No Slide Title · 2014-09-23 · Suncor is another major oil-sands company As reported in the Globe...

time

0 1 2 3 4 ….

Cashflowat each period

negative

positiveWe know how to calculate profitability;; now, let’s learn how to estimate the data, i.e., the costs.

1. Time value of money2. Quantitative measures

of profitability3. Systematic comparison

of alternatives4. Estimation of costs

Capital Cost Estimating

90

Cost estimation

What is Syncrude?A. A company in Alberta, Canada.

B. The result of heavy oil being processed to form a synthetic crude oil of further processing.

C. A major source of crude oil for western Canada

D. The major employer in Fort McMurray, Alberta

Cost estimating is important to study.

Cost estimation

91


Syncrude has reported several changes to the cost estimate for its major expansion project that added 100,000 B/d of synthetic crude capacity.

Initial estimate: 3.6 Billion $

Don’t let this happen to you!

Second correction: 5.1 Billion $

First correction: 4.6 Billion $

“As built” cost: 8.4 Billion $

As reported in the Globe and Mail, 14 September 2002 and 01 September 200792


Cost estimation

Suncor is another major oil-sands company

As reported in the Globe and Mail, 27 March 2013 93


Cost estimation

“Suncor Energy Inc. cancelled its $11.6-billion Voyageur upgrader project because of soaring capital costs – and the belief that better profits are to be found in shipping out unprocessed bitumen.

• Suncor will take a $140-million writedown that will erode its first-quarter profit • In February, Suncor wrote off $1.5-billion of its investment in the upgrader.

Since 2010, market conditions have changed significantly, challenging the economics of the Voyageur upgrader project.

Suncor has already invested $3.5-billion in Voyageur, but decided to pull the plug after a detailed review… This decision is in line with our commitment to capital discipline and our stated plan to allocate capital with priority given to developing higher-return growth projects.

Consider the ripple effect across the industry this caused”

Class discussion

Equipment suppliers and technology licensors will give us estimates. We could call them and receive an estimate. This approach would involve little effort,

So, why is cost estimation a skill needed by all engineers?

We can always get someone else to tell us the costs.

Is this a good idea?

94


Cost estimation

Order of magnitude for toluene + hydrogen benzene

Block flow process diagram 96


Cost estimation

Order of magnitude: heading to more detailed

Skeleton Process Flow Diagram 97


Cost estimation

More detailed estimate (study phase)

Detailed Process Flow Diagram 98


Cost estimation

Definitive estimates

Detailed PIDs 99

Cost estimationCapital Cost Estimating

We must balance the needed accuracy with the cost to perform.(See Peters and Timmerhaus, Pg 160-162)

Takes time and effort: Total cost to prepare an estimate could be several $100k, but the same effort would be required later in the design phase, part of cost is really just pre-investment.

Name Accuracy Application Process detailOrder of magnitude -30 to +50% Screen investments Block flow diagramStudy -15 to +30% Finalize major choices PFD + rough design

of major equipmentDefinitive -5 to +15% Control costs P&I Drawing, detailed

M&E balances,equipmentspecifications

100


Cost estimation

No shortcut: A flow sheet simulation (e.g., HYSIS/PRO II/ASPEN) is required when developing a definitive cost estimation. The information is required for accurate estimates of both capital and manufacturing costs.

Name Accuracy Application Process detailOrder of magnitude -30 to +50% Screen investments Block flow diagramStudy -15 to +30% Finalize major choices PFD + rough design

of major equipmentDefinitive -5 to +15% Control costs P&I Drawing, detailed

M&E balances,equipmentspecifications

101


Cost estimation

We must balance the needed accuracy with the cost to perform.(See Peters and Timmerhaus, Pg 160-162)

COST ESTIMATION

102


This useful table is available in Peters and Timmerhaus [Fig 6.4] and in Perry’s Handbook [link on course website]

It gives a summary of the type of information needed for each level of estimate.

103


Cost estimation

Capital costs

• Fixed equipment

• Working capital

Manufacturing costs

• Direct (materials and labour that scale in proportion to throughput)

• Fixed costs (utilities, labour, etc, that are required no matter what the production rate is)

Evaluating capital equipment cost estimates:

Use historical data to develop correlations, and apply corrections for unique factors in specific situations.

