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Business Development in project Pinexo at
Chalmers School of Entrepreneurship Development of tools for heat exchanger network designs in
order to reduce energy consumption in the process industry
Master of Science Thesis in Industrial Engineering and Management
Rawand Faraj
Department of Industrial Engineering and Management
Division of Management of Organizational Renewal and Entrepreneurship – MORE
CHALMERS UNIVERSITY OF TECHNOLOGY
Gothenburg, Sweden, 2013
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Executive Summary
Pinexo™ reduces energy consumption in the process industry
through optimizing heat exchanger networks.
Swedish industry alone consumes electricity worth more than SEK 6 billion annually. Industrial facilities
are continuously looking for cost saving measures, while consultants are actively looking for tools to offer
the best possible service for these customers. Pinexo™ solves both of these needs through offering a tool
that can quickly generate energy optimization suggestions complete with investment analysis.
A skilled team with diverse backgrounds and a senior Board lays good foundations for a successful start-up process, and the team has made sure to attract solid collaboration partners such as CIT Industriell
Energi AB and well-known customers for pilot studies. Financing has been received from Vinnova, Almi,
Göteborgs Energi and Encubator, which is a solid foundation for growth.
The main methodology behind the product, Pinch analysis, is well established from more than 25 years of
research, while the uniqueness in the Pinexo™ software are novel cost calculation algorithms and a user
friendly and intuitive interface. Competitors do not offer the same depth of investment calculations for the
energy optimization suggestions generated, nor do they have a product that is easy to use.
In Sweden, we are looking at a market that spent SEK 2.8 billion on IT services in 2011. Aiming at both
facilities in the process industry, for example paper/pulp mills and refineries, as well as the consultantsserving these, we have about 600 potential customer companies in Sweden. Our next market will be
Germany, whose process industry is the world’s largest and amounts to 13% of the global export.
A well-defined sales process with a competitive price of SEK 85.000/license/year will give us a positive
accumulated cash flow in 2017, assuming we reach our conservative estimate of 35 license customers by
that point. Working actively towards a profitable exit within five years, Pinexo offers a promising
opportunity for its shareholders.
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1 Introduction
Every year, Swedish industry spends more than SEK 6 billion on electricity alone1. As an example, the St1
oil refinery in Gothenburg consumed 2300 GWh of energy in 2011, of which 139 GWh was electricityamounting to 70 MSEK, and the rest stemmed from burning off about 5% of their input raw material2.
One way that the process industry (paper/pulp, petroleum, petrochemical, chemical, food and dairy) deals
with the enormous amounts of spill heat is to heat exchange. It is a simple process – one hot stream and
one cold stream placed closely together where they cool and heat each other respectively. This can
generate large energy savings since energy needed for heating or cooling can be partially or, in the optimal
cases, altogether eliminated. As long as you are looking at one hot and one cold stream it is fairly obvious
where to place the heat exchanger – however, as soon as the number of streams passes five of each kind,
the picture gets complicated. Up until now, industrial companies have been using benchmarking and past
experience to decide how to heat exchange. However, there is a better way to do this – in fact, an optimal
way.
There is a method developed to find the optimal energy scenario. This method is called Pinch and has
been developed at Manchester University and Chalmers University of Technology for the past 25 years –
but it has yet to see widespread diffusion in the process industry. This is mainly because it deals with
theoretically ideal situations that are not applicable for retrofit and rebuild situations – which is a far more
frequent event in industry – and also because several previous efforts to commercialize the method have
all become very academic and thus not easy enough to apply in a commercial setting.
By combining the Pinch method with the Matrix method, a method for taking into account multiple cost
parameters, and automating this analysis process, Pinexo™ has developed a powerful new tool for energy
optimization in process industry, presented on the following pages.
1.1 BackgroundPinexo™ is a commercialization project at Chalmers School of Entrepreneurship, class of 2013. The three
business developers received the idea and an initial version of the software from the process consultancy
firm TecNet Nordic AB, which in turn based their development work on research coming out of Chalmers
in the period 1995-2001. The project is supported by Encubator AB, Chalmers venture creation partner.
1.2 Vision and Mission
We enable a more sustainable process industry.
In order to reduce energy consumption in the process industry, Pinexo™ develops and
offers user-friendly tools and services to industrial plants and consultants.
1 Industrins Energianvändning 2011, Statistiska Centralbyrån2 Miljörapport 2011, St1 Refinery AB
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2 Idea
2.1 Need
The production industry is the most energy intensive sector in Sweden, accounting for roughly 25 % of thetotal energy consumption3. Within this sector, the heavy process industries such as pulp/paper, refineries
and metal production stand out as extremely energy intense with energy accounting for 12,5% of direct
production costs4. Rapidly increasing demands on profitability, stricter legislation and a growing focus on
environmental performance in the market put a large pressure on process industry companies to lower
energy consumption.
Well-established methodologies such as Pinch have proven to drastically lower energy consumption in
numerous installations for the past 40 years. However, these methodologies are often disregarded because
of their great complexity and resource requirements that lie outside of core operations. This means that
optimization projects with large potential savings in energy consumption and costs are left completely
unexplored.
2.2 OfferPinexo offers the first truly user-friendly tool for energy optimization in the process industry. The
software takes data from the facility and lets the user quickly generate suggestions on how to optimize or
rebuild the process in order to generate maximum potential savings in energy and costs. Through utilizing
an intuitive interface and novel algorithms for cost calculations the software can instantly generatedetailed suggestions complete with investment analysis that previously required weeks of work and expert
knowledge to perform.
3 Industrins Energianvändning 2011, Statistiska Centralbyrån4 Energimyndigheten, 2012
Energy intensive industry that
seeks to lower consumption
Methods for lowering
energy consumption
L a c k o f r e s o u r c e s a n d
k n o w l e d g e
Figure 1 - Identified barrier for fulfilling need of energy optimization
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2.3 Business ModelThe software will be sold as a user/year license to process industry plants and consultancy firms working
with energy optimization. By utilizing our network of experts within the field we can provide our
customers with all technical knowledge and services required to create a full energy optimization solutionfor the customer.
2.3.1 Alternative business models
During the initial work with securing partners for the proof of concept, a few items has become clear:
• Many plants will not be interested in leasing a software tool, as analyses are usually one-off
events (as proposed in our Risk Analysis in Chapter 7).
