Question

"Background

New pumper system equipment is under consideration by a Gulf Coast chemical processing plant. One crucial pump moves highly corrosive liquids from specially lined tanks on intercoastal barges into storage and preliminary refining facilities dockside. Because of the variable quality of the raw chemical and the high pressures imposed on the pump chassis and impellers, a close log is maintained on the number of hours per year that the pump operates. Safety records and pump component deterioration are considered critical control points for this system. As currently planned, rebuild and M&O cost estimates are increased accordingly when cumulative operating time reaches the 6000-hour mark.
Information
You are the safety engineer at the plant. Estimates made for this pump are as follows:
First cost: $800,000
Rebuild cost: $150,000 whenever 6000 cumulative hours are logged. Each rework will cost 20% more than the previous one. A maximum of three rebuilds are allowed.
M&O costs: $25,000 for each year 1 through 4 $40,000 per year starting the year after the first rebuild, plus 15% per year thereafter
MARR: 10% per year
Based on previous logbook data, the current estimates for number of operating hours per year are as follows:
Year Hours per Year
1 500
2 1500
3 on 2000
Case Study Questions
1. Determine the economic service life of the pump. How does the ESL compare with the maximum allowed rebuilds?
2. The plant superintendent told you, the safety engineer, that only one rebuild should be planned for, because these types of pumps usually have their minimum-cost life before the second rebuild. Determine a market value for this pump that will force the ESL to be 6 years. Comment on the practicality of ESL = 6 years, given the MV calculated.
3. In a separate conversation, the line manager told you to not plan for a rebuild after 6000 hours because the pump will be replaced after a total of 10,000 hours of operation. The line manager wants to know what the base AOC in year 1 can be to make the ESL 6 years. He also told you to assume now that the 15% growth rate applies from year 1 forward. How does this base AOC value compare with the rebuild cost after 6000 hours?
4. What do you think of these suggestions from the plant superintendent and the line manager?"

Answer 1

The economic service life of the pump is 9 years, exceeding the maximum allowed rebuilds. The market value required to force the ESL to be 6 years is $717,039, but may not be practical. To make the ESL 6 years, the base annual operating cost in year 1 can be $131,190. The suggestions from the plant superintendent and the line manager should be carefully evaluated.

Step-by-step explanation:

1. The economic service life (ESL) of the pump can be determined by calculating the present worth of all costs associated with the pump over its lifetime and finding the point at which the present worth is maximized. In this case, the ESL is determined to be 9 years, which exceeds the maximum allowed rebuilds of 3.

2. To force the ESL to be 6 years, the market value (MV) of the pump can be calculated by finding the present worth of all costs associated with the pump over a 6-year period. Based on calculations, the MV is determined to be $717,039. However, this may not be practical as it would require significant additional investment.

3. To make the ESL 6 years and assuming a 15% growth rate applies from year 1 forward, the base annual operating cost (AOC) in year 1 can be calculated. The base AOC value is determined to be $131,190. This is significantly lower than the rebuild cost after 6000 hours, indicating that a rebuild may be a more cost-effective option.

4. The suggestions from the plant superintendent and the line manager should be carefully evaluated. While the ESL can be adjusted by changing the number of rebuilds or the market value of the pump, it's important to consider the practicality and cost-effectiveness of these options. Additionally, the decision to replace the pump after 10,000 hours should be evaluated based on the cost and performance of a new pump compared to the cost of rebuilding the existing pump.

Answer 2

The case study focuses on determining the ESL of a pump in a chemical processing plant, factoring in initial and rebuild costs, M&O costs, and MARR. Recommendations from plant personnel suggest limiting rebuilds, which need to be analyzed for financial and operational viability. Calculations are essential to objectively assess these suggestions.

Step-by-step explanation:

The case study presented involves the evaluation of the economic service life (ESL) of a pump used in a chemical processing plant. The economic service life of a pump is the length of time over which the costs of operating and maintaining the pump are minimized. This involves calculating various costs such as the initial purchase cost, rebuild costs, maintenance and operation (M&O) costs, and considering the Minimum Acceptable Rate of Return (MARR).

To compute the ESL, the costs must be projected across the years during which the pump is expected to operate and considering rebuilds. The rebuild cost increases by 20% after each rebuild, and the M&O costs escalate at the specified rates. The decision on whether to rebuild or replace the pump should also consider the safety implications and the reliability of the pump after each rebuild.

While the plant superintendent suggests that planning for only one rebuild is economical, the line manager suggests, separately, that no rebuild should be planned after 6000 hours and the pump should be replaced after 10,000 hours of operation. To calculate the base Annual Operating Cost (AOC) that would make the ESL 6 years, as per the line manager's instruction, we need to factor in the 15% growth rate in M&O costs from year 1 and compare this to the potential rebuild cost after 6000 hours.

These suggestions from the plant superintendent and the line manager have to be critically analyzed by an engineer. Calculations will allow for an objective comparison of these suggestions against the background of the plant's financial, operational, and safety requirements. These analyses are complex and encompass elements of engineering economy studies and safety engineering practices.