Gross Margin & Preliminary Economic Evaluation

  • Step 1: Gross Margin Analysis (The Economic Potential EP1):
    1. Establish Stoichiometric Mass Balance
    2. Calculate Raw Material Cost vs. Product Value
      Gross Margin (EP1)
      = Sum (Mass of Products x Price of Products)
      - Sum (Mass of Raw Materials x Price of Raw Materials)
      Note: Ensure use of current, localised market prices
  • Step 2: Preliminary Operating Costs (OPEX) Estimation:
    Use Economic Potential 2 (EP2) shortcut framework
    • Utilities
      Typically 10% to 30% of raw material costs
      For highly endothermic / heavy distillation processes, lean toward 30%
    • Operating Manpower
    • Catalyst replacement
    • Periodic Process Licence fees
    • Maintenance & Overheads
  • Step 3: Capital Cost Estimation (CAPEX):
    Estimate ISBL capital cost without sizing equipment
    1. Functional Unit Approach
    2. Power Law (6/10ths Rule) for Known Pathways
    Estimate Balance of Plant capital cost
  • Step 4: Building Preliminary Cash Flow Model:
    Plug CAPEX and OPEX into simplified DCF spreadsheet
    State assumptions used to evaluate financial viability
    Financial Metrics

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