Cost Estimation

ChE 405: Process Design I
Cost Estimation
(Investment and Production)
Dr. Syeda Sultana Razia

Professor
Department of Chemical Engineering, BUET
Chemical Engineering Design

Types of Costs
Two primary costs:
• Capital investment ($)
• Operating (production) cost

FACTORS AFFECTING INVESTMENT
AND PRODUCTION COSTS
• Sources of Equipment
• Price Fluctuations
• Company Policies
• Operating Time and Rate of Production
• Governmental Policies

Capital Investment & Operating Costs
• How to evaluate both?
• Accuracy levels?
• What are the key elements in each cost?
• How to update the costs?

Capital Investment
• Fixed Capital investment (FCI)
– capital necessary for the installed process equipment with all
auxiliaries that are needed for complete process operation.
Expenses for piping, instruments, insulation, foundations, and site
preparation are typical examples of costs included in the
manufacturing fixed-capital investment.
• Working capital: money invested in
– raw materials and supplies carried in stock,
– finished products in stock and semi finished products in the
process of being manufactured,
– accounts receivable/ accounts payable
– cash kept on hand for monthly payment of operating expenses,
such as salaries, wages, and raw-material purchases
– taxes payable.
Total Capital vs Working Capital
• Most chemical plants use an initial working capital

amounting to 10 to 20 percent of the total capital
investment.
• This percentage may increase to as much as 50 percent

or more for companies producing products of seasonal
demand because of the large inventories which must be
maintained for appreciable periods of time.

Capital Investment
Total Capital Investment (TCI)
Fixed Capital Working Capital

Investment (FCI) Investment (WCI)
WCI ~ 15% of TCI
Manufacturing Non-Manufacturing
(Direct) FCI (Indirect) FCI
Fixed Capital Investment: money needed to purchase and install the plant (including process equipment, facilities, all
buildings, controls, etc.), acquire land, and to provide for expenses needed to start process operation.
Manufacturing Fixed Capital Investment: money needed to purchase and install process equipment and ancillary
units
needed for full operation (e.g., process units, insulation, instrumentation, control, piping, etc.)
Non-Manufacturing Fixed Capital Investment: money needed for plant components not directly related to process
Operation (e.g., land, processing buildings, administrative offices, warehouses, labs, shops, etc.) + construction
overhead
(e.g., construction costs, contractor’s fees)
Working Capital Investment: money needed to pay the bills and start/support operation before product is sold: e.g. Money
needed for stocked (~one month) raw materials, accounts payable, finished products
In stock (~one month) to be shipped to customers. Working capital is recoverable by the end of the project.
Working capital in many cases ~ 10-20% of capital investment.
CAPITAL INVESTMENT
• Fixed-
Fixed-Capital Investment
• Working Capital

ESTIMATION OF CAPITAL
INVESTMENT
• Most estimates of capital investment are based on
the cost of the equipment required
• The most significant errors in capital investment
estimation are generally due to omissions of
equipment, services, or auxiliary facilitates rather
than to gross errors in costing
• Checklist of items for a new facility

Breakdown of fixed-
fixed-capital investment items
for a chemical process
• Direct costs
1. Purchased equipment
2. Purchased-
Purchased-equipment installation
3. Instrumentation and controls
4. Piping
5. Electrical systems
6. Buildings (including service)
7. Yard improvements
8. Service facilities
9. Land

Indirect costs
1. Engineering and supervision

2. Legal expenses
3. Construction expenses
4. Contractor’s fee
5. Contingency

DIRECT COSTS
1. Purchased equipment
• All equipment listed on a complete flowsheet

• Spare parts and noninstalled equipment spares
• Surplus equipment, supplies, and equipment
allowance
• Inflation cost allowance
• Freight charges
• Taxes, insurance, duties
• Allowance for modifications during start-up

2. Purchased-equipment installation
• Installation of all equipment listed on complete

flowsheet
• Structural supports
• Equipment insulation and painting
3. Instrumentation and controls
• Purchase, installation, calibration, computer

control with supportive software

4. Piping
• Process piping utilizing suitable structural

materials
• Pipe hangers, fittings, valves
• Insulation
5. Electrical systems
• Electrical equipment switches, motors, conduit,

wire, fittings, feeders, grounding instrument
and control wiring, lighting, panels
• Electrical materials and labor

6. Buildings (including service)
• Process buildings – substructures, superstructures, platforms, supports,

stairways, ladders, access ways, cranes, monorails, hoists, elevators
• Auxiliary buildings – administration and office, medical or dispensary,
cafeteria, garage, product warehouse, parts warehouse, guard and safety,
fire station, change house, personnel building, shipping office and platform,
research laboratory, control laboratory
• Maintenance shops – electric, piping, sheet metal, machine, welding,
carpentry, instrument
• Building services – plumbing, heating, ventilation, dust collection, air
conditioning, building lighting, elevators, escalators, telephones,
intercommunication systems, painting, sprinkler systems, fire alarm.

