Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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CHE 425 CHE 425
Engineering Economics and Engineering Economics and Design PrinciplesDesign Principles
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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DefinitionDefinition
Capital cost pertains to the costs associated withCapital cost pertains to the costs associated withconstruction of a new plant or modification to anconstruction of a new plant or modification to an
existing chemical manufacturing plant.existing chemical manufacturing plant.
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Types of Capital Cost EstimateTypes of Capital Cost Estimate
Order of Magnitude Estimate (Feasibility)Order of Magnitude Estimate (Feasibility)
Study Estimate / Major EquipmentStudy Estimate / Major Equipment
Preliminary Design (Scope) Estimate Preliminary Design (Scope) Estimate
Definitive (Project Control) EstimateDefinitive (Project Control) Estimate
Detailed (Firm or Contractors) Estimate Detailed (Firm or Contractors) Estimate
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Types of Capital Cost Estimate (cont.)Types of Capital Cost Estimate (cont.)
Order of Magnitude Estimate (Feasibility)Order of Magnitude Estimate (Feasibility)
Data: Cost information for a complete processData: Cost information for a complete process
Diagram: BFDDiagram: BFD
Study Estimate / Major EquipmentStudy Estimate / Major Equipment
Data: List of major equipmentsData: List of major equipments
Diagram: PFDDiagram: PFD
Preliminary Design (Scope) Estimate Preliminary Design (Scope) Estimate
Data: Accurate equipment sizes, layout of equipment, piping, Data: Accurate equipment sizes, layout of equipment, piping, instrumentation and electrical requirementsinstrumentation and electrical requirements
Diagram: PFD and preliminary PI&DDiagram: PFD and preliminary PI&D
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Types of Capital Cost Estimate (cont.)Types of Capital Cost Estimate (cont.)
Definitive (Project Control) EstimateDefinitive (Project Control) Estimate
Data: specification of all equipment, utilities, Data: specification of all equipment, utilities, instrumentation, electrical and offinstrumentation, electrical and off--sites.sites.
Diagram: Final PFD and a preliminary PI&DDiagram: Final PFD and a preliminary PI&D
Detailed (Firm or Contractors) Estimate Detailed (Firm or Contractors) Estimate
Data: Complete engineering of the process and all Data: Complete engineering of the process and all related offrelated off--siessies and utilities.and utilities.
Diagram: Final PFD and P&IDDiagram: Final PFD and P&ID
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Types of Capital Cost EstimateTypes of Capital Cost Estimate
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Estimating Purchased Equipment Costs Estimating Purchased Equipment Costs Vendor quote Vendor quote
Most accurate Most accurate •• based on specific information based on specific information •• requires significant engineering requires significant engineering
Use previous cost on similar equipment and Use previous cost on similar equipment and scale for time and size scale for time and size
Less accurate Less accurate •• beware of large extrapolation beware of large extrapolation •• beware of foreign currency beware of foreign currency
Use cost estimating charts and scale for time Use cost estimating charts and scale for time Reasonably accurate Reasonably accurate ConvenientConvenient
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Effect of Size (Capacity)n
b
a
b
a
AA
CC
⎟⎠⎞
⎜⎝⎛=
naa KAC =
bn
b
CKA
=where
(5.1)
(5.2)
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Effect of Size (Capacity) (cont.)(cont.)
nn = 0.4 = 0.4 –– 0.8 Typically 0.8 Typically
Often Often nn ~ 0.6 and we refer to Eq.(5.1) as the ~ 0.6 and we refer to Eq.(5.1) as the (6/10)(6/10)’’s Rule s Rule
Assume all equipment have Assume all equipment have nn = 0.6 in a process unit = 0.6 in a process unit and scaleand scale--up using this method for whole processes up using this method for whole processes
OrderOrder--ofof--Magnitude estimateMagnitude estimate
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Another way of looking at economy of scaleAnother way of looking at economy of scale
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Effect of Time
Time increases Time increases –– cost increases (inflation) cost increases (inflation)
Inflation is measured by cost indexes Inflation is measured by cost indexes -- Figure Figure 5.3 5.3
Chemical Engineering Plant Cost Index (CEPCI) Chemical Engineering Plant Cost Index (CEPCI)
Marshall and Swift Process Industry Index Marshall and Swift Process Industry Index
Numbers based on Numbers based on ““basket of goodsbasket of goods”” typical for typical for construction of chemical plants construction of chemical plants -- Table 5.5Table 5.5
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Equation for Time Effect Equation for Time Effect
⎟⎟⎠
⎞⎜⎜⎝
⎛=
1
212 I
ICC
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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ExampleExample
QuestionQuestion
Cost of vessel in 1993 was 25,000, what isCost of vessel in 1993 was 25,000, what isestimated cost today (Sept 2003 estimated cost today (Sept 2003 –– CEPCI = 402)?CEPCI = 402)?