• Most customers, consultants and plants alike, will not have enough knowledge in-house to
perform the required data extraction nor evaluate the proposed solutions.
As such, we are in the process of evaluating alternative business models. A board decision has been made
to re-evaluate and make a decision upon these after we have secured proof of concept and as such have
even more knowledge about our customers.
Alternative 1: Pinexo™ as a niched consultancy
Pinexo™ will sell energy analysis of heat
exchanger network to plants and consultants, asa niched consultancy firm. Consultants will use
our expertize as part of a larger project with their
customers, while the plants might take us in to
look at a specific project in their own pre-study
phase. We will use the Pinexo tool as an internal
consultancy tool, enabling us to make good
Figure 2 - Business Model
Figure 3 - Alternative Business model 1
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margins on our services. We will either build up our own in-house expertize or secure an even closer
collaboration with our existing technical collaboration partner CIT Industriell Energi AB.
Alternative 2: Targeting Consultants with tool and educational packages
Another options is to offer the tool as proposed
in our current business model – however, we
will mainly target consultants operating (or
wanting to operate) within energy analysis and
optimization. Together with the tool we will
offer packaged educational services, enabling
the consultants to perform heat exchanger
network analyses themselves. This is an
especially interesting business model,
considering the intention of expanding globally. A global sales group is expensive to build, and throughtargeting consultancies that often already exists on the international arena we can utilize this network for
an expansion.
2.4 Competitive Advantage• Detailed and automated investment analysis – By utilizing a novel algorithm developed by
leading researchers, the software can take into account all costs related to performing the
suggested optimization. It automatically analyzes all possibilities to find a small number of
suggestions that are the most profitable and realistic to perform. The result can then be taken
directly to the detailed planning stage. Existing solutions can only take basic costs into account
and also requires the user to generate suggestions, which increases both time required and the risk
that optimal solutions might not even be uncovered.
• User-friendly – Where existing solutions are highly complex and require knowledge in both base
technology and the specific software, Pinexo is so simple and intuitive that no education or prior
experience is required besides knowledge of the production process. This drastically lowers costs
for education and reduces implementation time.
• Accessible and secure – Being a web-based cloud software, Pinexo ensures that the user always
has the latest version and completely eliminates resource requirements for installation, updates
and decommissioning. High level of data security through automated back-ups and bank-level
encryption ensures our customers data is kept secret and securely backed up.
3 Organization
3.1 CompanyPinexo was created in collaboration between Chalmers and TecNet Nordic AB in mid 2012 and is
currently being developed within Chalmers’ venture creation partner company, Encubator AB. The
Figure 4 - Alternative Business model 2
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venture creation project is located at Encubator’s office space in Gothenburg and is being managed by 3
business developers as a master thesis project for their education in Business design and Entrepreneurship.
3.2 Business Team
The three business developers in the Pinexo business team each add a diversity of skills to the project andhandle all day-to-day activities. The team members contribute with consultancy and start-up experience
from, among others, IT-projects in Silicon Valley, technical consultancy, product development and
innovation processes.
3.3 Technical TeamIn addition to the business team we have a team of software developers based in Moldavia, FusionWorks,
working on the software development on a consultancy basis. In addition to FusionWorks, we also have
two consultants that are working on usability and user interface programming. Furthermore, we recently
broadened the team with a technical developer, Amin Mehdipoor. Amin works full-time with the R&D
development and technical aspects in customer projects. All members of the technical team have solid
working experience in their field and work closely together with the business team to develop the product.
3.4 BoardThe board consists of interim chairman Jan E Liljeqvist, representing Encubator AB, and Göte Nordmark
from TecNet Nordic AB. Jan has over 30 years of experience from working with strategy and business
development in companies such as Ford and Boeing. Göte has a deep insight of the process industry from
large corporations and also as CEO and co-founder of the technical consultancy firm TecNet Nordic AB.
Pinexo is currently searching for a chairman of the board with strong experience from the process industry
and suitable leadership profile to develop the venture further.
3.5 Ownership StructurePinexo is a venture creation project within Encubator’s incubation model. Encubator AB and the idea
provider TecNet Nordic AB own a large part of the shares respectively. The business developers own asmaller portion of the shares but will retain a larger portion if they stay on the project after the summer
2013. Ownership in the limited liability company to be created is thoroughly regulated in a contract
between the parties mentioned above.
3.6 Collaboration PartnersPinexo’s main collaboration partners are pilot customers in the process industry, governmental financing
agencies in Sweden and leading researchers at Chalmers.
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In December 2012 Pinexo established a collaboration with CIT Industriell Energi AB, managed by one of
the world’s leading experts within Pinch analysis. CEO Per-Åke Franck acts as technical advisor for
Pinexo, which adds additional technical insight to the project and also substantially increases credibility.
Arla Foods, BIM Kemi and ABB are the leading development partners to Pinexo and one pilot project hasbeen initiated in Q2 2013. These development partners and test projects will provide Pinexo proof of
concept, deep market/customer insights and create an initial foothold on the market.
Pinexo has received grant financing from Vinnova, Almi and DinEl, which has secured the projects
expenses up until Q3 2012. Pinexo has also established collaborations with Innovationskontor Väst and
Innovationsbron for soft funding at a later stage.
For a detailed list of Pinexo’s collaboration partners, see Appendix 2.
4 Technology
Process industry plants need to run their processes atdifferent temperatures at different stages. Where the
processes need to be cooled, water or air is put into the
system and when heating is needed steam or hot water is
applied. Both these utilities are costly and thus the aim is to
minimize their use by running more efficient processes. Heat
exchangers are placed where two streams can transfer heat
so that target temperatures can be reached and external
heat/cooling sources can be eliminated. The benefits of heat
exchange are reduced energy consumption, less waste of
heat, minimized costs, lower dependence on fossil fuels, less
components and less emissions.
However, when the process requires 5 or more heat exchangers, the efficiency and cost becomes greatly
dependent on the configuration of the system and optimized layouts are difficult to calculate. Since most
industrial plants contain more than 5 heat exchangers the optimization process is a frequent challenge.
