7 Estimating Capital Costs

Chemical Engineering Design

Estimating Capital CostsEstimating Capital Costs

© 2012 G.P. Towler / UOP. For educational use in conjunction with Towler & Sinnott Chemical Engineering Design only. Do not copy



““For which of you, intending to build a tower, For which of you, intending to build a tower, sitteth not down first, and counteth the cost sitteth not down first, and counteth the cost

whether he have sufficient to finish it”whether he have sufficient to finish it”

Luke 14:28Luke 14:28

Estimation of project costs has been important since the Estimation of project costs has been important since the earliest engineering projectsearliest engineering projects



Capital Cost Guessing GameCapital Cost Guessing Game

• What would it cost (in MM$) to build….What would it cost (in MM$) to build….

A 350 kbd oil refineryA 350 kbd oil refinery ~4000~4000 A 2000 kMTA A 2000 kMTA ethylene crackerethylene cracker

~1200~1200

A 90 kbd fluidized A 90 kbd fluidized catalytic cracking catalytic cracking plantplant

~1000~1000 A typical fine A typical fine chemicals plantchemicals plant

~20~20

A typical world scale A typical world scale petrochemical plantpetrochemical plant

~100~100 A 60’x8’ distillation A 60’x8’ distillation columncolumn

2 to 102 to 10

A new A new pharmaceutical plantpharmaceutical plant

20 to 10020 to 100 A pilot plantA pilot plant 1 to 201 to 20

A 2000ftA 2000ft22 heat heat exchangerexchanger

~0.1~0.1 A stirred tank reactorA stirred tank reactor 0.1 to 0.50.1 to 0.5




• Components of capital costComponents of capital cost

• Types of cost estimateTypes of cost estimate

• Estimating the cost of a whole plantEstimating the cost of a whole plant

• Estimating equipment costs Estimating equipment costs

• Estimating installed costsEstimating installed costs

• Updating cost estimatesUpdating cost estimates

• Computer tools for cost estimatingComputer tools for cost estimating













Components of Capital CostComponents of Capital Cost

We want to estimate the entire amount of money that the investor has We want to estimate the entire amount of money that the investor has to put into the project to get it started. This has several components:to put into the project to get it started. This has several components:

Inside Battery Limits (ISBL) plant investmentInside Battery Limits (ISBL) plant investment

• This is the cost of the plant “inside the fence”This is the cost of the plant “inside the fence”

• Includes equipment, bulk materials, installation costs, foundations, roads, Includes equipment, bulk materials, installation costs, foundations, roads, etc.etc.





ISBLISBL

Offsite (OSBL) InvestmentOffsite (OSBL) Investment

• Includes additions to site Includes additions to site infrastructureinfrastructure

• Boilers, electric sub-stationsBoilers, electric sub-stations

• Shipping facilities, docks, Shipping facilities, docks, etc.etc.

• Laboratories, officesLaboratories, offices

• Often approximated as 40% Often approximated as 40% of ISBL cost as first of ISBL cost as first approximationapproximation





ISBLISBL

ISBL + OSBL = fixed capital or installed capital costISBL + OSBL = fixed capital or installed capital cost

OSBLOSBL





ISBLISBLOSBLOSBL

Engineering & Construction CostsEngineering & Construction Costs

• Site construction costsSite construction costs

• Home office costsHome office costs





ISBLISBLOSBLOSBL E&CE&C

Working CapitalWorking Capital

• To buy feedstocksTo buy feedstocks

• To get in businessTo get in business





ISBLISBLOSBLOSBL E&CE&C

WCWC

ContingencyContingency

• To allow for the unexpectedTo allow for the unexpected

??