7. Yard improvements
Site development – site clearing, grading, roads, walkways, railroads,
fences, parking areas, wharves and piers, recreational facilities, landscaping
8. Service facilities
Utilities-steam, water, power, refrigeration, compressed air, fuel, waste
disposal
Facilities – boiler plant incinerator, wells river intake, water treatment,
cooling towers, water storage, electric substation, refrigeration plant, air plant,
fuel storage, waste disposal plant, environmental controls, fire protection
Nonprocess equipment-office furniture and equipment, cafeteria
equipment, safety and medical equipment, shop equipment, garage equipment,
shelves, bins, pallets, hand trucks, housekeeping equipment, fire extinguishers,
houses, fire engines, loading stations
9. Land
Surveys and fees
Property cost

INDIRECT COSTS
1. Engineering and supervision
• Engineering costs – administrative, process, design and general
engineering, computer graphics, cost engineering, procuring,
expediting, reproduction, communications, scale models,
consultant fees, travel
• Engineering supervision and inspection
2. Legal expenses
• Identification of applicable federal, state, and local regulations
• Preparation and submission of forms required by regulatory
agencies
• Acquisition of regulatory approval
• Contract negotiations

3. Construction expenses
• Construction, operation, and maintenance of temporary
facilities, offices, roads, parking lots, railroads, electrical,
piping, communications, fencing
• Construction tools and equipment
• Construction supervision, accounting, timekeeping,
purchasing, expediting
• Waterhouse personnel and expense, guards
• Safety, medical, fringe benefits
• Permits, field tests, special licenses
• Taxes, insurance, interest
4. Contractor’s fee
5. Contingency

COST COMPONENTS IN CAPITAL INVESTMENT

Cost--Estimation Studies
Cost
Order-of-magnitude estimate or
concept screening
Study estimate or preliminary

feasibility
Preliminary estimate or budget

authorization
Definitive estimate or project

control estimate
Contractor’s estimate or
detailed estimate
Accuracy Detailing

Types of Capital Cost Estimates
• Order-of-magnitude estimate (ratio estimate) based on
similar previous cost data , accuracy typically ±30–50%,
usually based on the costs of similar processes and
requiring essentially no design information. These are
used in initial feasibility studies and for screening
purposes
• Study estimate (factored estimate) based on knowledge of
major items of equipment; probable accuracy of estimate
up to ± 30 percent.
• Preliminary estimate (budget authorization estimate;
scope estimate) based on sufficient data to permit the
estimate to be budgeted; probable accuracy of estimate
within ± 20 percent.
Types of Capital Cost Estimates
• Definitive estimate (project control estimate) based on

almost complete data but before completion of drawings
and specifications; probable accuracy of estimate within
± 10 percent.
• Detailed estimate (contractor’s estimate) based on

complete engineering drawings, specifications, and site
surveys; probable accuracy of estimate within ± 5
percent..

Development of Cost Estimates

Methods for Estimating Capital
Investment
1. Manufacturer’s Quotations
• Typically require a lot of details (more than conceptual
design, also be careful about revealing details)
• Directories for lists of vendors:

– Chemical Week
– Chemical Engineering
– Chemical Processing
– Buyers Guides
– Hydrocarbon Processing Catalog

Investment
2. Computer-Aided Tools
• Aspen ICARUS
• SuperPro
• Specific software
– Often developed based on research projects

Investment
3. Capacity ratio with exponent
ORDER OF MAGNITUDE ESTIMATES
• When you have very similar processes but different

capacities::
capacities
• Exponent x is typically ~ 0.6 – 0.7
• “Sixth
Sixth--Tenths
Tenths--Factor Rule”
Rule” or Economy of scale!
scale!