104


Cost estimation

Capital cost estimationMethods covered in this course

• A couple of very rough methods (initial screening)- Turnover ratio- Lang’s Factor

• Bare Module (BM) method- Concept and items included- Factor tables with corrections- Inflation- Examples

BM is most commonly used

method inprocess

industries.

105


Cost estimation

Turnover ratio: values of 0.2 to 4.0; usually 0.5 in the process industries

(Fixed capital cost)(TR) = gross annual saleserrors are between –50% to +100%

We can use this to estimate the fixed capital costs for a plant making a known quantity for sales. The number of times we turn around our capital cost into sales.

106


Cost estimation

Very rough capital cost estimation (use with caution!)

Reference: Perry’s Ch 9.3;; Peters Ch 6

Lang’s factor is used to estimate fixed capital cost given the delivered cost of the equipment:

( delivered cost of major equipment )(LF) = Fixed capital cost

Type of plant Fixed capital solids processing (cement) 4.0 solid/fluids processing (alumina) 4.3 fluids processing 5.0

1. Uses only delivered cost (no L+M for installation)

2. Estimated fixed capital cost includes land plus contractors fees

107


Cost estimation

Very rough capital cost estimation (use with caution!)

Reference: Perry’s Ch 9.3;; Peters Ch 6

Delivered cost

108


Cost estimation

109


Cost estimationFixed capital cost

flickr-6343899995_e9ecd80533

Bare module method most commonly used for capital cost estimation. Here’s the general approach:

1. Historical cost for equipment (common material, low pressure, ambient temperature)

+ correct for capacity, material, P, T, and inflation

2. FOB (free on board)

+ labour and materials for installation + shipping

3. Bare module cost

+ contractors fees, contingencies, etc.

4. Total module cost110


Cost estimation

FOB cost

Bare module cost is for all associated equipment and installation labour in a radius ~3m.

111


Cost estimation

Bare module cost includes the following:

• labour and materials

• Uncrating

• Inspection

• Structure (foundation, etc.)

• Piping

• Instrumentation

• Painting and insulation

• Utility hookup (electrical, water, steam, sewer, etc.)

• Engineering supervision112


Cost estimation

FOB free on board, cost of equipment ready forshipment from supplier

Installed = FOB + shipping + uncrate, inspect,and hook up

L+M = (installed-shipping) + piping +instruments + electrical + insulation +foundation + structure + offsites

L+M = FOB * (L+M Factor)

Physical plant cost = L+M + shipping Note that shipping cannot be correlatedBM = above + home engineering + field

expenseBM = Bare moduleHome off = 9% of L+MField = 10 to 15% L+MBM = FOB*(BM Factor)Rough esimateBM factor = (L+M)*1.4

TM = Total fixed capital investment = BM + contractors fees + contingencies

TM = total moduleContr = 3 to 5% of BMConting = 10 to 15% of BM

Totalinvestment = above + royalty + land + spareparts + legal + working capital + interest duringconstruction

Working capital = 10+% of fixed capital invest.This could vary greatly.

Note: This is for isolated module, notgrassroots plant.

Turnkey cost = total invest + Startup expenses

Notes: 1. Total module (TM) does not account for site development, off-sites, utilities, etc.These costs would vary depending upon the equipment considered. Turton (pg. 68)suggests 35% of BM costs for this factor.

Summary of the Bare Module method

113


Cost estimation

FOB free on board, cost of equipment ready forshipment from supplier

Installed = FOB + shipping + uncrate, inspect,and hook up

L+M = (installed-shipping) + piping +instruments + electrical + insulation +foundation + structure + offsites

L+M = FOB * (L+M Factor)

Physical plant cost = L+M + shipping Note that shipping cannot be correlatedBM = above + home engineering + field

expenseBM = Bare moduleHome off = 9% of L+MField = 10 to 15% L+MBM = FOB*(BM Factor)Rough esimateBM factor = (L+M)*1.4

TM = Total fixed capital investment = BM + contractors fees + contingencies

TM = total moduleContr = 3 to 5% of BMConting = 10 to 15% of BM

Totalinvestment = above + royalty + land + spareparts + legal + working capital + interest duringconstruction

Working capital = 10+% of fixed capital invest.This could vary greatly.