ISBL CostsISBL Costs• Direct Field CostsDirect Field Costs

– Major equipmentMajor equipment• Furnaces, heat exchangers, coolersFurnaces, heat exchangers, coolers• Vessels, reactors, columns, tanksVessels, reactors, columns, tanks• Pumps, drivers, compressors, fans, Pumps, drivers, compressors, fans,

turbinesturbines• Refrigerators, driers, centrifugesRefrigerators, driers, centrifuges

– Bulk itemsBulk items• Electrics, instrumentation, computer Electrics, instrumentation, computer

controlcontrol• Piping, valvesPiping, valves• Structures, insulation, paintStructures, insulation, paint• Lube oils, solvents, catalystsLube oils, solvents, catalysts

– Civil worksCivil works• Roads, foundationsRoads, foundations• Piling, buildingsPiling, buildings

– Installation labor & supervisionInstallation labor & supervision

• Indirect Field CostsIndirect Field Costs– Construction costsConstruction costs

• Construction equipmentConstruction equipment• Temporary constructionTemporary construction• Temporary power and waterTemporary power and water• Construction workshopsConstruction workshops

– Field expenses & servicesField expenses & services• Field canteenField canteen• Specialists costsSpecialists costs• Overtime, adverse weatherOvertime, adverse weather

– Construction insuranceConstruction insurance

– Labor benefits & burdensLabor benefits & burdens



Home Office CostsHome Office CostsEngineeringEngineering

ProcurementProcurement

Construction servicesConstruction services

Construction supervisionConstruction supervision

Project managementProject management

ExpensesExpenses

BondingBonding

Contractor’s feeContractor’s fee

These costs should be estimated individually as they do not These costs should be estimated individually as they do not scale that well with project size, but a rule of thumb is 10 – scale that well with project size, but a rule of thumb is 10 –

30% of ISBL investment30% of ISBL investment



Working CapitalWorking Capital

• Working capital is the money you need to get the plant runningWorking capital is the money you need to get the plant running• Buy feedstocks, pay bills, etc., until product is sold & revenue beginsBuy feedstocks, pay bills, etc., until product is sold & revenue begins

• Simple rules estimate WC as a proportion of ISBL (e.g.: 15%)Simple rules estimate WC as a proportion of ISBL (e.g.: 15%)

• More sophisticated methods break out WC in terms of operating More sophisticated methods break out WC in terms of operating costs, e.g. in terms ofcosts, e.g. in terms of

• Days of RM storageDays of RM storage• Days of product storageDays of product storage• Days accounts receivable less accounts payableDays accounts receivable less accounts payable• Inventories held (e.g. warehouse parts)Inventories held (e.g. warehouse parts)• Cash on handCash on hand



ContingencyContingency

• Contingency charges allow for variation from the Contingency charges allow for variation from the predicted cost estimatepredicted cost estimate

• Variation can be caused byVariation can be caused by– Scope changeScope change– Change in economic scenarioChange in economic scenario– Currency fluctuationsCurrency fluctuations– Labor disputes, weather problems, subcontractor problemsLabor disputes, weather problems, subcontractor problems– Validity of cost estimate and vendor quotesValidity of cost estimate and vendor quotes

• Contingency should be at least 10% of ISBL, & can be up to 50% if Contingency should be at least 10% of ISBL, & can be up to 50% if the process technology is uncertain: more about this laterthe process technology is uncertain: more about this later













Project CycleProject Cycle

Design Concept

Start-upConstructionProcurementDetailedDesign

• As the project proceeds, costs accumulate and the As the project proceeds, costs accumulate and the overall cost estimate becomes more certainoverall cost estimate becomes more certain

Low

Hig

h

Cost




Design Concept


• At the same time, the influence of design decisions on At the same time, the influence of design decisions on project costs decreasesproject costs decreases

Low

Hig

h

Cost

Design Influence




Design Concept


• This creates an incentive to try to use cost information to guide the This creates an incentive to try to use cost information to guide the design at as early a stage as possible (even though the cost design at as early a stage as possible (even though the cost estimate is least accurate).estimate is least accurate).