Examples of Capacity Exponents
Product Process Size Range Exponent x Reference
Acetaldehyde Ethylene conversion 25,000 – 100,000 0.70 Remer and Chai (1990a)
tonne/yr
Acetic acid methanol conversion 3,000 – 75,000 0.59 Garrett (1989)
tonne/yr
Ammonia Natural gas reforming 365,000 – 0.66 Gerrard (2000)
550,000
tonne/yr
Adipic acid Cyclohexanol conversion 7,000 – 330,000 0.64 Garrett (1989)
tonne/yr
Ethylene Cracking of ethane 500-2,000 MM 0.60 Towler and Sinnott (2008)
lb/yr
Ethylene oxide Direct oxidation of ethylene 20,000 – 200,000 0.78 Remer and Chai (1990a),
tonne/yr Dysert (2001)
Hydrogen Steam reforming of methane 10-150 MM 0.79 Towler and Sinnott (2008)
SCF/day
Polyethylene High-pressure polymerization 40,000 tonne/yr 0.69 Salem (1981)
of ethylene
Polyvinyl chloride Polymerization of vinyl chloride 20,000 tonne/yr 0.60 Salem (1981)

ORDER OF MAGNITUDE
ESTIMATES: Cost Curve Methods
• The exponent n is typically 0.8 to 0.9 for processes that use a lot of
mechanical work or gas compression (e.g., methanol, paper pulping,
solids--handling plants). For typical petrochemical processes n is
solids
usually about 0.7. For small-
small-scale, highly-
highly-instrumented processes,
such as specialty chemical or pharmaceuticals manufacture, n is in
the range 0.4 to 0.5.
• Averaged across the whole chemical industry, n is about 0.6, and it
is commonly referred to as the “six-
“six-tenths rule.”
ORDER OF MAGNITUDE
ESTIMATES: Step Count Method
• If cost data for a similar process are not available then an
order--of-
order of-magnitude estimate can sometimes be made by
adding contributions for different plant sections or
functional units. ). For plants primarily processing liquids
and solids:
• C=ISBL capital cost in U.S. dollars, U.S. Gulf Coast, Jan. 2010 basis
(CEPCI = 532.9) Q=plant capacity in metric tons per year s=reactor
conversion (= mass of desired product per mass fed to the reactor)
N=number of functional units

Example 2.1. Using capacity ratios with exponents for
estimating FCI:
A processing facility is designed to convert waste cooking oil

and vegetable oil to biodiesel. The FCI of the process producing
40 MM gal/yr is estimated to be $23 MM (Elms and El-Halwagi,
2009). Estimate the FCI of a similar process producing 20 MM
gal/yr. Also, conduct a sensitivity analysis on the effect of
production rate on the FCI per annual gallon (i.e., FCI per gal/yr).

Solution:
Assuming a capacity exponent of 0.6, we have:
FCI of 20 MM gal/yr process =
FCI of 40 MM gal/yr process* (20/40)^0.6
= $23 MM* (20/40)^0.6
= $15 MM
Economy-of-Scale Observations:
 When the capacity of the plant is doubled from 20 to 40 MM gal/yr,
the FCI is not doubled. Instead, it increases by about 50% (from $15 to
23 MM)
When two of the 20 MM gal/yr plants are built, they will cost $30
MM which is 30% more expensive than building a single 40 MM gal/yr
process
Cost per annual gallon:

For the 40 MM gal/yr process:
The FCI per annual gallon = ($23 MM/40 MM gal/yr)= $0.58/annual gal
Similarly, for the 20 MM gal/yr process,
The FCI per annual gallon = ($15 MM/20 MM gal/yr)= $0.75/annual gal

Sensitivity Analysis for the Biodiesel Example
1.1
1.01
Notice the effect of economy of scale

0.9
FCI/annual gallon,
$/(gal/yr)
0.8
0.7
0.6
0.5
10 20 30 40 50
Annual Production (MM gal/yr)

Investment
4. Cost Indices
• Updating capital investment
– To account for inflation and update cost of identical plants
 Cost index at time t 2 

FCI t 2  FCI t1  
 Cost index at time t1 
Common FCI cost indices are:
Chemical Engineering plant cost index: Published monthly at Chem. Engineering
Eng. News Record construction index: Published weekly at Eng. News Record
Nelson-Farrar refinery construction index: Published monthly at Oil & Gas J.
Try to limit updates to ~10 years

Recent Values of the Chemical Engineering Plant Cost Index (Source: Chemical Engineering www.ChE.com/PCI)
Economic Indicators
*(Basis: in 1957-1959, value of index = 100)
Year Chemical Engineering Plant Cost Index*
2001 394.3
2002 395.6
2003 402.0
2004 444.2
2005 468.2
2006 499.6
2007 525.4
2008 575.4
2009 521.9
2010 550.8
2011 585.7
2012 584.6

Example 2.2. Updating the FCI using a cost index
The FCI of a 1,500 ton/day ammonia plant in 2002 is estimated
to be $120 MM (Couper, 2003). Estimate the FCI of a similar
plant producing 2,000 ton ammonia/day in 2009.

