PositionPaper4Feb01

CLIFFTENT Inc.: Process Control, Optimization, Scheduling, Performance
Dr. Pierre R. Latour, PE Consulting Chemical Engineer
CIM BUSINESS POSITION PAPER 04 Feb 2001
1. BUSINESS TYPE. Products/tools/services vs. Solutions
Examples. Grocery store vs. restaurant. Lumberyard vs. homebuilder vs. realtor.
Brain surgery tools – scalpel, suture, scissors, knife, saw vs. brain surgery.
Conclusion. Select & know customer. Sell products to VARs and solutions to
solution seekers. Avoid selling products to solution seekers and solutions to VAR.
Avoid big commercial disconnects.
2. OFFER. Products best sold on features and price. Low cost competitive bid to
Specs/requirements. Solutions best sold on performance, value, and uniqueness.
Examples. Never obtain anniversary - dining experience, college education,
automobile or surgeon by low cost competitive bid to specs.
Conclusion. Sell products on cost plus required profit; sell solutions based on
value. Technology solutions should be licensed on agreed % of value added,
benefit or profit. The solution supplier should offer an expected profit stream to
customer for duration of use.
3. VALUE. Study perception of value and methods for its creation and maintenance.
People appreciate/treasure/value what they had and lost. Examples. Tire. Pinky.
Drug/cigarette, lost daughter, refinery SDM.
Conclusion. Dale Carnegie teaches “Create and Eager Want”. Denial of a habit
creates eager want. Wealth is created - value is added - at the interface between
two people or corporations, depending on how they act, treat each other.
4. RISK. Mitigate risk with science, experience, know-how, history, modeling,
experiments, education, and technology. Knowledge is the mirror image of risk.
What appears risky to the uninitiated is routine to the knowledgeable.
Conclusion. Risk should be aligned with knowledge. Experienced supplier should
assume commercial risk commensurate with his knowledge if potential reward is
commensurate; inexperienced customer should assume his commensurate risk and
reward.
5. MEASURE PERFORMANCE. People are inspired when sports and business are
conducted competitively with clear rules and an agreed method of scoring –
measuring & valuing behavior and results.
Examples. Football 6 points, baseball foul and “a run”, Olympics long jump,
elections, stock market. Measure of business success is money. It is steady stock
value growth related to steady profit growth. This is true worldwide, for a long
time. Consensus is growing.
Conclusion. Spectators, investors, stakeholders, partners insist on agreed rules,
scoring, performance measures, profit growth goals.
810 HERDSMAN DR, HOUSTON, TEXAS USA 77079-4203; Tel & Fax: 281-679-6709; SR2@msn.com

6. FINANCIAL VALUE OF DYNAMIC PERFORMANCE. Many agree that
smoothness, steadiness, low volatility, low variance or predictability of response
variables of interest to people is good, valuable, worthwhile. But we quantify it on
an incomplete ad hoc basis. Traditionally, reduced variance is deemed to have no
quantifiable tangible benefit (it is intangible) but it is a necessary requisite for
moving the average closer to its more profitable limit, generating an ad hoc
steady-state benefit. Such linear thinking leads to claims for reduced energy
consumption, higher yields, higher capacity, lower costs, which invariably do not
occur in isolation under proper scrutiny. There is no rigorous mathematical
modeling procedure for measuring financial value from improved dynamic
performance of systems (until CLIFFTENT (1, 2)).
Examples. There is no rigorous method for determining value of process control,
improved quality control (Deming, Juran), optimization, scheduling, integration,
IT, CIM, GE six sigma quality initiatives (3).
Conclusion. Before CIM solutions can be licensed based on performance, the
proper method for measuring financial value of improved dynamic systems
performance must be developed, agreed to and used.
7. SET LIMITS RIGHT. Setting limits, specs, targets and tolerances for products,
processes and operations of all kinds is done on an incomplete ad hoc basis by
teams attempting to optimize tradeoffs with risk management. There is no
rigorous mathematical modeling procedure for measuring the financial
consequences of inexact limit setting (until CLIFFTENT). The tradeoffs
naturally connect dissimilar phenomena at the connection of the plant with its
surroundings, where it creates wealth.
Examples. Setting auto speed target in neighborhood of limit, product quality
targets within specs, sulfur blend operation targets for LSFO, sulfur and O2
content in US RFG, equipment pressure/temperature/velocity limits, FCC slide
valve DP, compressor RPM at surge, coker drum outage, oil refinery planning LP
constraints, crude unit naphtha - kerosene cut point in Japan, crude oil charge rate.
Conclusion. There is more profit potential from setting planning LP, process
optimizer and operator limits optimally than from rigorous modeling of interior
plant relationships. The latter allow selection of the proper constraint corner while
the former position the corner in the profit space.

