
model for an evaluation
of the preliminary
feasibility of an investment
for a plant,
project or product.
The examples take
on an established order that should be followed
step by step in order to obtain the
desired results.
FIGURE 1. Large capital projects, such as the construction of an ethanol production facility,
require considerable investments in finances and effort. If the feasibility of the proposed project
is throroughly investigated, more informed decision-making is possible
In conjunction with the initial step of establishing
the idea of what project or product the
investment will promote, a preliminary strategy
must be considered. For example, throughout
this article (for practical purposes), we will look
at a capital project for an ethanol production
plant (Figure 1) and how to proceed throughout
the different phases of the feasibility evaluation.
To investigate preliminary feasibility, this
article describes not just the advantages and
disadvantages of the project, but also considers
issues related to workforce, localization of
the plant and raw materials, as well as many
other factors.
Once the strategic analysis has been completed,
the financial feasibility must be investigated
- this is the most important factor
in choosing whether to terminate the project
right away or to continue, because this step
is where analyses can reveal that the potenCHEMICAL
ENGINEERING WWW.CHEMENGONLINE.COM
DECEMBER 2016
tial profits may outweigh the risks. It is also
important to remember that although this
strategy is just an approximation, the methodology
is robust, and results will be a relatively
accurate approximation. Another final
point that should be mentioned is that prices
fluctuate from one year to another, but this
particular point will not be addressed further
in this article.
The analysis provided in this article provides
some of the essential knowledge for
feasibility determination. Various elements
are taken into account, and the methodology
outlined here requires both sensitivity
and careful calculations.
Project selection
Each individual project should aim to follow
a procedure known as the S.M.A.R.T.
model (Table 1) in the early stages of project
definition
[1].
This
will provide guidance
to transition from an abstract idea to
a main and specific goal. Each letter from
47

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Chemical Engineering December 2016

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