Example 2.2. Updating the FCI using a cost index
The FCI of a 1,500 ton/day ammonia plant in 2002 is estimated
to be $120 MM (Couper, 2003). Estimate the FCI of a similar
plant producing 2,000 ton ammonia/day in 2009.
Solution:
First, the cost of 1,500 ton/day plant needs to be updated to 2009 then it
should be scaled up to 2,000 ton/day.
Chemical Engineering Plant Cost Index values for 2002 and 2009 are
395.6 and 521.9
 FCI of the 1,500 ton/day plant in 2009 =
FCI of the 1,500 ton/day plant in 2002* (521.9/395.6)
= $158.3 MM
Table 2.2. gives a capacity-cost exponent of 0.66 for ammonia plants.
 FCI of the 2,000 ton/day plant in 2009 =
FCI of 1,500 ton/day plant in 2009* (2,000/1,500)^0.66
= $191.4 MM

Investment
5. Ratio Factors based on Delivered Equipment Cost
• Very commonly used for order-
order-of
of--magnitude estimates
Lang Factors:
FCI = FCI Lang Factor × Equipment Cost
TCI = TCI Lang Factor × Equipment Cost
Original values of Lang Factors (Lang, 1948)
Type of Plant FCI Lang Factor

Solid
3.10
Solid-Fluid
3.63
Fluid
4.74
Investment
Revised Values of Lang Factors (Peters et al., 2003)

Type of Plant FCI Lang Factor TCI Lang Factor
Solid 4.0 4.7
Solid-Fluid 4.3 5.0
Fluid 5.0 6.0
Notice that WCI ~ 15% of TCI

Detailing the Revised Lang Factors (Peters et al., 2003)
Cost category Solid Processing Solid-Fluid Fluid Processing
Processing
Direct costs:
Purchased equipment (delivered) 100 100 100
Equipment installation 45 39 47
Instrumentation & control 18 26 36
Piping 16 31 68
Electrical systems 10 10 11
Buildings 25 29 18
Yard improvements 15 12 10
Service facilities 40 55 70
Total Direct Costs 269 302 360
Indirect costs:
Engineering and supervision 33 32 33
Construction expenses 39 34 41
Legal expenses 4 4 4
Contractor’s fees 17 19 11
Contingency 35 37 44
Total Indirect Costs 128 126 144
FCI 397 428 504

WCI (15% of TCI or (15/85)*FCI) 70 75 89
TCI 467 503 593
Methods for Estimating Capital Investment
The Hand Method (Hand, 1958)
N Equipment
FCI  
q 1
f qHand CqDelivered
Values of the Hand Factors for Different Equipment Categories
Equipment Type Hand Factor

Compressors 2.5
Distillation columns 4.0
Fired heaters 2.0
Heat exchangers 3.5
Instruments 4.0
Miscellaneous equipment 2.5
Pressure vessels/tanks 4.0
Pumps 4.0
STUDY ESTIMATE (FACTORED ESTIMATE)
Percentage Of Delivered-
Delivered-equipment Cost
• This method for estimating the fixed or total-

total-capital
investment requires determination of the delivered-
delivered-
equipment cost. The other items included in the total
direct plant cost are then estimated as percentages of
the delivered-
delivered-equipment cost.

Example 2.3. FCI estimation based on factors of
delivered equipment cost:
The table below gives the type and cost of the units to be
used in a retrofitting project in a fluid-processing facility.
Additionally, the instrumentation and control systems for
this project are estimated to have a delivered cost of $3.6
MM. Estimate the FCI using the Lang factors as revised by
Peters et al. (2003) and the Hand method.
Unit Delivered Equipment Cost ($ MM)

Distillation columns 2.0
Fired heater 2.5
Heat exchangers 4.0
Tanks 1.5

Solution:
For a fluid-processing plant, the Lang factor (revised by Peters et al.,
2003) for estimating the FCI from delivered equipment cost is 5.0.
 FCI (Lang method) = 5.0*(2.0 + 2.5 + 4.0 + 1.5)
= $50.0 MM
Hand Method:
Equipment Delivered Hand Factor Installed
Equipment Equipment Cost
Cost ($ MM) ($ MM)
Distillation columns 2.0 4.0 8.0
Fired heaters 2.5 2.0 5.0
Heat exchangers 4.0 3.5 14.0

Has to be
added
Instruments 3.6 4.0 14.4
Pressure 1.5 4.0 6.0

vessels/tanks
Total = $ 47.4 MM
Investment
6. Turnover Ratio (or, Capital Ratio)
For order-of-magnitude estimates

Annual sales
Turnover ratio =
FCI
A very rough (but useful) approximation of turnover ratio ~ 2.0