Low

Hig

h

Cost

Design Influence




Design Concept

ConstructionProcurementDetailedDesign

• An order of magnitude estimate (“ballpark An order of magnitude estimate (“ballpark estimate”, “guesstimate”, “Class 5 estimate”) estimate”, “guesstimate”, “Class 5 estimate”) requires minimal design informationrequires minimal design information

• Usually based on the costs of similar processesUsually based on the costs of similar processes

• Cost of producing the estimate is < 0.1% of Cost of producing the estimate is < 0.1% of project costsproject costs

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The terminology is taken from the Association for the The terminology is taken from the Association for the Advancement of Cost Estimating International, AACEIAdvancement of Cost Estimating International, AACEI




Design Concept


• A study (“factorial”, “preliminary”, “Class 4”) A study (“factorial”, “preliminary”, “Class 4”) estimate requires a flowsheet and the estimate requires a flowsheet and the approximate size and duty of the major plant approximate size and duty of the major plant equipmentequipment

• The estimate is based on applying installation The estimate is based on applying installation factors to main plant item costs factors to main plant item costs

• The cost of producing the estimate is usually The cost of producing the estimate is usually 0.1 to 0.2% of project costs0.1 to 0.2% of project costs

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StudyEstimate




Design Concept


• The definitive (“authorization”, “budgeting”, “Class The definitive (“authorization”, “budgeting”, “Class 3”) estimate can be put together once the PFD, 3”) estimate can be put together once the PFD, P&ID and equipment list are completed, all P&ID and equipment list are completed, all vessels and instruments are sized and a plot plan vessels and instruments are sized and a plot plan and plant layout has been developedand plant layout has been developed

• The cost is typically 0.4 to 0.8% of project costThe cost is typically 0.4 to 0.8% of project cost

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StudyEstimate Definitive

Estimate




Design Concept


• The detailed estimate (“quotation”, “tender”, “contractor’s estimate”, “Class 2 The detailed estimate (“quotation”, “tender”, “contractor’s estimate”, “Class 2 estimate”) is prepared by the contractor and is often in shopping list form, usually with estimate”) is prepared by the contractor and is often in shopping list form, usually with a firm commitment to the client. It incorporates price information from initial a firm commitment to the client. It incorporates price information from initial discussions with vendors and usually requires some mechanical design workdiscussions with vendors and usually requires some mechanical design work

• From 1 to 3% of project cost goes into preparing this estimateFrom 1 to 3% of project cost goes into preparing this estimate

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Detailed Estimate

DefinitiveEstimate




Design Concept


• The check estimate (“tender”, “Class 1 estimate”) is prepared by the contractor after The check estimate (“tender”, “Class 1 estimate”) is prepared by the contractor after negotiations with vendors and sub-contractors have been concludednegotiations with vendors and sub-contractors have been concluded

• The cost of this estimate can be up to 5% of total project cost, particularly if most of the The cost of this estimate can be up to 5% of total project cost, particularly if most of the engineering design has been completedengineering design has been completed

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Design Concept


• ChE design courses ChE design courses usually only have enough usually only have enough detail to get this fardetail to get this far

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Order of Magnitude EstimatesOrder of Magnitude Estimates

There are several ways in which we can estimate plant cost with There are several ways in which we can estimate plant cost with minimal design information:minimal design information:

1.1. By looking at the cost of a similar plantBy looking at the cost of a similar plant• Some journals publish project costs (e.g.: Hydrocarbon Processing)Some journals publish project costs (e.g.: Hydrocarbon Processing)

• Reports with recent cost data are available from SRI, Chem Reports with recent cost data are available from SRI, Chem SystemsSystems

• Perry’s handbook and other references have some plant cost dataPerry’s handbook and other references have some plant cost data

2.2. By applying a scaling equation to the whole plant or sub-sections By applying a scaling equation to the whole plant or sub-sections of the plantof the plant

3.3. Using “step-count” methodsUsing “step-count” methods



Exponential EstimatingExponential Estimating• The cost of most plant items varies with the equipment size in a The cost of most plant items varies with the equipment size in a

non-linear manner:non-linear manner:

Size

Cos

t

Log[Size]

Log

[Cos

t]

• By taking logs, we can usually get a reasonably good correlation By taking logs, we can usually get a reasonably good correlation over a few orders of magnitudeover a few orders of magnitude