Note: This is for isolated module, notgrassroots plant.

Turnkey cost = total invest + Startup expenses

Notes: 1. Total module (TM) does not account for site development, off-sites, utilities, etc.These costs would vary depending upon the equipment considered. Turton (pg. 68)suggests 35% of BM costs for this factor.

Method and Data for Bare Module method

We have data from the past on a limited number of designs

The labour and materials depends on the equipment design

114


Cost estimation

Method and data for Bare Module method

We will now cover the various “factors” that are used to enable us to estimate the cost of equipment with various capacities, pressures, etc. from a limited set of data.

]correction condition [operatingfactor] ion[installat factor] [inflationfactor][capacity [Database]cost BM

Limited number of specific equipment designs and times

Correction for the “capacity”

Correction for the inflation from the database year

Additional cost for equipment and labour to connect to the process

Correction for process conditions that affect the capital cost, e.g., pressure, and for materials of construction

115


Cost estimation

Capacity factor - Converting the historical capital cost data to FOB using the power law.

1. What is a typical value for “n”?2. Why does a power-law work?

The “factor” is selected to be the feature of the design that correlates best with the capital cost item.

Usually set B = known and A = new design

116


Cost estimation

n

B

A

B

A

FactorFactor

CostCost

What is the correct factor for a shell and tube heat exchanger?• Heat duty• area• number of tubes• flow rate

117


Cost estimation


n

B

A

B

A

FactorFactor

CostCost

What is the exponent for a shell and tube heat exchanger?

Area has the dominant effect on manufacturing cost.

Pumps: m3/s or power

Agitators: power

Distillation: height*diameter

118


Cost estimation

What is the correct factor for a shell and tube heat exchanger?• Heat duty• area• number of tubes• flow rate

What is the exponent for a shell and tube heat exchanger?


n

B

A

B

A

FactorFactor

CostCost

Capacity factor: the power n < 1.0 (usually) !

119


Don Woodsmaterials

The correlation should onlybe used in this range

Slope = n

Costs in U$ in 1979

The suitable capacityfactor on the horizontal axis

Rough guideline, n = 0.6

Capacity factor: the power n < 1.0 (usually) !

What could limit the use of the power law?

120


Cost estimation

n

B

A

B

A

FactorFactor

CostCost

Materials of constructionTemperature and pressure ranges

Key point: always look up the value of n

Example

121


Cost estimation

A certain electric motor with capacity of 100 hp cost $4 500. What is the estimated cost of a motor with capacity of 175 hp?

Electric motors of this type have a capacity factor of n=0.81.

$7,080100175$4,500Cost

100180

$4,500Cost

FactorFactor

CostCost

0.81

A

0.81A

n

B

A

B

A

Advantage of the correlations:You can estimate prices of largeror smaller units at any point in time from another unit’s cost. Does not only apply in 1970, but at any time!

Inflation factor - Converting the historical capital cost data to the time when the equipment is purchased.

Why don’t we use the consumer’s price index (CPI), which is reported frequently in the news?

Chem. Engr.(US) Engr-News Record Oil & Gas J Chem. Engr.(US)

122


Cost estimation

Year Marshall & Swift Eng-News

Nelson-Farrar Chem Eng Plant Cost Index (CEPCI)

1970 301 133 365 123

1980 675 300 900 261

1990 915 400 1200 358

2000 1089 510 1500 394

2000/1970 3.6 3.8 4.1 3.2

Has gone private now; use CEPCI instead

Plot of inflation data(from: Edgar, Himmelblau and Lasdon, Optimization for Chemical Processes 2nd Ed., McGraw Hill, 2001)

123


Cost estimation

Example

124


Cost estimation

In 1979, a distillation column cost $65 690. What is the cost of the unit in 2011?

Marshall and Swift index in 1979 was 607 and in 2011 is was 1490.