8. CV VALUE PROPOSITION. Controlled Variables and Key Performance
Indicators are physically measured or derived dependent response variables that
represent important characteristics of the plant and business. We wish to control
them or call them “key” because they influence value. The CLIFFTENT
function was specifically defined as the value proposition assigned to each CV
and KPI. It is the unit profit rate as a function of the CV/KPI average or mean,
assuming perfect steady state control, i.e. zero variance. This function always
represents a tradeoff (otherwise the best CV is +- infinity), with a tent shape
peaking at a limit and declining to left and right with different slopes. It may have
a discontinuous cliff penalty at the limit and nonlinear curvature downwards in
either direction. It may have slope breakpoints as different phenomena come into
play. Slopes change as economic factors change.
Examples. Inventory, staff size, production rate, product quality, process yield,
utilities consumption, operating conditions, auto speed, product selling price,
maintenance frequency.
Conclusion. Just as every restaurant menu provides price as a function of meal
content as basis for decision, just as every grocery store provides value
information as function of product amount and quality as a basis of decision, so
should every candidate CV/KPI be assigned a CLIFFTENT of its financial
consequences.
9. RISK MANAGEMENT. Statistical frequency distribution functions are a useful
method for quantifying the nature of uncertainty forecasts. Analysis of historical
distributions of event results is a proven method for estimating future
distributions in order to better manage risks. Arbitrary frequency distribution
functions are one of the two basic inputs to the CLIFFTENT analysis of
performance. Valuable CIM systems for control and management inevitably
reduce variability and uncertainty of dependent CV’s & KPI’s.
Examples. Dynamic process control and CIM are basic technologies for risk
management.
Conclusion. Deploying CLIFFTENT allows process control, IT and CIM to
directly provide measurable risk management profits.
10. BUSINESS MODELING. Process models from chemistry, physics and
engineering should be connected to the plant value chain money model. The
organization, business and process models should be properly interfaced with
models of their surroundings: maintenance, customers. suppliers, environment,
investors, neighbors and governments. The connections to surroundings are
critical to measure the value added as perceived by all stakeholders. That is where
the wealth will be created. There is no rigorous mathematical modeling procedure
for financially interfacing process and business models to their surroundings
(until CLIFFTENT).

Conclusion. Widespread use of CLIFFTENT to model the profit potential and
achievement created at commercial interfaces is critical to performance
measurement of systems.
11. INTERMEDIATE STREAM TRANSFER PRICING. The HPI continues to suffer
from lack of a rigorous method for determining intermediate stream volume,
quality and delivery financial values (prices). Further it is not able to analyze
individual process steps for profitability contribution. Utility systems are
considered cost centers rather that the profit centers they actually are. It cannot
value recycle streams well. It cannot make good decisions on make/buy/sell for
these streams. It cannot make sound shutdown/startup/bypass decisions.
Examples. Crude unit profitability, value of olefin plant H2 to refinery, value of
reformate to mogas blending, steam boiler profit contribution, sulfur plant profit,
sour water stripper profit, price of atmospheric emissions.
Conclusion. Optimization theory provides well-known methods for calculating
Intermediate transfer prices from properly stated objective functions. Since the
HPI has been limited to LP for operations planning, it lacks the proper tools for
this important deficiency. Integration of CLIFFTENT and nonlinear plant wide
optimizers will greatly improve the accuracy of intermediate stream values.
12. OUTSOURCING. Since automation technology and business for CIM has
matured to a distinct business since the 1960’s that is fundamentally different
from manufacturing fuels and chemicals, there is a strong profit opportunity for
opcos and competent CIM solution providers to establish enduring outsourcing
partnerships.
Examples. Much maintenance and upgrading of hardware and software can be
done by a mix of supplier onsite staff and internet/intranet connections between
opco and supplier computers. CIM professionals’ careers often thrive better in
technology suppliers working for many opco plants rather than being limited to
one plant or one opco.
13. COMMERCIAL SOLUTIONS PRACTICE. HPI operating companies should
encourage their CIM solution providers to adopt a business mission to “Identify,
Capture & Sustain significant economic benefits for both by profitably deploying
current and future technology”. The marketing strategy paradigm shifts from
selling product features (with its associated sales staffs and advertising) to
promoting financial performance (4). The objective becomes to maximize the
expected value of profit NPV(30 yr, 10%) and profit rate annual growth for the
opco. The proper (= optimum) % split of benefit or profit (= benefit - cost)
between opco and such a supplier exists to maximize this goal. Shared risk –
shared reward (SR2) technology licensing provided profit sharing with
established SR2 business partnership teams to integrate business and
technology; incentives and performance. Profit growth opportunities for opco and
supplier are greatly increased with this SR2 method of technology licensing.