• The exponent n is 0.6 for many types of equipment, hence this is The exponent n is 0.6 for many types of equipment, hence this is often known as the “Six-tenths rule”often known as the “Six-tenths rule”

n

BSize

ASize

BCost

ACost



Exponential EstimatingExponential Estimating

• Since the plant cost is built up from the sum of the equipment costs:Since the plant cost is built up from the sum of the equipment costs:

• It follows that we should be able to approximately scale the total It follows that we should be able to approximately scale the total plant cost using the same six-tenths ruleplant cost using the same six-tenths rule

N

1iiequipPlant CC

0.6

BSize

ASize

BCost

ACost



Exponents for Different ProcessesExponents for Different Processes

In practice, the 0.6 factor does not apply to all equipment or all types of In practice, the 0.6 factor does not apply to all equipment or all types of process:process:

• Most petrochemical processes are better fitted with exponent 0.7Most petrochemical processes are better fitted with exponent 0.7

• Processes with a lot of gas compression or mechanical work have Processes with a lot of gas compression or mechanical work have exponents 0.8 to 0.9 (e.g. MeOH, paper pulping)exponents 0.8 to 0.9 (e.g. MeOH, paper pulping)

• Small scale, highly-instrumented processes have lower exponents Small scale, highly-instrumented processes have lower exponents 0.4 to 0.50.4 to 0.5

• Examples of process cost curves are given in Ch7, Table 7.1Examples of process cost curves are given in Ch7, Table 7.1



ExampleExample

• A 40,000 bbl/d hydrotreater costs 56 MM$. How much would a A 40,000 bbl/d hydrotreater costs 56 MM$. How much would a 30,000 bbl/d hydrotreater cost at the same location?30,000 bbl/d hydrotreater cost at the same location?

MM$4740

3056Cost

Bsize

Asize

BCost

ACost

0.6

0.6



Estimating Plant Cost for Manufactured Estimating Plant Cost for Manufactured ProductsProducts

• For large scale mass manufacture (>0.5 MM pieces/y) a For large scale mass manufacture (>0.5 MM pieces/y) a rule of thumb isrule of thumb is

Total cost of production = 2 x materials costTotal cost of production = 2 x materials cost

• This allows a very approximate estimate of plant cost if This allows a very approximate estimate of plant cost if other fixed costs and utilities can be estimatedother fixed costs and utilities can be estimated

• More detailed methods allow for number of components, More detailed methods allow for number of components, number of assembly steps and complexity of assemblynumber of assembly steps and complexity of assembly














Design Concept


These estimates usually start with an estimate of the cost for These estimates usually start with an estimate of the cost for each major piece of plant equipmenteach major piece of plant equipment

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Sources of Equipment CostsSources of Equipment Costs

Design Concept


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Cost curves, exponent basedCost curves, exponent based

Detailed designDetailed designVendor quotesVendor quotes

CheckEstimate

Detailed Estimate

DefinitiveEstimate



Exponents for EquipmentExponents for Equipment

• Equipment costs can be scaled from similar equipment of different Equipment costs can be scaled from similar equipment of different size using the same exponent rule:size using the same exponent rule:

• Exponents vary with equipment type:Exponents vary with equipment type:

n

BSize

ASize

BCost

ACost

Equipment Type Scale Parameter ExponentBlower Flowrate 0.6Centrifugal pump Power 0.67Centrifuge Filter area 0.65Compressor, reciprocating Power 0.85Dryer, drum Area 0.52Heat exchanger, DEL Area 0.59Motor Power 0.77Pressure vessel Volume 0.62Tower Flowrate 1

(Holland, F.A., Watson, F.A. & Wilkinson, J.K., 1984, in Perry’s Handbook, 6 th Edn., McGraw Hill, New York)



Equipment Cost CorrelationsEquipment Cost Correlations• The ChE literature has an abundance of cost correlationsThe ChE literature has an abundance of cost correlations

• Many of these are updates or derivatives of the work of Guthrie, and Many of these are updates or derivatives of the work of Guthrie, and have to be used with some cautionhave to be used with some caution

• The IChemE and ACostE publish an excellent (& very cheap) guide The IChemE and ACostE publish an excellent (& very cheap) guide to capital cost estimating with recent cost correlations, but these to capital cost estimating with recent cost correlations, but these need to be converted from U.K. to U.S. basis.need to be converted from U.K. to U.S. basis.