Sample cost estimation data

The base cost is $8,000 for an exchanger with A = 100 m2

The correlation is valid for A = 2 to 2000 m2

exponent

Corrections for pressure and material

Define basic shell and tube

Estimate uncertainty in %

Costs are for mid-1970

125


Reference: Woods, 1993 22

2

A

B

m 2000exchanger heat desired of Aream 2

20m 100

exchanger heat desired of Area0.02

20factorfactor0.02

Uncertainty in the tables is large; why?

• Covers times of economic stagnation and growth

• Covers all locations (at least in North America)

• Covers range of equipment suppliers with various technologies and efficiencies

For a specific location and equipment, a company would likely have data with less uncertainty.

126


Cost estimation

Shell and tube, water cooled condenser

http://www.wellman-graham.com/Condensers.htm 127


Cost estimation

Condenser in Bartek Plant

Courtesy Bartek 128


Cost estimation

Class exercise: Estimate the Bare Module cost in 2000 for the following equipment.

• Shell and tube heat exchanger #1

• Floating head

• Carbon steel for shell and tubes

• P = 1.0 MPa

• Area = 70 m2

129


Cost estimation

Class exercise: Solution for heat exchanger #1

From page 5-5 in Woods (1993)

FOB = $8000 x (70/100)0.71 = $6210

Bare Module = $6210 x 3.14 = $19,500

No corrections for pressure (P < 1.1 MPa) or material (carbon steel) are required

Cost from 1970 to 2000 by Marshall Swift = (1089/301) x 19,500

= $ 70,500 40%

Capacity factor

Bare module, FBM

Inflation factor

130


Cost estimation

131


Cost estimation

Systematic approach:

1. Look up the correlation. Does the equipment match ours?2. Check the range. Does out capacity factor fall in the range?

• Use the same units as the given factor. Another range (even in a different set of units) might apply.

3. Read base cost ($) and base year = $FOB1970 (usually)4. Inflate for capacity using exponent n5. Adjust price for materials, pressure, and temperature6. Calculate bare module cost, using bare module factor, FBM7. Inflate the price into today’s dollars, using an index8. Report the value as a range, rather than a point estimate.

University of New South Wales, Austalia, http://www.cse.unsw.edu.au/~lambert/vrml/kumip/docs/reflux.html

Distillation reflux drum

132


Cost estimation

Class example: Estimate the Bare Module cost in year 2000 for the following equipment.

• 57m3

• horizontal, cylindrical, dished ends

• P = 0.30 MPa

• T = 290 K

• Material = carbon steel (c/s)

Reflux drum

Height-23.4 m

Diam.-2.57 m

30Trays,

c/s sieve

c/s

133


Cost estimation

COST ESTIMATION

134

Class example: Solution for vessel

1. Use Wood’s page 2-2 (it is appropriate)

2. Range: 57m3 x 264 gal/m3 /1000 = 15 < 80

3. FOB 1970, A = $1900

4. FOB 1970, B = 1900 x (57/3.8)0.62 = $10,180

5. Not required

6. BM 1970 = $10,180 x 3.0 = $30,550

7. BM 2000 = $30,500 x (1089/301)

8. BM 2000 = $110,500 40% error

Capacity factor, volume

Bare module, FBM

Inflation factor, MSwift

Not reported for table entry, use from vertical drum. Why?

Height-23.4 m

Diam.-2.57 m

30Trays,

c/s sieve

c/s

135


Cost estimation

fpiping

The Bare Module factor is the sum of many costs. We can find the factor for each element for specific equipment.

From Woods (1993), page 1-58 136


Cost estimation

BM 1970 = C0 x FBM = BM

BM 1970 = $6,210 x 3.14 = $19,500

This includes the cost of the original unit!

FOB cost = $ 6,210 x 1.00

All BM costs (left) = $ 13,290 x 2.14

Total bill, BM1970= $ 19,500 x 3.14 factorSo …

All BM costs = C0 FBM – C0 = C0(FBM – 1)

HEx example from before

Pressure and materials factors

Example: a shell and tube heat exchanger (see next slide also)

• FP = 1.25 for the case of pressure = 3 MPa

• FM = 3.0 for the case of 316 stainless steel

How are BM costs affected by this?