4.1 Pinch AnalysisPinexo™ is developed in close collaboration with professors and engineers and is based on the well-
proven methodology Pinch analysis. Pinch was developed during the 1970s at ETH Zürich and University
of Manchester and is a systematic methodology based on thermodynamic principles used for energy
savings in industrial sites. By analyzing all hot and cold streams in an industrial site Pinch analyzes the
current energy usage and identifies appropriate changes in the placement of heat exchangers so that energycan be saved. The method has its largest use in suggesting new designs to be able to reach optimal energy
levels. Pinch technology has been developed and refined in the academia for 25 years and has shown to
reduce total energy costs with 10-35 %5, depending on industry.
5 Chalmers Industriell Energi AB, 2012
Figure 5 - Waste energy in proces industry
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The aim of a Pinch analysis is to find out which streams can be matched in other to reduce energy
demands by heat exchange. Below you can find the basic steps of the Pinch methodology, which the
Pinexo™ software builds on.
1. Collect stream data, such as heat capacity flow rate as well as start and end temperatures.
This enables a representation of the plant’s current design.
2. Plot the streams to calculate the so-called “Pinch temperature”, and split the system into two
subsystems at that specific temperature. This illustrates the current thermodynamic characteristics
of the whole system.
3. Line up the streams in each of the two subsystems and calculate their heat demand.
4. Combine hot and cold streams were heat exchange is possible.The input for a Pinch analysis is the thermal data for the streams of an industrial site, such as heat capacity
flow rate as well as start and end temperatures. Streams are then divided into hot or cold streams,
depending on the increase or decrease of temperature, and their energy demands are identified. By
splitting the system at a specific optimal temperature, the pinch temperature, the streams’ suitability for
exchanging heat is identified and calculated. The two new systems, above and below the pinch, makes it
possible to identify the optimal internal heat exchange and calculate the minimum amount of external
1 2
3 4
Figure 6 - The basic functionality of a Pinch analysis
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heating or cooling that needs to be provided to the system. The comparison between the new optimized
design scenario and the current energy usage provides the quantity of energy saved, which compared to
the costs of the reconstructing conveys the net profit of the investment.
There is a lot of research going on in the field of cost connected to pinch analysis on industrial sites. Themain problems are connected to the investments already made in the current facility and how to use the
current heat exchangers in the best way possible so costs can be minimized.
Pinexo™ is unique when it comes to cost calculations for reconstruction
designs, also called retrofit projects. The software handles reconstruction
situations of heat exchanger network designs based on the novel Matrix
method. The method, which is developed at Chalmers University of
Technology, identifies heat exchangers that are wasting energy and
systematically goes trough all the possible alternatives of costs to create a
better design and identifies the optimal solution for the current site.
The Matrix method goes trough every possible match between streams andcalculates the total costs needed for all alternatives, displayed in a matrix, seen to
the left. It then chooses the best match and calculates a new cost matrix for the
remaining alternatives, as the choice of one match affects the cost of the others.
The process is repeated until all the best possible matches are identified. By
doing it in this systematic process the optimization is able to prioritize solutions
with the highest potential savings and lowest total cost. Therefore the Matrix
method is unique in the degree it takes the current plants’ resources and related
costs into consideration and delivers the most cost-effective and accurate
optimization method for heat exchanger networks. This method is not available
in any software available today and is unique for Pinexo™.
4.2 Software SolutionUtilizing the methods described above, the Pinexo™ software can process data from a plant to generate
rebuild suggestions complete with cost calculations and economic data such as payback rates. It is focused
on user friendliness and simplicity while giving complete and accurate suggestions, taking into account all
major cost parameters. Data is extracted from the plant’s control system or simulators, adding missing
data when necessary, and uploaded to the Pinexo™ tool in an excel file.
The development of the current product can be said to have started with Pro_pi, a VBA excel add-on
written in 1995 by Per-Åke Franck, which was taken into the VBA excel program Matrix.xla a year later
by the same author together with Annika Carlsson. In 2001 the thesis worker Claes Andersson wrote an
automation routine for this program. Later he used this concept as the basis for a C# program called
HexaTec, developed as part of his work at TecNet. The code was ready in 2004, but no further efforts
were put into commercializing the product.
In 2012 the Pinexo™ team took over, and it was decided to do another rewrite of the software. A Java
Backend with a database structure, with an API towards a HTML5 UI was deemed more applicable for the
envisioned web application, concerning both the definite need for a new UI, the enhanced security aspects
of splitting up the backend/frontend, the current state of the code and the need for scalability of the
Figure 7 - The Matrix Method
Figure 8 - Effect of !Tmin
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product. The reprogramming of the backend and the development of a new UI took place winter
2012/early 2013 and while development work is ongoing, a solution ready for use and testing was released
on a commercial server February 2013.
In terms of functionality, the Pinexo software displays the energy savings in both energy amounts andmoney saved but also provides the user with suggested actions to make the implementations for reaching
the optimal energy level for the facility. The software includes costs on reconstructions and components
needed, which provides the user with a full analysis of the costs.
Pinexo™ can include the costs of: Heat exchanger area, Piping, Pressure drop, Type of heat exchangers,
Material requirements of heat exchangers, Space requirements and Maintenance. This detail level of
investment analysis in unsurpassed in any existing solution on the market.
4.3 Proof of ConceptAs this product has seen previous shapes through the years, several proofs of concept have already been
obtained – however, none that is directly applicable to the current software version.
Pro-pi and Matrix.xla have been tested and verified by both Master and PhD students in Sweden and
globally, both at a theoretic level and in practice in industry.
In 2004, as the original HexaTec software was finalized, a pilot test was performed at Södra Cell, a pulp
mill in Värö, Sweden. The pilot study showed promising results but due to lack of resources at the time
the project was put on ice.
Pilot Studies will be performed the summer of 2013 to obtain proof of concept and valuable customer
feedback for future development. The initial Pilot Studies will be performed with:
• Arla Jönköping – dairy plant, shipping 700.000 liters milk daily. The test project was initiated
early May 2013.• BIM Kemi, Stenkullen – specialty chemicals manufacturer. We have been granted access to their
plant when needed, and maintain a close relationship with them. When Arla is closing in on
completion we will focus on BIM.