• Many cost engineers collect data and keep their own correlationsMany cost engineers collect data and keep their own correlations

• Best practice in industry is to use costing software (see later)Best practice in industry is to use costing software (see later)

• Correlations given in Ch7 can be used as a first approximation if no Correlations given in Ch7 can be used as a first approximation if no software is available. Note: these are not based on Guthrie’s worksoftware is available. Note: these are not based on Guthrie’s work

Guthrie, K.M. Capital Cost Estimating, Chem. Eng., 76(6), 114, 1969Guthrie, K.M. Process Plant Estimating, Evaluation and Control, Craftsman Book Co., Solana Beach, CA, 1974

Gerrard, A.M. Guide to Capital Cost Estimating, 4th Edn., Institute of Chemical Engineers, Rugby, U.K., 2000

e.g. Perry’s Handbook, other design textbooks



Example Cost Correlations: GraphsExample Cost Correlations: Graphs

Note:Note:

• Log scaleLog scale

• 2+ orders of magnitude 2+ orders of magnitude validityvalidity

• Error reading graph Error reading graph corresponds to error in corresponds to error in correlationcorrelation

• UninstalledUninstalled

Gerrard, A.M. Guide to Capital Cost Estimating, 4th Edn., Institute of Chemical Engineers, Rugby, U.K., 2000

Shell and Tube Heat Exchangers

10000

100000

1000000

10000000

10 100 1000 10000 100000

Area, m2

Co

st,

GB

P, J

an

20

00



Example Cost Correlations: EquationsExample Cost Correlations: Equations

• C = USGC purchased equipment cost of a fired heater in k$C = USGC purchased equipment cost of a fired heater in k$20062006

• Q = duty in MW Q = duty in MW

• Valid for 0.2 < Q < 60Valid for 0.2 < Q < 60

• Note that the range of validity must be specified and extrapolation is Note that the range of validity must be specified and extrapolation is unwiseunwise

• Other C = Other C = aa + + bb (size) (size)nn equations are given in Ch7, Table 7.2 equations are given in Ch7, Table 7.2

C = 53 + 69 Q0.8



Detailed Design & Vendor QuotesDetailed Design & Vendor Quotes

• For specialized equipment (e.g. fancy reactors) or proprietary For specialized equipment (e.g. fancy reactors) or proprietary equipment, cost correlations are not widely availableequipment, cost correlations are not widely available

• To estimate the cost of such equipment we need to estimate the To estimate the cost of such equipment we need to estimate the materials, labor and fabricator’s marginmaterials, labor and fabricator’s margin

• Materials and labor require a detailed mechanical design, as well as Materials and labor require a detailed mechanical design, as well as a good understanding of fabrication methods and costsa good understanding of fabrication methods and costs

• Even a vendor will be unable to provide this information accurately Even a vendor will be unable to provide this information accurately until the design is specified in detail, hence this is usually left until until the design is specified in detail, hence this is usually left until later project stageslater project stages













Factorial EstimatesFactorial Estimates• In addition to the purchased cost of the equipment itself, we need to In addition to the purchased cost of the equipment itself, we need to

consider the costs of:consider the costs of:• Installing the equipmentInstalling the equipment• Piping, ducting, etc.Piping, ducting, etc.• Instrumentation and controlInstrumentation and control• Electrical systemsElectrical systems• Civil engineering work such as foundations & pilingCivil engineering work such as foundations & piling• Structures and buildingsStructures and buildings• Insulation, paint and fireproofingInsulation, paint and fireproofing

• For preliminary and study estimates these are estimated by For preliminary and study estimates these are estimated by multiplying the main plant item cost by an installation factor (or Lang multiplying the main plant item cost by an installation factor (or Lang factor)factor)