SolutionSolution
990,27$359402000,25
19931993 =⎟
⎠⎞
⎜⎝⎛=⎟⎟
⎠
⎞⎜⎜⎝
⎛=
IICC now
now
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Example Example -- Accounting for Time and SizeAccounting for Time and Size
2 heat exchangers, 1 bought in 1990 and the other2 heat exchangers, 1 bought in 1990 and the otherin 1995 for the same service in 1995 for the same service
AA B B Area = Area = 70 m270 m2 130 m2 130 m2 Time = Time = 19901990 1995 1995 Cost = Cost = 17 K17 K 24 K 24 K
I I = = 358358 381381
What is the Cost of a 80 mWhat is the Cost of a 80 m22 Heat Exchanger Heat Exchanger Today? (Today? (II = 402)= 402)
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Example Example -- SolutionSolution
Must First Bring Costs to a Common TimeMust First Bring Costs to a Common Time
AA = 70 = 70
AA = 130 = 130
089.1935840217)2003( =⎟
⎠⎞
⎜⎝⎛=aC
323.2538140224)2003( =⎟
⎠⎞
⎜⎝⎛=bC
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Example Example –– Solution (cont.)Solution (cont.)
nKAC =19.089 (70)nK=
25.323 (130)nK=
( )( )
log 25.323 log(19.089)0.4565
log 130 log(70)n
−= =
−
745.2$70
089.194565.0 === nA
CK
( ) 290,20$288.20$80745.2 4565.0 ===C
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Total Cost of Plant Total Cost of Plant
Purchased equipment cost Purchased equipment cost –– equipment f.o.b. equipment f.o.b. Installed cost Installed cost –– Often 3 to 8 times larger than Often 3 to 8 times larger than purchased equipment costpurchased equipment cost
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Installed Cost of Equipment (Table 5.6) Installed Cost of Equipment (Table 5.6)
1. Direct Project Expenses 1. Direct Project Expenses
Equipment Equipment
Material for installation Material for installation
Labor for installation Labor for installation
2. Indirect Project Expenses 2. Indirect Project Expenses
Freight, insurance, and taxes Freight, insurance, and taxes
Construction overhead Construction overhead
Contractor engineering expensesContractor engineering expenses
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Installed Cost of Equipment (Table 5.6) (cont.)Installed Cost of Equipment (Table 5.6) (cont.)
Contingency and Fee Contingency and Fee
Contingency Contingency
Contractor feeContractor fee
Auxiliary FacilitiesAuxiliary Facilities
Site development Site development
Auxiliary buildings Auxiliary buildings
OffOff--sites and utilitiessites and utilities
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Lang FactorsLang Factors
Table 5.7 Table 5.7
Use multiplier depending on type of plant to escalate Use multiplier depending on type of plant to escalate equipment costs to installed costs equipment costs to installed costs
FFlanglang = 4.74= 4.74 Fluid processing plant Fluid processing plant = 3.63= 3.63 SolidSolid--Fluid processing plant Fluid processing plant = 3.10= 3.10 Solid processing plantSolid processing plant
This estimating technique is insensitive to changes in This estimating technique is insensitive to changes in process configurationprocess configuration
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Module Factor Approach Module Factor Approach
Table 5.8
Direct, Indirect, Contingency and Fees are expressed as functions (multipliers) of purchased equipment
cost at base conditions (1 bar and CS)
Each equipment type has different multipliers
Details given in Appendix A
( )opC
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Module Factor Approach Module Factor Approach
Bare Module Cost
Purchased Equipment Cost for CS and 1 atm pressure - Appendix A
Bare Module Factor (sum of all multipliers)
FBM = B1 + B2FpFM
Fp = pressure factor (= 1 for 1 bar)
FM = material of construction factor (=1 for CS)
1 2oBMF B B= +
op p p MC C F F=
BMopBM FCC =
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Illustrative ExampleIllustrative Example
Compare Costs for Compare Costs for
1. Shell1. Shell--andand--tube heat exchanger in 2001 with antube heat exchanger in 2001 with anarea = 100 marea = 100 m22 for :for :
Carbon Steel at 1 bar Carbon Steel at 1 bar
Carbon Steel at 100 bar Carbon Steel at 100 bar
Stainless Steel at 1 bar Stainless Steel at 1 bar
Stainless Steel at 100 barStainless Steel at 100 bar
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Effect of Materials of Construction and Pressure on Bare Module Cost
PP MOCMOC CCBM BM
1 bar1 bar CSCS 25 K25 K 82.3 K82.3 K
82.3 K82.3 K
82.3 K82.3 K
82.3 K82.3 K
82.3 K82.3 K
1 bar1 bar SSSS 25 K25 K 154 K154 K
100 bar100 bar CSCS 25 K25 K 98.1 K98.1 K
100 bar100 bar SSSS 25 K25 K 197.4 K197.4 K
opC o
BMC
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Bare-Module and Total-Module Costs
BM BM –– Previously Covered Previously Covered TM TM –– Includes Contingency and Fees at Includes Contingency and Fees at 15% and 3% of BM15% and 3% of BM
all equip
1.18TM BMC C= ∑
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Materials of Construction
Very important
Table 5.9 – rough guide
Perry’s – good source
Prof. Adnan AlamerChemical Engineering Dept., KFUPM
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Results of Example 5.14Results of Example 5.14