An example of a pilot study plan can be found in Appendix 3.
4.4 Competing TechnologiesThe most widely used method for analyzing the heat exchanger network and identify better solutions
today is benchmarking towards existing plants. Access to other plants’ heat exchanger layout, system data
and energy situation gives a point of comparison and better layouts can be imitated. This method only
brings value to designing new plants, where a plant’s efficiency could be mimicked. As every plant isunique and the method doesn’t take current plants’ investments or facility- and process limitations into
consideration, it is not suitable for reconstructions of existing plants. Even in the new design situation the
method is inadequate as it only provides a relative analysis and don’t provide a full analysis that includes
the best theoretical solution possible.
A smaller portion of industrial firms has come further than the others in their energy efficiency efforts and
is working with Pinch. Process engineers that have studied or previously worked with Pinch technology
are able to analyze and optimize heat exchanger networks without any tools but are then limited to the
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number of heat exchangers, as the work quickly gets very complex. After 10 streams, corresponding to 5
heat exchangers, it is considered best to use software tools and after 20 streams (10 heat exchangers) it is
considered too complex for manual work. Another limitation is the time used for performing manual
Pinch analysis as it takes a fraction of the time if the process is automated.
A number of software providing optimized Pinch solutions are on the market today. They vary in the
degree of integration with other process software and the possibility to estimate reconstruction costs of
new and current plans. For more details, please see Chapter 5.3, Competitors.
4.5 Intellectual Property4.5.1 Current assets
Our most important intellectual property is our software. The older “HexaTec” software is not patentable,
as it has been shown publically destroying novelty and is also closely related to well-published academic
material. The current redevelopment of the software could be made patent claims to, and we will keep a
tight lid on the development and use NDA’s extensively – however, because it is still closely related to the
previous versions, obtaining a patent either in the US or Europe is still very unlikely. For the currentversion we are thus dependent on a black box solution, keeping our code and algorithms a trade secret.
This is enabled through offering the software as a web application as described in the business model. The
software will be built with back and front end (“where the magic happens” and the user interface) entirely
separated, communicating through an Application Programming Interface (API).
Our most prominent selling point is user-friendliness and intuitive software, and thus our brand will be an
important and necessary intellectual asset. We are already using a TM by our name to indicate our
intention to protect it. A solid graphic profile and communication strategy ensures that all exposure of the
brand is done in alignment with our core values.
The old software code will be transferred with incorporation per the collaboration agreement with TecNet.Whenever we engage external developers for product development we make sure that we transfer the
copyright of the code they are writing, this will be a necessity for all consultancy contracts. The TM and
domain belongs to Encubator and will be transferred to Pinexo™ upon incorporation, so there are no 3rd
parties that can make claims.
4.5.2 Intellectual Property Strategy
As new features and ideas are being developed continuously in the project, there is a potential for securing
more intellectual property rights besides of the copyright for the future. We have decided to continue
keeping a tight lid on our software so that we ensure novelty is not destroyed. We have initiated contact
with a well-reputed Gothenburg based IP lawyer and with the future development we will stay in close
touch with him to evaluate whether any of our inventions (one in particular) may be patentable in the US,Europe or both.
We are aware of that software patents do not give absolute protection. It is however important for us to
secure intellectual property rights besides the obvious copyright, as this may be of great importance for
potential investors in the future.
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5 Market
5.1 Market Segment
5.1.1 Initial MarketOur market is the production industry, and our main segment is the process industry. We will initially be
targeting process industry plants and the consultants offering energy optimization services to these, in
Sweden. Any plant that has more than 5 hot and 5 cold streams are applicable for an analysis using
Pinexo™. Sweden is chosen as launch market because of the geographical and cultural closeness to pilot
customers, high level of energy awareness within the process industry and closeness to leading base
research at Chalmers.
Based on the in-depth market study performed during spring 2013, indications have been identified
pointing to an initial target segment of niched small consultancy firms offering energy analysis to plants or
other consultancies. These small firms will have sufficient in-house capabilities to efficiently learn and use
the tool, they do not have as complicated purchasing processes as the large companies, and they are moreadaptive to new technology.
Targeting this segment awaits initial results from the proof-of-concept along with a board approval. The
next steps will be to perform targeted sales to confirm the results of the market study.
5.1.2 Next steps
When an initial customer base has been established in Sweden we will be looking towards Germany,
which is close geographically and culturally. By building up a customer base in Germany, global
applicability can be proven and a strong foundation for further global expansion is built.
5.2 Market ResearchThere are 350 process industry plants in Sweden with 20 or more
employees, and around 280 consultancy firms with 20 or more
employees serving these6. The number of employees is the best
quantitative variable that has been found in order to quantify the
potential market. It has been found so far to correlate roughly with
the company size required to be of interest for our software.
The Swedish Production Industry had a turnover of 470 billion
SEK in 2010, which amounted to 30% of all Swedish exports6. In
2006, the Swedish process industry spent on average 12,5% of
their direct production costs on energy7
. Another interesting fact isthat this industry spent 2.8 B SEK on IT services in 20116.
Continuous discussions and meetings are held with potential customers, researchers and industry experts
to ensure that project decisions are based on the most relevant market information. The feedback we
receive has been very positive. We have also experienced repeatedly that people in industry who knows
6 Statistiska Centralbyrån, 20127 Ökad konkurrenskraft for svensk processindustri, Kungl. Ingenjörsvetenskapsakademien (IVA), 2006
Figure 9 - IVA's rough estimation on direct costsfor plants in the process industry
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Pinch, usually former students from Heating Systems Engineering or Chemical Engineering at Chalmers,
say “I had that idea once. Had I not been in my current job I’d have worked on my own making a software
like this.”
Looking towards an international market, we initially intend to target Germany. The German Processindustry had revenues of ! 307 billion in 2011, amounting to 13% of the global market 8. It is also worth
noting that 61% of German energy consumption comes from gas, oil and coal8.
5.3 Competitors
Pinexo™ Super-Target AspenTech Hextran PinCHProSim
User-friendly IT " " No Pinch expert
required"
Cloud based " Integration with
simulation
software
" " "
Substantial cost
analysis"
Freestanding
software" "
Closeness to
academia" " "
Market focus Sweden Europe Global Asia Switzerland France
Price in SEK 85.000 229.500 224.000 Unknown 19.000 Unknown
As can be seen above, our closest competitors in the high-priced segment are SuperTarget and AspenTech,
which both forms part of a larger control system and requires installation of these to run. SuperTarget also
requires deep knowledge of Pinch.