137


Cost estimation


COST ESTIMATION

138


Which Bare Module contributors change when pressure and material are significantly different from the base FOB?

Bare module cost includes the following labour and materials

•Uncrating

•Inspection

•Structure (foundation)

•Instrumentation

•Painting and insulation

•Utility hookups (electrical, etc.)

•Engineering supervision

•Piping

NO!

YES!

139

Cost estimation

Cost estimation with pressure (FP) and materials of construction (FM) corrections.

FOB Cost for equipment at base pressure and material

Cost for installation of base case equipment without P and M correctionsAdditional FOB cost for pressure and materials correction (the 1.0 is for base case)Additional cost for bare module piping (due to P and M)

factorCapacity FOBC unit0

)1(0 BMFC

)1(0 MPFFC

))()(1(0 pipingMP fFFC

Data on fpiping in Woods’ page 1-58, Table 1-11. Timmerhaus et. al. give a value of 0.68 for fluid. Value of is from 1.0 (Turton) to 0.70 (Woods). 140


Cost estimation

fpiping

The piping factor is different for each equipment.

From Woods (1993), page 1-58 141


Cost estimation


• Shell and tube heat exchanger

• Floating head

• 316 stainless steel for shell and tubes

• P = 5.6 MPa

• Area = 70 m2

142


Cost estimation


COST ESTIMATION

143

Class exercise: Solution for heat exchanger

FOB Cost for equipment at base pressure and material

FOB = $8000 x (70/100)0.71 = $6210

Cost for installation (unchanged from base)

C0 (FBM – 1) = $6210 (3.14 – 1) = $13290

Additional cost in FOB for pressure temperature and materials

C0 (FPFM – 1) = $6210(1.52 x 3.0 – 1) = $22110

Additional cost for bare module piping (due to P & M)

C0 (FPFM – 1) (fpiping) ( ) = ($22110)(0.46)(0.70)= $ 7120

Total BM cost in 1970 = $ 6210 + $13290 + $22110 + $7120 = $48,730144


Cost estimation

Base condition FOB

Capacity factor

Inflation factor

FOB w/o corrections

Purchase & installation w/o corrections

(FBM – 1)

Installation w/o corrections

C0

Corrections to FOB,(FP*FM – 1)

FOB correction

Installation correction

Purchase & installation corrections

Piping correction,

fpipe ()

Schematic of cost estimation withpressure and material corrections

145

Cpital Cost Estimating


• Packaged vapor recompression refrigeration unit

• 7040 kW

• Evaporator T = 275 K

• Includes compressor, condenser, evaporator, motor, insulation, and instrumentation, delivery, installed

• Material c/s146


Cost estimation

McMaster University Boiler House

147


Cost estimation

COST ESTIMATION

148

Class exercise: Solution for refrigeration unit(Note: this solution puts step 7 earlier, but the answer is still the same)

From Wood’s page 9-7, (we are extrapolating!!)

FOB 1970 = 100,000 (7040/1000)0.77 = $450,000

FOB 2000 = 450,000 x (1089/301) = $1,626,000

FOBtemperature = (1.02-1) x 1,626,000 = $33,000

BM 2000 = 1,626,000 x 1.4 = 2,276,000 (for base unit)

BM 2000 = $ 2,276,000 + 33,000 = 2,310,000 30%

Slightly below 4.4 C, assume no effect on installation (BM) costs

Note the low FBM for a packaged unit. Does this make sense? 149


Cost estimation

Class exercise: Solution for refrigeration unit.

From Wood’s page 9-7,

FOB 1970 = 100,000 (7040/1000)0.77 = 450,000

FOB 2000 = 450,000 * (1089/301) = 1,626,000

FOBtemperature = (1.02-1) * 1,626,000 = 33,000

BM 2000 = 1,626,000 * 1.4 = 2,276,000 (for base unit)

BM 2000 = $ 2,276,000 + 33,000 = $2,310,000 30%

If we had used the average BM factor of 3.6 from Peters et.al., the incorrect estimate would be $5,900,000!