(typical range 0.5 – 3.5 but can be 0.4 – 21.8)
Annual sales
FCI =
2.0

Typical Values of Turnover Ratios
Main Product of the Production Rate of Main Selling Prices of Annual Sales ($ FCI Turnover Ratio Reference for FCI
Process Product Product MM/yr) ($ MM) (yr-1)
(103 tonne/yr) $/tonne
Ammonia 300 360 108 66 1.6 Garrett (1989)
Ammonium nitrate 360 190 68 28 2.4 Seider et al. (2009)
Acetic Acid 18 880 16 15 1.1 Garrett (1989)
Acetic acid 200 880 176 136 1.3 Hydrocarbon Processing
Adipic acid 295 1,700 502 195 2.6 Towler and Sinnott (2008)
Alkyl benzene (linear) 73 1,030 75 75 1.0 Hydrocarbon Processing
Benzene 141 1,025 145 27 5.4 Hydrocarbon Processing
Biodiesel 133 1,130 150 23 6.5 Elms and El-Halwagi
Bio-gasoline/Bio-jet fuel 86 1,100 95 131 0.7 Pham et al. (2010)
Butene-1 18 748 13 12 1.1 Hydrocarbon Processing
Cumene 273 1,300 355 43 8.3 Seider et al. (2009)
Cumene 300 1,300 390 31 12.6 Hydrocarbon Processing
Cyclohexane 182 750 137 11 12.5 Hydrocarbon Processing
Diesel (from gas-to-liquid) 5,674 800 4539 9,210 0.5 Bao et al. (2010)
Ethanol (from corn) 71 550 39 39 1.0 McAloon et al. (2000)
Ethanol (from corn stover) 71 1,130 80 191 0.4 McAloon et al. (2000)
Ethanol (from corn stover) 159 1,130 180 358 0.5 Kazi et al. (2010)
Ethylene dichloride 455 400 182 114 1.6 Seider et al. (2009)
Ethylebenzene 1,273 1,200 1,528 114 13.4 Seider et al. (2009)
Ethylebenzene 455 1,200 546 25 21.8 Hydrocarbon Processing
Ethylene 568 800 625 691 0.7 Towler and Sinnott (2008)
Ethylene 83 800 66 116 0.6 Hydrocarbon Processing
Methanol 5 300 1,500 558 2.7 Hydrocarbon Processing
Methanol 300 300 90 59 1.5 Garrett (1989)
Nitric acid 636 237 151 71 2.1 Seider et al. (2009)
Paraxylene 750 1,540 1,155 609 1.9 Hydrocarbon Processing
Phenol 182 1,320 240 255 0.9 Towler and Sinnott (2008)
Phosphoric acid 1455 500 728 71 10.3 Seider et al. (2009)
Phosphoric acid 18 500 9 9 1.0 Garrett (1989)
Propylene 164 1,190 195 28 7.0 Hydrocarbon Processing
Styrene 1,136 1,430 1,624 284 5.7 Seider et al. (2009)
Styrene 500 1,430 715 113 6.3 Hydrocarbon Processing
Styrene 25 1,430 36 29 1.2 Hydrocarbon Processing
Sulfuric acid 1,818 80 145 43 3.4 Seider et al. (2009)
Sulfuric acid 300 80 24 45 0.5 Garrett (1989)
Example 2.5. Using the turnover ratio to estimate the FCI:
A gas-processing facility produces a mixture of ethylene and propylene

(production rates are 545,000 and 273,000 tonne/yr, respectively). If the selling
prices of ethylene and propylene are $800 and 1,100/tonne, respectively. Estimate
the FCI of the process using the turnover ratio.

Example 2.5. Using the turnover ratio to estimate the FCI:
A gas-processing facility produces a mixture of ethylene and propylene

(production rates are 545,000 and 273,000 tonne/yr, respectively). If the selling
prices of ethylene and propylene are $800 and 1,100/tonne, respectively. Estimate
the FCI of the process using the turnover ratio.
Solution:
The annual sales of the plant can be calculated as follows:
Annual sales = 545,000*800 + 273,000*1,100 = $736 MM
For a quick and rough estimate, let us assume a turnover ratio
of 2.0. Therefore,
FCI = 736/2 = $368 MM.
The cost of this plant as reported by Seider et al. (2009) and
updated to 2010 is $440 MM.