CCinstalledinstalled = C = Cequipmentequipment x F x F



Installation FactorsInstallation Factors• Lang originally proposed three installation factors, depending on plant type, Lang originally proposed three installation factors, depending on plant type,

roughly 4.0roughly 4.0

• Simple methods allow for variation of F by equipment type (e.g., the factors Simple methods allow for variation of F by equipment type (e.g., the factors proposed by Hand):proposed by Hand):

• More complex methods build up F from component factorsMore complex methods build up F from component factors

Equipment Type FCompressors 2.5Distillation columns 4Furnaces 2Heat exchangers 3.5Instruments 4Miscellaneous equipment 2.5Pressure vessels 4Pumps 4

Lang, H.J. Simplified approach to preliminary cost estimates. Chem. Eng., 55(6), 112, 1948Hand, W.E. From flow sheet to cost estimate. Petrol. Refiner, 37(9), 331, 1958



Installation FactorInstallation FactorF = (1 + fF = (1 + fpp)f)fmm + f + ferer + f + fii + f + felel + f + fc c + f+ fss + f + fll

Where:Where:

• ffpp is the piping installation factoris the piping installation factor• ffmm is the material cost factoris the material cost factor• fferer is the site erection installation factoris the site erection installation factor• ffii is the instrumentation installation factoris the instrumentation installation factor• ffelel is the electrical installation factoris the electrical installation factor• ffcc is the civil installation factoris the civil installation factor• ffss is the structure & buildings installation is the structure & buildings installation

factorfactor• ffll is the lagging, paint and fireproof is the lagging, paint and fireproof

installation factorinstallation factor

• All of these factors (except fAll of these factors (except fmm) vary with installation complexity and ) vary with installation complexity and equipment costequipment cost

• Note that the factors are standardized on a plain carbon steel basisNote that the factors are standardized on a plain carbon steel basis© 2012 G.P. Towler / UOP. For educational use in conjunction with Towler & Sinnott Chemical Engineering Design only. Do not copy


Materials Cost Factors, fMaterials Cost Factors, fmm

• Express costs relative to plain carbon steelExpress costs relative to plain carbon steel– Carbon steelCarbon steel 1.01.0– Aluminum & bronzeAluminum & bronze 1.071.07– Cast steelCast steel 1.11.1– 304 stainless steel304 stainless steel 1.31.3– 316 stainless steel316 stainless steel 1.31.3– 321 stainless steel321 stainless steel 1.51.5– Hastelloy CHastelloy C 1.551.55– MonelMonel 1.651.65– Nickel & inconelNickel & inconel 1.71.7

• Materials selection makes a huge difference to capital Materials selection makes a huge difference to capital cost: see Chapter 6 for factors to considercost: see Chapter 6 for factors to consider



Installation FactorInstallation Factor• Gerrard & Perry’s Handbook give detailed methods for estimating Gerrard & Perry’s Handbook give detailed methods for estimating

component installation factorscomponent installation factors

• Typical behavior of installation factors is:Typical behavior of installation factors is:

• Overall installation factor is almost always 2 < F < 6Overall installation factor is almost always 2 < F < 6

• Estimation of F is easy to code in spreadsheets & is effectively built Estimation of F is easy to code in spreadsheets & is effectively built into commercial estimating softwareinto commercial estimating software

Cequipment

FIncreasing complexity of installation













Cost Estimate BasisCost Estimate Basis• Most cost data is published on a “standard basis” of USGC or NWEMost cost data is published on a “standard basis” of USGC or NWE

• Historically the major locations of the chemical industryHistorically the major locations of the chemical industry• Standard basis allows quick comparison with other data, studiesStandard basis allows quick comparison with other data, studies

• Cost information should also always state the cost year basis, e.g. $Cost information should also always state the cost year basis, e.g. $20042004, ,

₤₤20002000, €, €20022002, etc., etc.

