Hahn Group Publications & Papers

Title:

The Design Benefit Method: A Framework for Allocating Joint Costs among Joint Products


Abstract:

Natural gas plants can have multiple owners for raw natural gas streams and processing facilities as well as for multiple products. In addition, the plants process the products jointly in various units. Therefore, a causal cost allocation method would be beneficial. However, cost allocation methods most often used in accounting, such as the sales value method and the physical units method may produce unacceptable or even illogical results when applied to natural gas processes.
Wright and Hall have proposed a new approach, the design benefit method (DBM), based upon engineering principles, and Wright et al. have illustrated the potential of the DBM for causal cost allocation in natural gas processes by applying it to a natural gas plants. This work presents an implementation technique for DBM. Additionally, we investigate a cost allocation framework composed of determination of virtual flows, an equipment modeling code, and the evaluation of cost allocation for applying the design benefit method to other scenarios, particularly those found in the petroleum and gas industries. Implementing these individual procedures on a computer system produces a software package incorporating the framework that makes it applicable to large-scale processes.


Reference:

W.H. Jang, J. Hahn, and K.R. Hall. The Design Benefit Method: A Framework for Allocating Joint Costs among Joint Products. Hydrocarbon Processing, January, (2006)