Impact of Cost-
Cost-Estimation Studies
(Adapted and revised from the AACE International; Dysert, 2001; Christensen and Dysert, 2005; and Coker, 2007)
Type/Objective of Cost Estimation Accuracy Level % of Project Type of Needed Information

Definition
Order-of-magnitude estimate or -50/+100% 0-2% Experience or cost data of a similar plant or basic
concept screening information on sold product and capacity
Study estimate or preliminary -30/+50% 1-20% Preliminary description of the process flowsheet and
feasibility duty data of the main equipment
Preliminary estimate or budget -20/+30% 10-50% Equipment sizing and basic simulation
authorization
Definitive estimate or project -15/+25% 40-80% Detailed equipment data (e.g., sizing, simulation,
control estimate design specifications, drawings)
Contractor’s estimate or detailed -5/+10% 75-100% Detailed simulation, complete engineering drawings,
estimate mechanical and electrical datasheets, design
specifications, process layout, site survey

Study estimate (factored estimate)
DETAILED--ITEM ESTIMATE
DETAILED
• Equipment and material needs are determined from
completed drawings and specifications and are priced
either from current cost data
data or preferably from firm
delivered quotations.
• Estimates of installation costs are determined from
accurate labor rates, efficiencies, and employee-
employee-hour
calculations.
• Accurate estimates of engineering, drafting, field
supervision employee-
employee-hours, and field-
field-expenses must
be detailed in the same manner.
• Complete site surveys and soil data must be available to
minimize errors in site development and construction
cost estimates.
DETAILED--ITEM ESTIMATE
DETAILED
• In fact, in this type of estimate, an attempt is made to

firm up as much of the estimate as possible by obtaining
quotations from vendors and suppliers.
• Because of the extensive data necessary and the large

amounts of engineering time required to prepare such a
detailed--item estimate, this type of estimate is almost
detailed
exclusively only prepared by contractors bidding on
lump--sum work from finished drawings and
lump
specifications.

Estimation of capital investment cost

Purchased Equipment
• The various types of equipment can often be divided

conveniently into
– processing equipment,
– raw-
raw-materials handling and storage equipment, and
– finished--products handling and storage equipment.
finished
– The cost of auxiliary equipment and materials, such as insulation
and ducts, should also be included

Methods for Estimating Equipment Cost
• Manufacture’s quotation
• Computer-
Computer-aided tools
• Capacity ratio with exponent
• Updates using cost indices
• Cost charts
Terminology:
Free on Board (FOB): This is the cost of the equipment at the manufacturer’s loading
docks, shipping trucks, rail cars or barges at the vendor’s fabrication facility. The
purchaser still has to pay for equipment freight, installation, insulation, instrumentation,
electric work, piping, engineering work and construction. When there is a reference to
purchased equipment cost, it typically corresponds to the FOB basis.
Delivered equipment cost: This term corresponds to the equipment cost delivered to
the buyer. It is the sum of the FOB and the delivery costs (e.g., freight, transportation
insurance, importation taxes).
Installed equipment cost: This is the sum of the delivered equipment cost plus the
installation costs (e.g., labor, civil structure and foundation work). The installation costs
are typically in the range of 40-50% of the delivered equipment cost.
Chemical Engineering Design55
1. Manufacturer’s Quotations
Quotations::
- Get multiple quotations
- Typically requires a lot of design details
- Do not always go for lowest bidder
- Check materials of construction, track-
track-record,
record, safety, reliability,
operability, etc.
etc.
2. Computer-
Computer-Aided Tools:
- Software
Software:: e.g., ICARUS, SuperPro
- Web resources: e.g., Matches web site:
www.Matche.com/EquipCost

3. Capacity Ratio (Scaling Factor) with Exponent (Six-

(Six-
Tenths Factor Rule)
– For very similar equipment, but different sizes
Exponent x is typically ~ 0.6

Cheaper to have one equipment of size V than 2 units of size V/2 each (20.6 = 1.5)

Examples of Typical Values of Equipment Cost Exponents
Equipment Size Range/Sizing Criterion Exponent x Reference

Blowers (centrifugal) 0.5 – 4.7 m3/s 0.59 Peters et al. (2003)
Compressor (reciprocating) 150 – 750 kW 0.80 Garrett (1989)
Cooling tower 5,000 – 30,000 gpm of water flow 0.77 Brown (2007)
Ejectors (steam jet) Steam flowrate, kg/s 0.52 Axtell and Robertson (1986)
Furnaces Heat duty, kW 0.78 – 0.80 Axtell and Robertson (1986), Towler and
Sinnott (2008)
Heat exchangers (shell-and-tube, 10 – 900 m2 0.60 Peters et al. (2003), Ulrich and Vasudevan
floating head) (2004)
Heat exchangers (shell-and-tube, 10 – 40 m2 0.44 Peters et al. (2003)
fixed sheet)
Jacketed vessel 1 – 800 m3 0.60 Ulrich and Vasudevan (2004)
Refrigeration units 5 – 10,000 kW 0.60 - 0.70 Chauvel (1981), Ulrich and Vasudevan
(2004)
Tank (floating roof) 200 – 70,000 m3 0.60 Ulrich and Vasudevan (2004)
Tank (spherical 0 – 5 barg) 100 – 10,000 m3 0.60 - 0.70 Ulrich and Vasudevan (2004), Towler and
Sinnott (2008)
1 – 3 m diameter Peters et al. (2003)

