The Formation of Pioneer Plant Projects in Chemical Processing Firms
The purpose of this study is to determine and detail the process, mechanisms, and information that firms use in estimating costs, performance, and risk of innovative plants. The focus of the study is on project formation; the process of bringing a technical idea through R&D to the executive decision to proceed to project definition. The Note discusses the process and techniques a sample of firms in the chemical processing industry use to ensure accurate, complete estimates and information in their project formulation for innovative process plants. The focus is on the estimates and project proposals generated prior to project definitions. The findings are based on conversations with representatives of ten chemical/petrochemical firms. The study examined how firms were adapting to past estimation error and ways they sought to improve estimation accuracy. It was found that firms, even those with large assets, did not use sophisticated, highly technical analytic methods to arrive at estimates of project cost, performance, and technical risk.