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Cost Estimation PDF

The document discusses methods for estimating capital investment costs for chemical processing plants. It describes fixed capital investment as the sum of direct costs, like purchased equipment, and indirect costs, such as engineering. It provides examples of direct and indirect cost percentages depending on the type of plant. The document also outlines several methods to estimate capital costs at different levels of accuracy, from order-of-magnitude to detailed estimates. Finally, it discusses methods to evaluate the profitability of capital investments, such as return on investment, net present worth, and payback period.

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871 views

Cost Estimation PDF

The document discusses methods for estimating capital investment costs for chemical processing plants. It describes fixed capital investment as the sum of direct costs, like purchased equipment, and indirect costs, such as engineering. It provides examples of direct and indirect cost percentages depending on the type of plant. The document also outlines several methods to estimate capital costs at different levels of accuracy, from order-of-magnitude to detailed estimates. Finally, it discusses methods to evaluate the profitability of capital investments, such as return on investment, net present worth, and payback period.

Uploaded by

emadsabri
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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COST ESTIMATION

Fixed Capital Investment: Cost of equipment and facilities


FCI = (Direct Costs) + (Indirect Costs)
Direct Costs:
1. Purchased equipment: Columns, Heat Exchangers, pumps,
tanks, etc.
2. Equipment Installation
3. Piping (includes insulation)
4. Instruments and Control
5. Electrical Equipment.
6. Buildings: Process, Administration, Maintenance shops, etc.
7. Site Preparation
8. Service Facilities: steam, water, air, fuel, etc. Waste
treatment, fire control, offices, etc.
9. Land

ChE 4253 - Design I


COST ESTIMATION

Indirect Costs:

1. Engineering and Supervision: Administrative and


Design. Supervision and Inspection.
2. Construction Expenses
3. Contractor's fee
4. Contingency.
5. Start up expenses

ChE 4253 - Design I


COST ESTIMATION
Types Of Cost Estimates

1. Order of Magnitude estimate. Extrapolate similar plant cost


Accuracy: over 30%
2. Study Estimate. Knowledge of major pieces of equipment
Accuracy: ± 30%
3. Preliminary Estimate. Enough for budget authorization.
Accuracy: ± 20%
4. Definitive Estimate. Based on basic Engineering and quotes
from suppliers and contractors.
Accuracy: ± 10%
5. Detailed Estimate.Based on Detailed Engineering.
Accuracy: ± 5%

ChE 4253 - Design I


COST ESTIMATION
Cost Indexes
⎛ index value now ⎞
Present Cost=(original cost at time t)* ⎜⎜ ⎟⎟
⎝ index value at time t ⎠
• Marshall and Swift.
1. All industry-equipment index. Arithmetic average of 47
equipment types.
2. Process-industry equipment index. Weighted average of
8 of these:
cement 2% paint 5%
chemicals 48% paper 10%
clay products 2% petroleum 22%
glass 3% rubber 8%

M&S was 100 in 1926. Published in “Chemical Engineering”.

ChE 4253 - Design I


COST INDEXES
• Engineering News-Record Construction Cost index.
Steel, lumber, labor, concrete.
Published in “Engineering News-record”.
ENR value reported based on 100 in 1913, 1949 or 1967.
• Nelson-Farrar Refinery Construction Cost index.
Skilled and common labor, iron and steel, building
materials, miscellaneous equipment.
Published in “Oil and Gas Journal”.
N-R value of 100 in 1946.
• Chemical Engineering Plant Cost Index. Chemical Plants.
Equipment, machinery Engineering and supervision
supports 61% 10%
Installation labor 22% Buildings, material, labor 7%

Published in “Chemical Engineering”.


PCI value of 100 in 1957-59.
ChE 4253 - Design I
COST INDICES (as inflation indicators)

ChE 4253 - Design I


From Turton et al., 1998
COST INDICES (as inflation indicators)

ChE 4253 - Design I


From Turton et al., 2009
Methods For Estimating Capital Investment

1. Detailed-Item Estimate.
All items in the direct and indirect cost are evaluated
with as much detail as possible. All specs are known.
(± 5% accuracy, contractor’s estimate)

ChE 4253 - Design I


Methods For Estimating Capital Investment
2. Unit-Cost Estimate.
Prices from quotations or index-corrected records.

[ ]
C = ∑(E + EL ) + ∑( fxMx + f yML ) + ∑ feHe + ∑ fd dn fF

See p. 250 in Peters et al., 2003).


(10-20% accuracy, definitive or preliminary estimate)
E: delivered equip. cost
EL: labor for equipment cost for field labor
fx : material unit cost
fe: unit cost for engineering
fd: drawing cost
fF: field expense factor
ChE 4253 - Design I
Methods For Estimating Capital Investment
3. Percentage of Delivered-Equipment Cost.
All items in the direct and indirect cost are evaluated as a
percentage of the delivered-equipment cost.
(definitive estimate in certain cases, ± 10% )
[
C = ∑E + ∑( f1E + f2E + f3E +K) fI]
See Table 7-8, p. 194 in TBW&S
4. Estimation based on “Lang” factors .
Named after Lang (1947).
The Fixed Capital Investment is found by multiplying
equipment cost by a factor (see Table 7-7, p. 192 in TBW&S)
(± 30% accuracy, order of magnitude estimate)

ChE 4253 - Design I


Methods For Estimating Capital Investment

ChE 4253 - Design I


Fixed Capital Investment Cost (Peters et al, 2003)
Fluid
Direct Costs Processing
Onsite Plant
Purchased Equipment E =15-40%IF E E=15-40% IF
Installation 6-14% IF 47 % E 25-55 % E
Instrumentation 2-12% IF 36 % E 8-50 % E
Piping 4-17% IF 68 % E 10-80 % E
Electrical 2-10% IF 11 % E 10-40 % E
Offsite
Buildings 2-18% IF 18 % E 10-70 % E
Yard Improvement 2-5% IF 10 % E Included in
Service Facilities
Service Facilities 8-30% IF 70 % E 40-100 % E
Land 1-2% IF 6%E 1-2 % IF
ChE 4253 - Design I
(or 4-8 %E)
Fixed Capital Investment Cost

Fluid
Indirect Costs Processing
Plant
Engineering 4-20% IF 33 % E 5-30% D
Construction 4-17 % IF 41% E Included in
Contractor’s fee
Contractor’s Fee 2-6 % IF 22 % E 10-20 % IF
Contingency 5-15% IF 44 % E 5-15% IF

Working Capital
10-20% IF 15 % TCI 10-20% TCI

ChE 4253 - Design I


METHODS OF PROFITABILITY EVALUATION
Return of Investment (ROI)

The formula is:

CF
ROI =
TCI

ChE 4253 - Design I


METHODS OF PROFITABILITY EVALUATION
Net Present Worth
The formula is:

n −1
CFk CFn + VS + WC
NPW = ∑ + − TCI
k =1 (1 + i ) (1 + i )
k n

IRR it is the interest rate that makes NPW=0

ChE 4253 - Design I


METHODS OF PROFITABILITY EVALUATION
Pay Out Time, POT
Minimum time needed to recover the investment.
FCI − VS
POT =
Average Cash Flow
Other names: Payback time, Cash Recovery Period.

Time value of money can be taken into account with the


inclusion of a minimum acceptable rate of return on TCI:

POT =
(FCI − VS ) + TCI * i * n
( Average Cash Flow)Annuity
In this case the annual cash flow is viewed as an annuity

ChE 4253 - Design I

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