Looking towards the less-functionalities and lower-priced end of the market, our main competitor is
PinCH, offering a low price license for a basic feature set. As this software too does not require
installation of a control system, these can be said to be our closest competitor. However, they are steadily
anchored in Switzerland, offering cost analysis only in Swiss Franc and with a no global marketing
efforts. The product also requires Pinch knowledge and lacks extensive cost analysis. By offering
significantly better functionality, building a strong brand and a utilizing strong marketing strategy we willbe able to compete well against this low-priced player.
8 Germany’s Chemical and Related Process Industry 2011, Germany Trade & Invest
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5.4 SubstitutesConsultants in the industry as well as larger plant corporations may have developed their own software for
energy optimization. A common way to do this is to benchmark the efficiency of one plant compared to
others. As every plant is different, and you do not know how energy efficient they are in the first place,this obviously does not give great results, and substantial rebuilds based on this are not common.
Another substitute is experience. However, in an industry where margins diminish and efficiency is key,
being able to quantify your decisions are more and more important, and this you cannot do with
experience.
A third important substitute is the obvious “not acting”. Plants can very well choose to improve their
production process without focusing on energy. With the steep increase in focus on global warming and
our common responsibility the past years, however, we see this trend declining – but some parts of the
industry are definitely more conservative and slow moving than others.
5.5 Value PotentialPinexo™ provides the customer with a smart tool for finding and initiating optimization projects that save
energy and costs. Pinexo provides analysis of the current energy situation as well as suggestions for future
heat exchanger network design with an optimal trade-off between energy savings and investment
equipment costs. By using Pinexo’s software the customer finds new cost effective designs that reduces
their energy costs whilst the prior investments in expensive equipment is taken into consideration. The
design proposals are delivered with an implementation guide for the reconstruction as displayed
investment costs, potential savings and payback-time of the project.
5.5.1 Process Industry Company
By using Pinexo’s intuitive and user-friendly tool process engineers can now identify new lucrative
redesigns in a time efficient manner, without investing time in learning the software. The redesigns aredelivered together with an economical analysis (where the energy savings, investments costs and the pay
back time is calculated) with an implementation guide for the reconstruction.
Main values provided by Pinexo™
• Enables in-house engineers to review energy optimization opportunities quickly and continuously
for all parts of the production process.
• Generates payback scenarios for all possible projects and pick the most profitable ones at every
investment opportunity.
• Generate optimization suggestions and investment analysis that lead to projects actually being
implemented instead of put on hold because of complexity.Successful reference projects
Pinexo is a new tool based on a well-established and tested methodology, Pinch. The method has been
used to generate substantial energy and capital savings in the process industry for hundred of new and
retrofit designs during the last 30 years. Following examples are successful projects:
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BillerudKorsnäs, Karlsberg Sweden
Type: Partly integrated pulp and paper mill
Summary: Elimination of steam users below pinch temperature by reconfiguration of
the heat exchanger network.Annual savings: 740 000 EUR/year
Payback time: 12 months
Preem Refinery, Gothenburg Sweden
Type: Crude oil refinery, retrofit project
Summary: Identification of internal heat recovery potential and energy savings trough
pre-heating of a number of streams.
Annual savings: 6 250 000 EUR/year
Payback time: 6 months
5.5.2 Technical Consultant
The technical consultancy firm serves several customers in Sweden and Europe with energy optimization
services. Currently, the energy group uses AspenTech licenses at 229.500 SEK/year and manual
calculations to perform energy optimization pre-studies and suggestions. These typically take 3 man-
weeks per project to perform.
Main values provided by Pinexo™
• Substantially reduces time required to perform analysis through automated calculations. This can
greatly increase profitability and free up time to work with other projects.
•
Enables continuous sharing of optimization suggestions to the customer and subsequentmodifications can be made to generate fully implementable suggestions.
• Can be used as a “sales tool”: when performing one type of service for a process industry
customer, already available data can be quickly uploaded to Pinexo™ in order reveal energy
optimization possibilities for the customer that can generate more service sales for the consultancy
firm.
Customer case example
The consultancy firm wins a project to perform energy optimization studies of the heat exchange system at
a pulp mill. With data available from the customer, consultants can quickly start generating optimization
suggestions that are continuously shown and discussed with the customer to capture all aspects of a
possible rebuild. A list of 5 different rebuild suggestions complete with investment analysis is deliveredon time to the customer, which chooses to continue detailed evaluation of two of them. Since the project is
charged at a fixed price and Pinexo™ eliminates a substantial amount of calculation time that was
previously required, the profitability of the project is greatly increased. At half of the price of an
AspenTech license, significantly higher value has been created for both the consultancy company and
their process industry customer.
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5.5.3 Societal Value
Apart from the values created for Pinexo’s customers, reducing energy consumption also creates
substantial societal value. This is accomplished by providing the customers with a tool that can reduce
energy consumption and thereby decrease pollution and emissions of greenhouse gases. By better usage of
the heat supplied to the processes the industry can reduce their demand of oil and gas and limit the
dependence of fossil fuels. Diffusion of Pinexo™ and similar tools can help companies, regions and
nations to meet stricter environmental legislation and help make energy and environmental issues a natural
part of corporate strategy and operations. Companies that find energy savings can distribute energy to the
district heating system. By providing the society with additional heat sources end consumers energy prices
can be lowered and stable during seasonal variations.
5.6 Sales StrategyBeing an early stage venture, sales is an integrated part of the development process. Current efforts are
focused at initiating collaborations with potential customers where customer learning can be directlytranslated into the software development process. Letters of intent are used a tool to set general frames for
the collaboration, and when detailed testing commences project documents are used to thoroughly specify
tasks, responsibilities and payments. The goal of each collaboration is to turn the development partner into
a paying customer upon completion of the first commercial version of the software.
