Process Economy — Full Theoretical Summary

This lecture is essentially about one big question:

“Can the process actually make economic sense?”

A process may work perfectly in the lab, but if it is too expensive to build or operate, it may never be used in industry.

This is where process economy comes in.

1) CAPEX and OPEX — The Core Economic Idea

This is the foundation of the entire lecture.

CAPEX = Capital Expenditure

This is the upfront investment cost.

Think of this as the money needed to build the process before it starts operating.

Examples:

• tanks
• pumps
• valves
• membranes
• buildings
• installation
• instrumentation
• engineering work

In short:

CAPEX = money spent once to establish the system

OPEX = Operating Expenditure

This is the ongoing running cost.

These are costs that continue during operation.

Examples:

• electricity
• water
• chemicals
• labor
• maintenance
• cleaning agents
• waste disposal

So:

CAPEX = build costOPEX = running cost

This distinction is extremely important in industry.

Sometimes a system with high CAPEX may still be attractive if it greatly reduces OPEX.

2) The Main Economic Requirement

The lecture states:

expenses should be lower than the value of the product

This is the absolute minimum requirement.

Mathematically:

Revenue > CAPEX + OPEX

Otherwise the process loses money.

This is why economic evaluation is just as important as technical design.

3) Payback Time

This is one of the most important industrial metrics.

Payback time tells you:

How long before the investment has paid for itself?

Formula:

\text{Payback time} = \frac{\text{CAPEX}}{\text{Annual net savings}}

Where:

\text{Annual net savings} = \text{gross savings} - \text{annual OPEX}

Slide Question Answer — Water Reuse System

Given:

• CAPEX = 1,000,000 kr
• savings = 250,000 kr/year
• OPEX = 50,000 kr/year

Net annual savings:

250000 - 50000 = 200000

Payback time:

\frac{1000000}{200000}=5

Answer:

5 years

A 2-year payback is considered very good.

So 5 years is acceptable in some sectors, but less attractive.

4) ISBL and OSBL

This is a very industrial engineering concept.

ISBL = Inside Battery Limits

This means the core process equipment.

Everything directly involved in the production process.

Examples:

• pumps
• vessels
• filters
• pipes
• reactors
• valves

This is basically the plant package itself

OSBL = Outside Battery Limits

This means the surrounding infrastructure.

Examples:

• offices
• laboratories
• roads
• utilities
• cooling systems
• wastewater handling

So:

ISBL = process coreOSBL = surrounding support system

Installed Capital

The slide says:

ISBL + OSBL

This gives the fixed capital expense

This is often what industry means by total installed plant cost.

5) Engineering, Construction, Working Capital, Contingency

These are often forgotten by students.

But in industry they are huge.

Engineering & Construction

Even if the equipment itself is cheap, the engineering may be expensive.

Examples:

• drawings
• process simulation
• safety analysis
• labor
• construction work

Sometimes these costs do not scale linearly.

This is important.

A plant that is twice as large is often not twice as expensive.

This leads into the six-tenths rule later.

Working Capital

This means the money needed to start the process

Examples:

• first raw material batch
• salaries
• utilities
• initial inventory

This is money tied up before profit starts.

Contingency

This is a buffer.

Typically around 10%

This covers:

• uncertainty
• price fluctuations
• design changes
• unforeseen problems

This is extremely realistic.

No industrial project ever goes exactly as planned.

6) Project Cycle

This slide is very important conceptually.

The stages are:

• design concept
• detailed design
• procurement
• construction
• startup

The cost increases drastically as the project progresses.

The key lesson is:

mistakes become more expensive later

A bad decision in the concept phase may become extremely costly during construction.

This is why early design is so important.

7) CAPEX Estimation Methods

This is one of the most important theoretical sections.

Class 5 — Guesstimate

Very rough estimate.

Based on comparison with known systems.

Useful in early design.

High uncertainty.

Class 1 — Detailed Estimate

Very detailed.

Price every single component.

Examples:

• material prices
• labor hours
• pipe length
• electricity installation
• control system

This is much more precise.

But still difficult because of:

• inflation
• labor uncertainty
• unknown delays
• changing prices

8) Why Accurate CAPEX Matters

This is extremely practical.

The lecture uses the example of a tender.

A tender must be:

• profitable
• competitive
• realistic

If estimated too high → lose contract

If estimated too low → lose money

This is why cost estimation is a strategic skill.