Example. If the supplier demands an excessive %, the opco expected value is not
optimized. If the opco demands an excessive %, particularly when the supplier
assumes his proper risk, the probability of sustained successful performance
decreases dramatically as the supplier financial strength deteriorates and the opco
expected value is also not optimized. In fact high CIM profits are commonly put
at great risk this way. Operating companies can guard against technology solution
providers running away and highly profitable systems falling into disuse if they
enter proper SR2 (shared risk – shared reward) licensing arrangements with
supplier partners for sustained mutual success, so both sides win. They must
understand the source of profits; the process/business performance improvement
created together, not from each other alone. But they can never achieve win – win
if they do not play the right game, with agreed rules and scorekeeping and the
optimum % split of the profits. Greeks developed the principles of SR2 for
commerce in 420 BC. Governments have employed income taxes worldwide to
take their “piece of the action”. Risk takers who add value deserve no less. Opco
and supplier can retain the right to terminate relationship (= divorce) in order to
inspire each to satisfy the other regularly, competitively.
Conclusion. Dr Pierre R Latour, Consulting Chemical Engineer at CLIFFTENT
Inc. can advise opcos and solution suppliers on how to measure the financial
value of CIM, how to establish SR2 license agreements and how to properly set
the % split to maximize opco expected value profit growth (4) so both sides have
fair high rewards.
14. POTENTIAL. Dr. Latour’s studies indicate the benefit of properly deployed CIM
solutions for refining crude oil to fuels worldwide exceeds 1 $/bbl crude (5, 6).
When extended to basic petrochemicals and gas processing it exceeds 2 $/bbl
crude. At 80 kkbpd crude refined world wide in 2000, this represents 80 - 160
kk$/da x 350 operating day/cal year = 28 - 56 billion $/yr. Dr Latour believes the
cost to capture by SR2 arrangements is 20 - 30% of the benefit, leaving 70 -
80% as before tax profit to be shared between solution providers and their
selected opco clients. That profit is 2 $ x 0.7 - 0.8 = 1.4 - 1.6 $/bbl crude x 80
kk$/day x 350 day/yr = 40 - 45 billion $/year. Current product oriented
commercial CIM practice may generate only 10% of that. The incentive to change
to performance-based SR2 solutions licensing using the rigorous CLIFFTENT
financial merit method is profound.
15. GALILEO ANALOGY. Latour feels his CIM business position is like Galileo’s
position that the Sun does not circle the Earth. The business community prefers to
sell CIM solutions and products with the faith theory that “technology is good”.
Nevertheless, Latour maintains measuring performance value and rewarding
performance and properly aligned risk, SR2, remain essential to lasting success.

References.
1. Latour, P.R., “Process control: CLIFFTENT shows it’s more profitable than expected”, Hydrocarbon Processing,
V75, n12, December 1996, pp. 75-80.
2. Latour, P.R., “CLIFFTENT: Determining Full Financial Benefit from Improved Dynamic Performance”, Paper
C01, Third International Conference on Foundations of Computer-Aided Process Operations, Snowbird, Utah, July 5 –
10, 1998. Proceedings published in AIChE Symposium Series No. 320, V94, 1998, p 297 – 302.
3. Clifford, Lee, “Why You Can Safely Ignore Six Sigma” FORTUNE, 22 Jan 2001, p. 140.
4. Latour, P.R., H P InControl Guest Columnist, Hydrocarbon Processing, “Does the HPI do its CIM business right?”
V76, n7, July 1997, pp. 15-16 and “Optimize the $19-billion CIMfuels profit split”, V77, n6, June 1998, pp. 17-18.
5. Latour, P.R., “CIMFUELS”, bi-monthly contributing editorial, FUEL Reformulation, September 1995 - Feb 98.
6. Latour, P.R., "Benefits of Modern Refinery Information Systems for Manufacturing Cleaner Fuels", API
Reformulated Fuels Conference, American Energy Week 1995, George R. Brown Convention Center, Houston, TX,
January 31, 1995.

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