The commercial sales strategy envisioned for Pinexo™ consists mainly of direct sales towards potential
customers, targeting plant managers, maintenance managers or process engineers. With a sales pitch
focused on reducing environmental impact, the aim is to visit the customer at their plant to find out further
about their needs and specific operations. If a good relationship can be established, the potential savings
by using Pinexo™ will be highlighted by using reference projects for similar customers. Through sales
work conducted so far, the following key findings have been made:
• It is important at all stages to learn about the customer and continuously adapt the communication
around Pinexo™ so that it matches the long-term strategy of the customer.
• Using joint R&D projects is a good way to earn acceptance at the early stages of development
where little or no proof-of-concept data can be shown.
Sales efforts can and will be accelerated through expansion of the sales force. Web marketing and fairs are
seen as strong complementary channels to generate sales and will be expanded continuously.
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5.7 Marketing Plan
Time Period Actions Q2 2 13
Develop segment specific marketing material and communication strategyStudy the market to identify the initial market segment for the commercialversion.Perform marketing strategy “litmus tests” to verify the accuracy of ourcommunication.Actively participate at the Pinch conference “International Process IntegrationJubilee Conference 2013.”
Q3 2 13
Package results from pilot project 1 and focus on marketing towards EarlyMajority.Targeted marketing with focus on sales.Actively participate as exhibitors at VA-mässan and ProcessTeknik 2013
Q4 2 13 Package results from pilot project 2 and focus on marketing towards EarlyMajority.Develop marketing strategy and material for the German market.
Q1 2 14
Package results from pilot project 3 and focus on marketing towards EarlyMajority.
Q2 2 14
Conduct market research on the German market.Initiate collaborations with Swedish universities for introduction of educationalversion.
Q3 2 14
Hire sales manager and increase direct sales efforts.Introduce product on the Swedish educational system, two universities.
6 Action Plan
On the following page you can see Pinexo’s action plan from Q2 2013 to Q3 2014. During this period
Pinexo plans to verify the market need, establish contact with relevant companies, develop the software
solution and perform three pilot studies to test the prototype and get a proof of concept.
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17Figure 10 - Action plan
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7 Risk Analysis
8 Finance
- 15
- 10
- 5
0
5
10
15
20
25
30
35
2013 2014 2015 2016 2017 2018 2019
M i l j o n t a l
Income
Costs
Cash Balance
Cashflow
Risk Impact
1-5
Probability
1-5
Mitigation Actions
Our tool is a one-off analysis and weachieve no repeat purchases
3 5 Targeting consultantsDevelop alternative features and services forlock-in
Not enough end customers in the chosensegment and market price
4 4 Target markets as consultancy firms or heatexchanger manufacturers. Consider change ofbusiness model, possibly to “shared savings” or“freemium” model.
Customers do not have faith in thetechnical quality of the product
5 3 Solid proof of concept and dedicatedcommunication around it
Data extraction process difficult and/ortime consuming
3 4 Educate customers on the data extractionprocess or sell the service. Recruit thosecompetencies to the project.
Customers deem web solution not secureenough for sensitive data upload 4 3 Pick Cloud Service Provider with focus onsafety to leverage their policiesPush security issues in marketing and salesDevelop product as desktop software as Plan B
Bugs, unstable product - main risk in dataauthorization and user access
4 2 Test Plans made in parallel with development
Customers are not willing to pay for thesupplied functionality
4 2 Communicate benefits of product clearlyContinuously develop features requested by thecustomers
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The above diagram shows estimated income, costs, cash balance at end of year and cash flow for the
coming 7 years, excluding financing events. For detailed data and assumptions, please refer to Appendix 1
– Finance.
Revenues stem from sales of licenses for the Pinexo™ software. Staff costs amount to 85% of the totalcosts and the main costs linked to the growth is additional salary costs for sales staff and developers. The
cash balance at the beginning of 2013 was 490 000 SEK. Encubator provides office space and related
resources during the first half of 2013. Soft funding has been received from VINNOVA, ALMI,
Göteborgs Energi and Encubator. Opportunities for soft funding are reviewed continuously and
discussions with Innovationsbron have been initiated for verification grants and possibly also equity
investment.
8.1 Pricing StrategyPinexo utilizes a value-based pricing strategy based on performance factors. Interviews with potential
customers, industry experts and analysis of current ways of working have generated a list of 120
performance factors. These have been compared to competing solutions in order to identify factors wherePinexo performs above, equal or poorer than competing solutions. By quantifying each factor a reasonable
price relative to competitors can be set. Additionally, by performing this analysis the sales efforts have
been strengthened greatly by being able to show key factors where Pinexo outperforms competitors and
also how these factors can be translated into quantitative value for the customer.
The market introduction price for the Pinexo™ tool is 85.000 SEK per user and year. Please refer to
Appendix 1.2 – Pricing for more details on the pricing strategy.
8.1.1 Alternative business model pricing
As described in Chapter 2.3.1, we may need to pivot our business model based on our findings during the
proof of concept.If we go for Pinexo™ as a niched consultancy, we will offer a pre-defined pricing depending on the size
of the plant, the amount of available data and the level of participation by the plant themselves. The
pricing strategy might be value-based, for example related to potential savings, or based on estimated
number of hours per project.
If Pinexo™ is a tool and educational packages sold to consultants, we will charge for the tool as described
above, plus fixed prices for the educational events and material.
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8.2 Exit StrategyWe aim at providing our shareholders with a profitable exit. Depending on the time of transaction, we are
working with the three scenarios below.