• For a new project we therefore have to update the cost basis to reflect For a new project we therefore have to update the cost basis to reflect the correct location, local currency and current (or projected) time framethe correct location, local currency and current (or projected) time frame

• This is done by applying indices:This is done by applying indices:

AIndexLocation

BIndexLocation

2000IndexCost

20XXIndexCostALocation$CostBLocation$Cost 200020XX



U.S.A. Cost IndicesU.S.A. Cost Indices

• Engineering News Record (ENR) Construction IndexEngineering News Record (ENR) Construction Index• Mainly for civil engineering workMainly for civil engineering work• Not really suitable for process industries, but has been going since 1904Not really suitable for process industries, but has been going since 1904

• Chemical Engineering (CE) Plant Cost IndexChemical Engineering (CE) Plant Cost Index• Published monthly in Published monthly in Chemical EngineeringChemical Engineering magazine magazine• Multi-component index, but Multi-component index, but Chem. Eng.Chem. Eng. also has equipment indices also has equipment indices

• Marshall & Swift (M&S) Equipment Cost IndexMarshall & Swift (M&S) Equipment Cost Index• Also published monthly in Also published monthly in Chemical EngineeringChemical Engineering• Composite from several industries (including cement, chemicals, glass, …)Composite from several industries (including cement, chemicals, glass, …)

• Nelson-Farrer Refinery Construction IndexNelson-Farrer Refinery Construction Index• Published monthly in Published monthly in Oil & Gas JournalOil & Gas Journal• Applies to refinery & petrochemical plants on USGCApplies to refinery & petrochemical plants on USGC• OGJOGJ also publishes quarterly indices for 40 equipment types also publishes quarterly indices for 40 equipment types



Comparison of U.S.A. Cost IndicesComparison of U.S.A. Cost Indices


0

500

1000

1500

2000

2500

1985 1990 1995 2000 2005 2010

Year

Ind

ex V

alu

e

NF

CE

MS

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1

1.2

1.4

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1.8

2

1985 1990 1995 2000 2005 2010

YearIn

dex

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ativ

e to

199

0

NF

CE

MS


Location FactorsLocation Factors• Location factor captures Location factor captures

differences in local costs of differences in local costs of labor, import duties, fabrication labor, import duties, fabrication and installation infrastructure, and installation infrastructure, etc.etc.

• Location factors are a function Location factors are a function of time & are trending closer to of time & are trending closer to 1.0 as a result of globalization1.0 as a result of globalization

• Most sites have a good idea of Most sites have a good idea of their own location factor relative their own location factor relative to USGC or NWEto USGC or NWE

• Values given are from Ch7, Values given are from Ch7, Table 7.7Table 7.7

Country Region Location factor

United States Gulf coast 1.00 East coast 1.04 West Coast 1.07 Midwest 1.02 Canada Ontario 1.00 Fort McMurray 1.60 Mexico 1.03 Brazil 1.14 China imported 1.12 indigenous 0.61 Japan 1.26 SE Asia 1.12 Australia 1.21 India 1.02 Middle East 1.07 France 1.13 Germany 1.11 Italy 1.14 Netherlands 1.19 Russia 1.53 United Kingdom 1.02














Design Concept


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Once we have some equipment sizes, we can start using costing software

• Most industrial designs are costed using commercial costing softwareMost industrial designs are costed using commercial costing software

• Experienced cost estimators often customize the software using their Experienced cost estimators often customize the software using their own data or modelsown data or models



Aspen ICARUS Process EvaluatorAspen ICARUS Process Evaluator™™ (IPE) (IPE)

• Allows import of simulation data Allows import of simulation data from Aspen Plusfrom Aspen Plus®®, HYSYS, HYSYS®®, , UniSim, Pro II, ChemCADUniSim, Pro II, ChemCAD

• Makes expert system Makes expert system assumptions for bulks, installation, assumptions for bulks, installation, indirect costs & home office costsindirect costs & home office costs

• Provides a relatively quick, Provides a relatively quick, defensible cost estimate with defensible cost estimate with common basis of assumptionscommon basis of assumptions

• Easy to update as design detail is Easy to update as design detail is addedadded



Example of Using Aspen IPEExample of Using Aspen IPE

• Find the cost of a waste heat boiler that produces Find the cost of a waste heat boiler that produces 4,000lb/h of steam. 4,000lb/h of steam.