150


Cost estimation

151


Cost estimation

Class exercise: Estimate the Bare Module cost in 2011 for a 20 kW centrifugal pump, made from 316 S/S clad, and a suction pressure of 7000 kPa.

FM = 1.45

FP = 1.90http://www.lowara.com/products/photo.php/2670

1. Correlation: use Woods, p8-8, since it applies

2. Range check: Base unit is in kW, our unit is 20 kW, so

which means n = 0.39

3. Base unit cost: $FOB1970,B of 10 kW was $920

4. Capacity inflation: = $1205

5. Materials inflation: FBM = 3.3, FM=1.45 and FP = 1.90

Bare module cost (no corrections) = C0(FBM) = 1205 x 3.3 = $3980

Module installation, etc =C0(FBM – 1) =3980 – 1205= $2775

So $2775 = incremental cost of getting unit in the bare module area152


Cost estimation

23kW

20kW1

0.39

A1970, 1020920$FOB

5. Materials inflation:

FBM = 3.3, FM=1.45 and FP = 1.90Charge to upgrade the equipment = 1205 x 1.45 x 1.90 – 1205 = $2115

This is what the vendor adds to our bill = C0(FMFP – 1) = $2115

Reasonable to expect OUR cost to upgrade piping in the BM is some fraction of this $2115. Naïve estimate would be ($2115)(FBM) = $ 6980.

But, we don’t need to upgrade all BM costs, just the piping portion. For pumps: fpipe =0.3 This indicates 0.3/3.3 = 9% of the cost of upgrading the BM is due to piping.

Further, we don’t need to upgrade every pipe in the BM, some factor of the total only, where 0.7 < <1. We will assume 70%.

So piping upgrade = (2115)(0.30)(0.7) = $444.

Now let’s add up our estimates.153


Cost estimation

5. Materials inflation:

Cost of the equipment $ 1205

Cost of installation into BM $ 2775

Cost of the vendor’s upgrades $ 2115

Cost of our upgrades in BM piping: $ 444

6. Bare module cost: $ 6540So the fully installed price was multiplied 6540/1205 = 5.4 times

7. Price inflation: $BM2011 = = $30,420 using CEPCI

8. Error bounds: assuming 40%

$18,250 < $BM2011 < $42,600154


Cost estimation

1265866540

Homework problem:

Capital cost of a 316 stainless steel distillation column

21.3 m high, 2.3 m diameter

26 trays at standard spacing of 0.6m

3.2 MPa operation

155


Cost estimation

156


Cost estimation

Comparison of Bare Module (installed) cost estimates in US Dollars for 2000

Equipment Woods(Individual BM Factor for each equipment)

Peters, Timmerhaus,

West*

Matches Internet Site*

Heat Exchanger

70,500 39,100 100,000

Horizontal Drum

110,000 107,000 89,100

(15,048 gallons)

Refrigeration 2.31 M$[1.3 to 3.2 M$](extrapolation)

5.33 M$

(extrapolation)

4.51 M$

(interpolate 20 and 40F)

* Bare module factor of 3.6 from Peters et. al. table 6-9. 157


Cost estimation

Feed tank

FC1

P3

V30

0

TC3

T4

Fueloil

F2

T7

Producttank

C.W.

F7

Air

Intake

FC5

L1

L2

P1

P3

T5

T6

The Bare Module method provides equipment costs for units considered. These units must be connected into an integrated plant. What additional equipment is required?

Storage

Material transport between units (BM)

Connection to utilities

158


Cost estimation

The Bare Module method provides equipment costs for units considered. The cost of basic instrumentation is included in the bare module factor;; however the cost for “additional” sensors, e.g., analyzers must be added if they exist.

Also, the cost for the control system, including computing, consoles, power supply, wiring and control house must be estimated separately.

159


Cost estimation

The Bare Module method provides equipment costsfor units considered. Please do not forget that all other equipment must be estimated. For new facilities and large changes to existing facilities, much new equipment is required

Battery Limits, the process, roads, etc.

Offsites, storage, waste treatment, etc

Utilities, steam, cooling water, air, fuel, etc.

Administration, offices, labs,

machine shops, etc.