Time span 2-5 years 5-7 years 7-10 years
Type of transaction Acquisition Second stage equityinvestment
Initial Public Offering(IPO)
Parties involved Competitor with similaroffering or consultancyfirm within energyoptimization
Late stage venture capitalentity
Public stock exchange forsmall companies,primarily in Sweden
Critical success factors
to enable exit
Strategic fit with buyer
High perceived threattowards incumbents
Proof-of-concept
Awareness of Pinexoamong competitors andglobal market
Strong and stable growth
Profitable business model
Demonstrated scalabilityand global potential
Demonstrated ability tostay innovative and
competitivePositive cash flow
Large potential for strongfurther growth globally
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Appendix
Appendix 1 – Finance
Cash flow excludingfinancing activities(SEK) 2013 2014 2015 2016 2017 2018 2019
Income
Software sales 255 000 680 000 1 700 000 3 740 000 7 480 000 14 960 000 29 920 000
Total number of licenses 3 8 20 44 88 176 352
Revenue growth 167% 150% 120% 100% 100% 100%
Total income 255 000 680 000 1 700 000 3 740 000 7 480 000 14 960 000 29 920 000
Costs
Salary developers - 409 200 - 409 200 - 818 400 - 818 400 -2 046 000 -3 069 000 -4 092 000
Development staff 1 1 2 2 4 6 8
Salary management - 204 600 - 818 400 - 818 400 -1 636 800 -3 069 000 -4 603 500 -6 138 000
Management staff 1 2 2 4 6 9 12
Sales and marketing - 14 400 - 28 800 - 57 600 - 115 200 - 230 400 - 460 800 - 921 600
General & Administrative - 57 300 - 118 038 - 121 579 - 125 227 - 128 983 - 132 853 - 136 838
Corporate tax 25 515 - 235 376 - 389 453 -1 386 967
Total costs - 685 500 -1 374 438 -1 815 979 -2 670 111 -5 709 759 -8 655 606 -12 675 405
Net cash provided by operatingactivities - 430 500 - 694 438 - 115 979 1 069 889 1 770 241 6 304 394 17 244 595
Cash and cash equivalents atbeginning of year 490 000 59 500 - 634 938 - 750 917 318 972 2 089 213 8 393 607
Cash and cash equivalents at endof year 59 500 - 634 938 - 750 917 318 972 2 089 213 8 393 607 25 638 202
Key figures 2013 2014 2015 2016 2017 2018 2019
Average monthly costs - 57 125 - 114 537 - 151 332 - 222 509 - 475 813 - 721 300 -1 056 284
Market introductions Sweden Germany Global
Financing need 200 000 800 000
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Input data
Revenues
Price per license 85 000 per year
Salary costs incl taxesCategory Per month Per year
Developer employee 34 100 409 200
Management employee 34 100 409 200
Sales and marketing (initial)Category Per month Per year
Printed material 200 2 400Events 500 6 000
Web marketing 500 6 000
TOTAL: 14 400
G&A costsCategory Per month Per year
Office rent 5 000 60 000
Telephone 100 1 200
Internet 250 3 000Office material 100 1 200
Representation 600 7 200
Transports 1 000 12 000Insurance 500 6 000
Consultants/legal advice 1 000 12 000
Cloud hosting 1 000 12 000
TOTAL: 114 600
Key assumptions
• Key staff will accept a gross salary of 20 000 SEK/month in exchange for ownership stake in the
company. This will only include key personnel employed the first three years. After this, salary
levels will be adjusted up by 25%.
• Encubator will sponsor office space and related administrative costs until the end of June 2013.
• No fixed assets will be acquired.
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Appendix 1.2 – PricingIn the table below is a summary of the four main competitors for Pinexo’s software and a short version of
the price analysis performed to set the initial price for Pinexo’s initial software product.
Pinexo 2.0 AspenTechEnergy Analyzer
KBCSuperTarget
HEXTRAN PinCH
General description Stand-alone cloudapplication
Full control andengineeringsystem suite withPinch analysismodule
Specialized Pinchanalysis softwarethat works inintegration withsimulationsoftware
Full control andengineeringsystem suite withPinch analysismodule
Stand-alonedesktopapplication
Main advantages User-friendly (noeducationrequired)
Automated
optimizationcalculations
Detailed costcalculations
Fully compatibleon all platforms
No installation orcosts forownership/decommissioning
Market leadingposition
Part of a largersoftware suite
Strong add-onconsultancyservices
Strong presence inUS
Market leadingposition
Many referenceprojects
Strong supportand add-onservices
Expert levelcalculationfeatures
Strong presence inUK
Part of a largersoftware suite
Strong add-onconsultancy
servicesExpert levelcalculationfeatures
Includes advancedheat exchangerdesign features
Strong presence inAsia
Standard featureset for simpleranalysis
Main drawbacks No/few referenceprojects
Currently no/fewadd-onconsultancyservices in-house
Lack ofintegration withexisting controlsystems
Lack of expertlevel manualcalculationfeatures
Lack of
documentationand literature
Highly complexto use
Complexinstallationprocess
Requires fullinstallation ofsystem suite torun
Manualoptimizationcalculations
Only basic costcalculations
Requires special
training
Highly complexto use
Requires separatesimulationsoftware to run
Manualoptimizationcalculations
Only basic costcalculations
Requires specialtraining
Highly complexto use
Complexinstallationprocess
Requires fullinstallation ofsystem suite torun
Manualoptimizationcalculations
Only basic costcalculations
Requires special
training
Complex to use
Only basic cost
calculationsEconomic dataonly in SwissFrancs
Market presenceonly focused onSwitzerland
Driven only aspart-time projectby researchers
Price per user andyear (SEK) 85 000 229 500 224 400 Unknown 19.000
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Appendix 2 – Collaboration Partners, full list
Partner Role Collaboration details Value generated from collaboration
Arla Foods Developmentpartner
Pinexo has initiated a pilot project at Arla’sdairy plant in Jönköping, where the Pinexosoftware will be tested. Pinexo will own theright to communicate the results in marketingpurposes and if the project shows good resultSt1s intention is to buy licenses of the product.
• Proof of concept• Test results for marketing• Feedback for development process• More insight in customer needs
BIM Kemi Developmentpartner
Pinexo is planning to preform a pilot projecttogether with BIM on their production plant inGothenburg. Pinexo will own the right tocommunicate the results in marketing purposesand if the project shows good result St1sintention is to buy licenses of the product.
• Proof of concept• Test results for marketing• Feedback for development process• More insight in customer needs
St1 Development
partner
Pinexo is planning to preform a pilot project
together with St1 on their refinery inGothenburg. Pinexo will own the right tocommunicate the results in marketing purposesand if the project shows good result St1sintention is to buy licenses of the product.
• Proof of concept• Test results for marketing
• Feedback for development process• More insight in customer needs
ABB Developmentpartner
Pinexo is planning to preform a pilot projecttogether with ABB on one of their customers’plants. Pinexo will own the right tocommunicate the results in marketing purposesand if the project shows good result ABB’sintention is to buy licenses of the product.