• The boiler area has been estimated as 1300 ftThe boiler area has been estimated as 1300 ft22



Using Aspen IPEUsing Aspen IPE

Right-click on main area then select Add Project Component

Right-click on main area then select Add Project Component




Select process equipment,Then heat exchangers




Enter a name and select waste heat boiler




Enter size parameters and click “evaluate”




Equipment cost

Installed cost



Tips for Capital Cost EstimatingTips for Capital Cost Estimating

• Check location, materials of construction, currency and time basis of Check location, materials of construction, currency and time basis of data carefully and ensure that all data are put on a consistent basisdata carefully and ensure that all data are put on a consistent basis

• Confirm source references and beware of updates of ancient dataConfirm source references and beware of updates of ancient data

• Keep a record of any new cost data you come acrossKeep a record of any new cost data you come across

• Be discerning in use of commercial software tools and be sure that Be discerning in use of commercial software tools and be sure that you agree with the implicit assumptionsyou agree with the implicit assumptions

• Be careful not to use vendor data until the design is specified in Be careful not to use vendor data until the design is specified in detail, otherwise there is a high likelihood of unanticipated costsdetail, otherwise there is a high likelihood of unanticipated costs



Point and Range EstimatesPoint and Range Estimates

• All point estimates of capital cost are wrongAll point estimates of capital cost are wrong

• Estimate should always include quantification of the Estimate should always include quantification of the margin of errormargin of error

• Laws of statistics can be used to quantify range of Laws of statistics can be used to quantify range of variation more accuratelyvariation more accurately

• Particularly useful when the uncertainty in the cost of some Particularly useful when the uncertainty in the cost of some equipment is much greater than the balance of the plantequipment is much greater than the balance of the plant

• Care is needed in ensuring that the uncertainty in any item does not Care is needed in ensuring that the uncertainty in any item does not affect the size of other itemsaffect the size of other items

• A good overview of statistical methods in cost estimating A good overview of statistical methods in cost estimating is given in:is given in:

Sweeting, J. Sweeting, J. Project Cost Estimating – Principles and PracticeProject Cost Estimating – Principles and Practice ., Institution of ., Institution of Chemical Engineers, Rugby, U.K., 1997.Chemical Engineers, Rugby, U.K., 1997.



Precision & ContingencyPrecision & Contingency• Contingency is strictly a cost added by the contractor to allow for Contingency is strictly a cost added by the contractor to allow for

uncertainty in the estimateuncertainty in the estimate

Cost

Pro

babi

lity Mean (most likely) value

Contractor’s estimate

• Contingency should be set to give a desired probability (statistical Contingency should be set to give a desired probability (statistical confidence) that the project will come in under the quoted costconfidence) that the project will come in under the quoted cost

• Higher uncertainty requires more contingency, hence “Me third!” for new Higher uncertainty requires more contingency, hence “Me third!” for new technologytechnology

• See Ch7 for more detailsSee Ch7 for more details© 2012 G.P. Towler / UOP. For educational use in conjunction with Towler & Sinnott Chemical Engineering Design only. Do not copy


Cost Engineering ResourcesCost Engineering Resources

• References cited aboveReferences cited above

• Association for the Advancement of Cost Engineering (AACE) Association for the Advancement of Cost Engineering (AACE) International International www.aacei.org

• Project Management Institute Project Management Institute www.pmi.org

• U.K. Association of Cost Engineers (ACostE) U.K. Association of Cost Engineers (ACostE) www.acoste.org.uk

• International Cost Engineering Council (ICEC) International Cost Engineering Council (ICEC) www.icoste.org (has (has listings to Cost Engineering societies in 46 countries)listings to Cost Engineering societies in 46 countries)



Questions ?Questions ?


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7 Estimating Capital Costs

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