9) Exponential Estimate — Six-Tenths Rule

Very important engineering economics principle.

The slide gives:

n=0.6

This means cost scales as:

C_2 = C_1 \left(\frac{Q_2}{Q_1}\right)^{0.6}

Where Q is capacity.

This means:

doubling capacity does NOT double cost

This is called economy of scale

Why?

Because many costs do not scale proportionally.

Example: A bigger tank needs more steel, but not twice as much steel for twice the volume.

This is why large-scale production is often cheaper per kg product.

Very important industrial concept.

10) Bridgewater’s Method

This estimates cost from:

• capacity
• number of process steps

The slide asks a good question:

should all steps be weighted equally?

Excellent critical thinking point.

The answer is:

No

Some steps are much more expensive.

Example:

• filtration vs reactor vessel
• chromatography vs simple pumping

Different unit operations have very different costs.

11) Reverse Engineering CAPEX

This slide reverses the thinking.

Instead of asking:

what does it cost?

It asks:

what can we afford?

Very smart industrial logic.

12) Slide Question — PFAS Sludge Removal

Current cost:

2 \text{ million DKK/year}

New cost:

30 \text{ million DKK/year}

Extra cost:

30-2=28

Answer:

The system may cost up to 28 million DKK per year in avoided disposal costs and still break even operationally.

If using a 2-year payback target:

28 \times 2 = 56

Then roughly:

Acceptable CAPEX ≈ 56 million DKK

This is likely the intended economic reasoning.

13) Factorial Method — Lang Factor

Very important method.

Instead of pricing everything in detail:

1. sum main equipment cost
2. multiply by factor

\text{Total CAPEX} = \text{equipment cost} \times \text{Lang factor}

This factor accounts for:

• piping
• installation
• engineering
• electrical systems
• instrumentation

Very widely used for fast estimates.

14) Material Correction Factors

Different materials cost different amounts.

Example:

• stainless steel
• glass-lined reactor
• corrosion-resistant alloy

This is very important in biotech and wastewater systems.

A membrane system using corrosion-resistant materials may be much more expensive.

15) Time and Place

Excellent industrial realism slide.

Costs depend on:

Inflation

Prices change over time.

A design from 2020 cannot be directly compared to 2026 prices.

Location

Labor and material costs vary by country.

A plant in Denmark may cost much more than in another region.

16) OPEX — Production Costs

This is the running cost section.

Variable Costs

Depend on production volume.

Examples:

• raw materials
• water
• gas
• electricity
• chemicals
• cleaning agents

More production → higher variable cost

Fixed Costs

Independent of production volume.

Examples:

• salaries
• management
• maintenance

The slide mentions maintenance often being:

3–5% \text{ of CAPEX}

Very important rule of thumb.

17) MBR Wastewater OPEX

Very practical example.

Major OPEX drivers:

• membrane replacement
• aeration electricity
• pumping electricity
• cleaning chemicals
• maintenance
• labor

This is classic process economics.

18) Normalization

Very important theoretical concept.

Never compare raw cost alone.

Instead normalize by output:

\text{DKK/kg product}

or

\text{DKK/m}^3

This allows fair comparison across scale.

19) Price Development Over Time

Very important industry concept.

New technologies are expensive initially.

Later they become cheaper due to:

• scale-up
• better manufacturing
• learning effects
• process optimization

This is the classic learning curve

20) Biotech Cost Driver

Very important sentence:

downstream processing = 50–90%

This is extremely true in biotech.

Purification is often the biggest cost.

Even small yield improvements can drastically lower price.

This is highly exam-relevant.

21) Byproduct Handling

This is about process integration.

A byproduct can be:

• waste
• valuable co-product
• recyclable stream

Handling it well can improve economics significantly.

22) Slide Question — Sludge Dry Matter

Current dry matter:

25%

New:

26%

Savings scale with reduction in wet mass.

Wet mass ratio:

\frac{1/0.26}{1/0.25}=\frac{0.25}{0.26}=0.9615

Reduction:

1-0.9615=0.0385

So approx:

3.85%

Savings:

2000000 \times 0.0385 = 76923

Answer:

Approximately 77,000 DKK/year saved

This is a really good practical engineering economy calculation.

Big Picture Takeaway

This lecture teaches that process design is not only about technical feasibility.

It is about balancing:

• performance
• CAPEX
• OPEX
• payback
• scalability
• market competitiveness

This is the real bridge between laboratory science and industrial engineering.