• Proof of concept• Test results for marketing• Feedback for development process• More insight in customer needs
ÅF Developmentpartner
Pinexo is together with ÅF planning onpreforming a pilot project where ÅF uses theproduct on one of their customers’ plants.
• Proof of concept• Test results for marketing• Feedback for development process• More insight in customer needs
Energi-myndigheten
Key opinionleader &financier
Energimyndigheten is a key opinion leader onregulations and standards in the energy sector.They also provide financing for projects relatedto reducing energy consumption.
• Insight in trends and new regulations• Network• Possible project financing
Vinnova Financer Vinnova is the Swedish governmental agencythat administers state funding for research anddevelopment. Pinexo has been granted softfunding for the VINN-verifiering program andhas the opportunity to search for other financing.
• Financing• Credibility
Almi Financer Pinexo has been granted soft funding fromAlmi, which is a governmental agency that helps
growth companies.
• Financing• Credibility
Innovations-bron
Financer Innovationsbron is a state owned investmententity that performs both grant financing andequity investments. Pinexo is in discussion withthem about both financing forms.
• Financing• Credibility
Chalmers Research andrecruiting
Chalmers is the leading technical university inScandinavia. The Matrix method were developby Chalmers’ researchers and is today the maindriving force in the development of Pinch.
• Thesis works• Researchers• Credibility• Recruitment
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Appendix 3 – Plan for Proof of Concept
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M a y 1 5 t h
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e
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A - 1 . 2
I d e n t i f i c a t i o n o f r e l e v
a n t
s e c t i o n o f s t r e a m s f o r t h e t e s t p r o j e c t
D e l i v e r a b l e s
D - 1 . 1
A g r e e m e n t o n c h o s e n
s e c t i o n
f o r t h e a n a l y s i s
R e s p o n s i b i l i t y a n d r e s o u r c e s n e e d e d
R - 1 . 1
A r l a : P r e p a r e s t h e g u i d e d t o u r
a n d h a s i n a d v a n c e t h o u g h t a
b o u t
s u g g e s t i o n o n r e l e v a n t s e c t i o
n a r e a s
f o r t h e p r o j e c t .
R - 1 . 2
A r l a : A n p r o c e s s e n g i n e e r t h a t
i s f a m i l i a r w i t h t h e p l a n t ’ s s t r e a m s
a n d p r o c e s s e s .
T i m e r e q u i r e d b y A r l a : O n e p e r s o n ,
2 - 4 h o u r s
A c t i o n s
A - 2 . 1
I d e n t i f y t h e s t r e a m s w i t
h i n
t h e c h o s e n s e c t i o n
A - 2 . 2
M a p p i n g o f p r o c e s s e s t o
p r o d u c e a s i m p l e f l o w c h a r t o v e
r t h e
c h o s e n s e c t i o n
A - 2 . 2
C o l l e c t d a t a f o r a s m a n y
s t r e a m s a s p o s s i b l e w i t h i n t h e s y s t e m .
[ S t a r t t e m p e r a t u r e ,
E n d t e m p e r a t u r e ,
M a s s f l o w ( F ) a n d h e a t c a p a c i t y ( C p ) ]
D e l i v e r a b l e s
D - 2 . 1
F l o w c h a r t o f s e l e c t e d s e
c t i o n .
D - 2 . 2
E x c e l f i l e w i t h s t r e a m d
a t a .
R e s p o n s i b i l i t y a n d r e s o u r c e s
n e e d e d
R - 2 . 1
P i n e x o : D e l i v e r s a n e x c e l s h e e t
t e m p l a t e f o r d a t a c o l l e c t i o n
R - 2 . 2
A r l a : D e l i v e r s i t e m s D - 2
. 1 a n d
D - 2 . 2
i n c o o p e r a t i o n w i t h P i n e x o .
T i m e r e q u i r e d b y A r l a : O n e p
e r s o n ,
4 - 1 2 h o u r s .
D e p e n d s o n a m o u n
t o f
a v a i l a b l e d a t a a n d m i g h t b e m o
r e .
A c t i o n s
A - 3 . 1
A n a l y s i s o f f l o w c h a r t a n d
s t r e a m d a t a
A - 3 . 2
S i m u l a t i o n a n d s o f t w a r e t e s t i n g
A - 3 . 3
C r e a t i o n o f p r o j e c t r e p o r t w i t h
t e s t r e s u l t s
D e l i v e r a b l e s
D - 3 . 1
P i n e x o c o m m u n i c a t e s w i t h i n
2 w e e k s i f t h e d a t a f r o m s t e p 2 i s
s u f f i c i e n t .
R e s p o n s i b i l i t y a n d r e s o u r c e s n
e e d e d
R - 3 . 1
P i n e x o : R e s p o n s i b l e f o r s t e p 3
a n d t h e d e l i v e r y o f D - 3 . 1 .
T i m e r e q u i r e d b y A r l a : N o n e .
I f d a t a
f r o m S t e p 2 i s i n s u f f i c i e n t , A r l a
m i g h t
h a v e t o s p e n d a c o u p l e o f h o u r s .
A c t i o n s
A - 4 . 1
O n s i t e p r e s e n t a t i o n a n d r u n
t h r o u g h o f s o f t w a r e p r o c e d u r e
A - 4 . 2
S o f t w a r e t e s t - s e s s i o n .
D e l i v e r a b l e s
D - 4 . 1
P r o j e c t r e p o r t w i t h t e s t r e s u l t s
R e s p o n s i b i l i t y a n d r e s o u r c e s n e e d e d
R - 1 . 1
P i n e x o : P r e s e n t a l l r e l e v a n t
i n f o r m a t i o n a b o u t t h e p r o j e c t a n d h
a n d s
o v e r a r e p o r t ( i t e m D - 4 . 1
) .
R - 1 . 2
A r l a : M a k e s s u r e t h a t 1 - 2
p e r s o n s i n t e r e s t e d i n t e s t i n g t h e
s o f t w a r e a t t e n d s a t t h e p r e s e n t a t i o n
m e e t i n g .
T i m e r e q u i r e d b y A r l a : 1 - 2 p e r s o n s ,
2 - 4 h o u r s
J u n e 1 s t
J u n e 1 0 t h
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