58
Trays (sieve) 0.86
Wastewater treatment 400 – 400,000 m3/d 0.64 Seider et al. (2009)

4. Cost Indices to Update Equipment Cost

– To account for inflation and update cost of identical units
Most commonly-used equipment cost index is Marshall and

Swift cost index
published at Chemical Engineering magazine
Try to limit updates to ~10 years
Recent Values of the M&S Cost Index
Year M&S
Equipment
Cost Index#
2001 1,093.9
2002 1,104.2
2003 1,123.6
2004 1,178.5
2005 1,244.5
2006 1,302.3
2007 1,373.3
2008 1,449.3
2009 1468.6
2010 1,457.4
#(Basis: in 1926, value of index = 100)
EXAMPLE: EQUIPMENT COST ESTIMATION
A shell-and-tube heat exchanger has a surface area of

100 m2. Its cost in 2003 was $92,000. What was the
cost of a similar heat exchanger with double the
surface area in 2009?

EXAMPLE: EQUIPMENT COST ESTIMATION
A shell-and-tube heat exchanger has a surface area of

100 m2. Its cost in 2003 was $92,000. What was the
cost of a similar heat exchanger with double the
surface area in 2009?
Solution:
Two steps:
1. Update: Using the M&S cost index,
Cost of the 100-m2 heat exchanger in 2009

= 92,000*(1468.6/1,123.6)
= $120,248
2. Account for scale: Assuming a capacity exponent of 0.6
Cost of the 200-m2 heat exchanger in 2009
= 120,248*(200/100)0.6
= $182,262

5. Equipment Cost Charts (Typically FOB Basis)
Equipment
Cost
Size

Cost of a Floating-Head Shell-and-Tube Heat Exchanger
(carbon steel, 1,035 kPa pressure rating)
1000
Cost
($ k)
100
January 2011
10
10 100 1000
Surface area (m2)

Purchased Cost of a Centrifugal Pump
(carbon steel)
100000
Cost
($)
10000
January 2011
1000
1 10 100
Shaft Power (kW)

Purchased Cost of a Steam Turbine
1000000
Cost
($)
100000
January 2011
10000
100 1000 10000
Delivered Power, kW

Effect of Materials of Construction
Purchased cost of equipment in material of construction M
Materials Factor for Material M =
Purchased cost of equipment in carbon steel
Material of Construction Materials Factor

Carbon steel 1.0
Cast steel 1.2
Aluminum 1.6
Bronze 1.6
304 stainless steel 1.8
316 stainless steel 2.1
Copper 2.3
Hastelloy C 2.4
Monel 3.2
Nickel 4.5
Inconel 4.7
Titanium 8.0
Example 2.7. Including the materials factor in estimating the cost of a
heat exchanger
Estimate the January 2011 purchased cost of a 60-m2

floating-head shell-and-tube heat exchanger made of
titanium.
Cost of a Floating-Head Shell-and-Tube Heat Exchanger
(carbon steel, 1,035 kPa pressure rating)
Solution:
1000 • The purchased cost of the 60-
m2 carbon-steel exchanger is
approximately $80,000.
Cost
($ k)
100 • To adjust for the materials of
construction, the materials
factor of 8.0 for titanium is
used.
January 2011
10
10 100 1000  Purchased cost of titanium
Surface area (m2)
exchanger = 8.0*80,000 =
$640,000.
Purchased--Equipment Installation
Purchased

Other Cost Factors
• Insulation costs
• Instrumentation and controls
• Piping

Other Cost Factors
• Electrical installations
• Buildings including services
• Yard improvement
• Service facilities
• Land
• Engineering and supervision
• Construction expenses
• Contractor’s fee
• Contingencies
• Start-
Start-up expenses

Costs of Production
Learning Objectives
• How to evaluate the production costs associated with a

project
• How to determine prices for feeds, products
• How to summarize production cost information in a

standard form

Total Product cost
• Manufacturing costs
– Direct production/operation costs
– Fixed charges
– Plant overhead costs
• General expenses
– Administrative expenses
– Distribution and marketing expenses
– Research and development
– Financing (interest) (often considered a fixed charge)
– Gross-
Gross-earnings expenses