Outside battery limits

160


Cost estimation

Manufacturing costs - These are incurred with every unit of production and do not include capital items.

• Direct – raw materials, labour, labs, utilities, consumable supplies, waste treatment, packaging and shipping, utilities = (water, electricity, steam, cooling, compressed air, inert gas)

• Fixed (indirect) - Land taxes, insurance, maintenance, licensing fees, plant administration, etc.

• General - Corporation, marketing & sales, finance, R&D, etc.

How do these costsdepend on the plant production rate?

162


Cost estimation

• Direct - materials, labour, utilities, supplies, waste treatment, etc.

• Fixed (indirect) - Land taxes, insurance, plant administration, etc.

• General - Corporation, sales, finance, R&D, etc.

production

production

Labo

ur

production

Mat

eria

l st

ream

s

163


Cost estimation

Manufacturing costs - These are incurred with every unit of production and do not include capital items.

Capital costs

• Very rough - Total unit/plant estimates; see Woods, 1993 and other databases.

• Good accuracy - Combine flow sheet (e.g., HYSYS, Aspen, Pro II) results with equipment-specific information, e.g., pump efficiency, fired heater efficiency, etc. In addition to process, utilities systems (plant fuel, steam, and electric power balances) can be modelled.

164


Cost estimation

How does Aspen calculate equipment costs? See Seider et al. textbookfor additional insight, as well as on-line research.

Manufacturing cost estimate should consider every major cost and give the basis of the value, e.g.,

• Flowsheet• Experience (staffing)• Factors for other costs

The result of this analysis becomes one element of the profitability calculation.

For sensitivity analysis, variable and fixed costs should be identified individually in the profitability analysis

COST OF MANUFACTURE Estimate based on

Flowsheet & preliminary design

Cost Item Factor

Quantity/ year

Cost/ quantity

Annual Cost

($/year)

Variable costs Raw Materials kg/year $/kg - itemize all Products - itemize all By-products - itemize value, waste treatment costs, etc.

Consumables - catalyst, solvents, etc. Fixed costs ($/person) a. Operating personnel (1 post = 4.4 people)

70,000

b. Supervision and engineering

0.25*a 100,000

c. Maintenance personnel

0.03*FC 75,000

d. Engineering & Management

0.5*(a) 100,000

Overhead on personnel 0.4* (a+b+c+d) Maintenance materials 0.03*FC Insurance 0.01*FC Taxes (property) 0.02*FC Laboratory personnel and consumables

0.15*(a+b+c)

Royalties Operating overhead (business and employee relations, etc.)

.25*(a+b+c+d) *1.4

Cost of Manufacture Sum of all items

Notes: 1. Profitability analysis will integrate the Cost of Manufacture with capital cost,

taxes, depreciation, and contingency. (General costs could be added depending on the basis of the study.)

2. All costs for project accounted for, including onsites, offsites, and utilities, including steam, electricity, fuel, water, oxygen, nitrogen, refrigeration, etc.

3. Factors based on tables in Peters et. al., Towler and Sinnott, and Sieder et. al. All are approximate and should be replaced by process –specific information, where available. (FC = fixed capital cost) 165


Cost estimation

Manufacturing costs:

• Utilities

• Seider, Seader, Lewin, Widagdo, table 23.1

• Turton, et al., Chapter 8

• Cost of personnel

• $ 60,000 to $70,000 per operator-shift, or $35/hr

• One “post” or shift = 4.4 x annual salary

• $100,000 for managers and engineers

• Overhead is about 40% of salary

• Personnel do not scale with production when equipment size can be increased.

166


Cost estimation

Manufacturing costs - some cautions:

• Do not use standard inflation for energy or raw materials costs. Show/research Crude Oil price over the last 100 years.

These can change rapidly up and down due to international incidents.

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Cost estimation

Manufacturing costs - some cautions:

• Equipment selected strongly affects maintenance and waste treatment.

• Remember costs for operating outside battery limits, e.g., the laboratory.

See Haseltime, 1996

• Operating costs depend on total operation time.

• Incremental cost of steam changes significantly from summer (excess steam available, cost = $0) to winter (when extra fuel is required to produce steam)

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Cost estimation

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