Project Risk and Cost Management
Diamond Chemicals PLC (A): The Merseyside Project
Group Members: Divya Yadav, Lamia Nafees, Ashwin Chadaga, Deeshanu Sharma
This summary report provides an analysis and estimation of capital budgeting proposed that is being proposed to the Senior Management in Diamond Chemicals. The goal of this project was to save energy, improve process flow and product outputs of the Diamond Chemical Merseyside factory.
Diamonds Chemicals, a major competitor in the worldwide chemical industry and a leader in the producer of polypropylene. Lucy Morris, the plant manager estimated £9 million project expenditure to renovate and rationalize the polypropylene production line at the Merseyside Plant in order to make up for deferred maintenance and exploit opportunities to achieve increased production efficiency. The Merseyside plant was constructed in 1967. Diamond Chemicals produced polypropylene at two sites, Merseyside and in Rotterdam, Holland. The company was a supplier to customers based in Europe and in the Middle East. In order for the project to take place the entire polymerization line would need to be closed for 45 days, however, and because the Rotterdam plant was operating near capacity, Merseyside’s customers would buy from competitors. Frank Greystock, the controller at Diamond Chemicals believed that the loss of customers would just be temporary. As a result, the benefits would consist of lower energy requirement as well as a 7 percent greater manufacturing throughput. In addition, the project was expected to improve gross margin (before depreciation and energy savings) from 11.5 percent to 12.5 percent. Currently, Merseyside produces 250,000 metric tons of polypropylene pellets a year. The price of polypropylene averaged £541 per ton for Diamond Chemicals’ product mix. The tax rate required in capital-expenditure...