How to Estimate the Right Return on Investment for an Optimization Project Is it Art or Science to Estimate the Right Number?

Ivana Lukec, Ph.D.
How to Estimate the Right Return on Investment for an Optimization Project

Every optimization project requires development of benefit analysis or a benefit study to estimate the payback period of a project before making investment decisions. 
As the first step in the the benefit analysis development, even in cases of large savings, nothing comes without a cost. They need to be listed and estimated.


They can include some of the following:

  • project basic or detailed design,
  • installation of process equipment such as columns, vessels, pumps, compressors, heat exchangers, valves, fired heaters, reactors, etc.,
  • instalation of pipelines,
  • construction works and elements,
  • hardware, such as a high‐speed computer, wiring, etc.,
  • costs of different software packages and their license fees,
  • instrumentation and control system,
  • cost of manpower,
  • cost of annual maintenance and/or support,
  • insurance fees,
  • safety fees,
  • tests costs,
  • other costs.

However, the expectation of any optimization project is to bring benefit that will justify the cost in reasonable time. Usually, a reasonable time is considered to be 6 to 24 months.

Like any other investor, top management will always want to know what the return of this investment is. Scientific cost-benefit analysis is thus a necessity before the project implementation to accurately estimate the payback period and return on investment (ROI). A scientific and accurate estimation of ROI gives management the confidence to put money in any project implementation and thus helps them to decide their priority as compared to other investment decisions that might be on their list.
Accurate estimation of ROI will help to convince them in their investment decision, which leads to their direct and indirect support of the implementation team.
Management support is highly required to successfully deal with various undesirable conflicting issues in the later project stage. Thus, it is necessary to know the scientific method for cost-benefit analysis before implementation.

Benefit Estimation Procedures

Benefit estimation is a multidisciplinary act. It involves plant operators, production engineers, process engineers, control engineers, maintenance engineers, planning and scheduling departments, and plant heads having an idea of company vision and future path. The best way to understand the process and its economics is to perform a process analysis study with onsite data gathering. It is usually done by discussion and meeting with all relevant players at their site.
It includes the following steps:

  1. Meet with the operation, process engineering and all other relevant staff at their workplace (e.g., in the control room, plant conference room, etc.).
  2. Explain the project outline and objectives of the benefit estimation procedure.
  3. Encourage the team to provide all relevant inputs. Collect their ideas.
  4. Understand the potential areas where optimization can be exploited to reduce variation in key process variables and fetch benefits.

When developing benefit study, the key steps are the following:

Milestone 1: Initial Screening for Suitability of the optimization project

In this step, it is decided whether the plant under study is a potential candidate for an optimization project. To screen the plants for the suitability of implementing any type of process optimization project, it is necessary to know what are the key opportunities for optimization. 

  • The primary candidates are very often high volume units, such as crude distilling units in refinery and big petrochemical plants. Due to the large scale of operation of these units, a small improvement in operation results in a very significant economic benefit.
  • Conversion units, such as Cat Crackers and Hydrocrackers and petrochemical plants, are also very often good candidates to apply different types of optimization. 
  • The third group of good candidates are units that produce a highly valued product(s). Even if the unit is a low‐volume unit, the benefits can be quite significant for increased product recovery. Many specialty chemicals applications fall under this group.
  • The fourth group of candidates are units with a high consumption of utilities. Many fractionation trains fall under this group. The products are overpurified so that the effects of disturbances do not cause the products to go off‐specification. 
  • The fifth group of candidates for optimization are units that are subject to frequent disturbances. The complex distillation towers in refinery provide a prime example of this type of application. 

Based on these criteria, an initial screening may be done to know whether the plant
under study qualifies for any kind of optimization project implementation.

Milestone 2: Process Analysis and Economics Analysis

A full understanding of the process is very much essential to estimate the potential benefit. There is no shortcut. There is no hard and fast rule on how to understand the process, but the following questions give an idea as to what to ask the team, which will facilitate the process:

  • how will the economy of the unit be improved?
  • what are the top management goals to operate this unit?
  • what are the production targets? How are these targets met?
  • what are the raw material and utility‐specific consumption targets?
  • what variables will indicate unit performance?
  • what are the operating objectives of the unit?
  • is quality control currently good or poor?
  • what problems do panel operators face on a daily basis?
  • how many times does product quality go off spec in a month or year?
  • how much loss does the plant incur due to an off‐spec product?
  • what areas of the plant consume the most time for panel operators?
  • which parameters must panel operators monitor most closely, and why?
  • is there any control problem or controller‐tuning problem?

Milestone 3: Understand the Constraints

Most often, where the bottleneck is, there is an improvement potential as well. This is why it is essential to understand the constraints of the unit.

Use these questions as a guideline:

  • what are the constraints that prevent the plant from maximizing its economical parameters?
  • are there any raw material, utility limitations?
  • are there any capacity limitations in any major equipment like reactor, compressor, or distillation tower?
  • how will catalyst efficiency, reaction selectivity/yield, etc. be impacted by an increase in capacity?
  • what are the safety limits of different process parameters?
  • what are the process limitations?
  • what are the quality specs, and how does current plant quality stand against them?
  • what are the process instrument limitations, such as valves at 100 percent open?

Milestone 4: Identify Qualitatively Potential Area for Improvements

This step is to identify the potential areas where optimization project can bring benefit after it is implemented. This is the area that needs experience and expertise. There are no hard and fast rules here; they vary from plant to plant, company to company.
It is the job of the project engineer to quickly detect the potentially profitable area while discussing with the plant operation and process engineering team. Note that sometimes data analysis and observing DCS parameter trends will help to pinpoint the potential areas.
The rule is to investigate the profitable areas and look for any opportunity that exists in the plant under investigation. 

Milestone 5: Collect All Relevant Plant and Economic Data

Collect all the historical data and trends for all the following parameters:

  • all parameters that have an influence on plant economics
  • all parameters that represent any constraints
  • all parameters that represent the quality of the product (online analyzer or offline laboratory analysis)
  • parameters where process control is not good.

Milestone 6: Estimate Change in Key Performance Parameters Such as Yield, Throughput, and Energy Consumption

It is clear that different types of optimization, whether process design changes, operation improvement, loops tuning, or advanced process control will facilitate shifting the average process value near to its limit or constraints. How this will translate to improve the process performance and how that can be quantified is the main activity of this step. The method of calculation will vary from plant to plant, and this has to be discussed with the plant process engineer. 

Milestone 7 - Estimate the Economic Value of the Effect

The purpose of this step is to make an economic viability study report of the optimization project. Note that any kind of optimization project will be seen as an investment by company top management. Like any other investment, top management will want to know the return of investment before deciding whether to implement the project or not.

The purpose of this step is to summarize all the potential profitable areas where it is expected that successfully deployed projects will result in the economic benefit. All the benefits should be quantified in money terms and added in a payback period or return on investment framework. Company top management wants to see the payback period and a cost-benefit analysis. The purpose of this report or presentation is to present a clear picture of the investment necessary and profit expected that will enable the top management to make the correct decision on optimization project implementation.

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