Operating Costs
• Operating costs ($/yr)
– Raw materials
– Material utilities
– Energy utilities
– Labor
– Maintenance
– R&D

Operating Costs
• Raw materials and material utilities:
• Get quotations from manufacturers/vendors
• or see ICIS Chemical Business (www.icis.com)
• Published weekly
• Formerly (until 2006) known as the Chemical Marketing Reporter
• Historical data on the prices of key chemicals may also be obtained online at
http://www.icis.com/StaticPages/a-e.htm

Operating Costs
• Energy utilities:
• Market prices
• or EIA's web: http://
http://tonto.eia.doe.gov/oog/info/ngw/ngupdate.asp
tonto.eia.doe.gov/oog/info/ngw/ngupdate.asp
Energy Utility Cost

Natural Gas $4-8/MM Btu (or per 1000
SCF)
Typical Costs of Petroleum $12-15/MM Btu
Utilities Steam $4 – 15/ton
Electricity $0.05-0.10/kWh
Cooling Tower Water $0.03 – 0.10/m3
Process Water $0.50/1.50/m3
Refrigeration $20 – 50/MM Btu

Operating Costs
• Labor:
– Estimate how many employees are needed and their expertise
– Depends on type of process, production level, extent of
automation, number of shifts
– For prevailing wages/salaries, please see Bureau of Statistics
• Maintenance
– preventive and responsive. A typical range for annual
maintenance and repairs cost is 5-
5-10% of the FCI.
• R&D

Operating Labor

Plant Capacity Vs Labor

Costs of Maintenance

Total Cost
• How to estimate the total cost?

– Units for capital investment and operating costs are different!
• Convert FCI to Annualized fixed cost (AFC)

(AFC)
• AOC = Annual operating cost
• Total Annualized Cost (TAC)

TAC = AFC + AOC
= ɸFCI + AOC
Where, ɸ is an annualizing factor

Estimation of total product cost

Estimation of total product cost

Concluding Remarks on Cost Estimation
• Different levels of accuracy depending on objectives and available
information
• Various techniques and literature/web resources
• For FCI:
- Start with shortcut methods such as turnover ratio for a very quick
(and rough) estimation
- Search for comparable data to be scaled up and/or updated (using
capacity ratio exponent of 0.6-
0.6-0.7 and Chem. Eng. Plant Cost Index
Index))
- When sufficient data are available for the equipment, use factor rules
(e.g., revised Lang factors or Hand method)
method)
• For equipment cost:
- Start with cost charts and web resources (e.g., Matches)
- Search for comparable data to be scaled up and/or updated (using
capacity ratio exponent of 0.6 and M&S Cost Index)
• For operating cost:
- For raw materials, you may use ICIS and other resources
- For energy, you may use EIA and other resources
Important Questions Related to Cost
• What are the cost items involved in installing and operating a
process?
• What types of cost estimation can be carried out and to what

level of accuracy?
• How to estimate the cost of building a plant or implementing

a project?
• How to account for the changes in market conditions and for

the time value of money?
• How to estimate the recurring costs associated with running

the plant?

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ChE 405: Process Design I

Dr. Syeda Sultana Razia

Chemical Engineering Design

Two primary costs:

• Capital investment ($)

• Operating (production) cost

Chemical Engineering Design

• Operating Time and Rate of Production

Chemical Engineering Design

• How to evaluate both?

• What are the key elements in each cost?

• How to update the costs?

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• Most chemical plants use an initial working capital

• This percentage may increase to as much as 50 percent

Chemical Engineering Design

Fixed Capital Working Capital

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Chemical Engineering Design

Chemical Engineering Design

1. Engineering and supervision

Chemical Engineering Design

• All equipment listed on a complete flowsheet

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• Installation of all equipment listed on complete

3. Instrumentation and controls

• Purchase, installation, calibration, computer

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• Process piping utilizing suitable structural

• Electrical equipment switches, motors, conduit,

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• Process buildings – substructures, superstructures, platforms, supports,

Chemical Engineering Design

Chemical Engineering Design

Chemical Engineering Design

Chemical Engineering Design

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Study estimate or preliminary

Preliminary estimate or budget

Definitive estimate or project

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• Definitive estimate (project control estimate) based on

• Detailed estimate (contractor’s estimate) based on

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• Directories for lists of vendors:

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Chemical Engineering Design

• When you have very similar processes but different

• Exponent x is typically ~ 0.6 – 0.7

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A processing facility is designed to convert waste cooking oil

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Cost per annual gallon:

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Notice the effect of economy of scale

Chemical Engineering Design