Chapter 3 COST ESTIMATION Methods For Estimating Capital Investment Different methods are available; choice depends upon

on detailed information available and accuracy desired Major 7 methods, with progressively less detailed information, less preparation time and less accuracy involved, are described here (A) Method A: Detailed Item Estimate: High accuracy (+/- 5% fluctuation from actual) Requires careful determination of each individual item in FCI Complete drawings & specifications are needed Prices referred from current cost data, preferably from delivered quotations Accurate labor rates, efficiencies, & employee-hours calculations are required fro installation costs Requires accurate estimation of engineering, drafting, field supervision employee hours and field expenses Complete site surveys & soil data needed to minimize errors in site development and construction All these firmed up from quotations from vendors and suppliers

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 Extensive data and large number of engineering time required, hence prepared by contractors from detailed drawings (B) Method B: Unit cost Estimate: Obtained from records of previous cost experience; hence accuracy of these record, gives good estimates Used for preliminary and definitive estimates Prices obtained from quotations or index corrected cost records in past or published data Installation labor cost evaluated as fraction of delivered equipment cost Costs for concrete, steel, pipe, electrical, instrumentation and insulation, etc are obtained from take offs from drawings and applying unit cost to materials and labor needs Unit cost applied to engineering employee hours, no. of drawings and specifications also Factor for construction expenses, contractors fees & contingency is estimated from previously completed project Equation summarizing this method is Cn = [(E + EL)+ (fxMx+fyML')+ feHe + fddn] (fF) Appropriate corrections to the base equipment cost of complete, main plant items for specific MOC, or extreme operating T&P can be applied Factors are given in table below

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 Table 16 (CH-6, Timmerhaus): Correction factors for operating P, T & MOC to apply for FCI of major plant items

Operating Pressure, psia (atm) 0.08 (0.005) 0.2 (0.014) 0.7 (0.048) 8 (0.54) to 100 (6.8) 700 (48) 3000 (204) 6000 (408) Operating Temperature (oC) -80 0 100 600 5000 10000 MOC Carbon-steel (mild) Bronze Carbon/Molybdenum steel Aluminum Cast steel Stainless steel Worthite alloy Hastelloy Calloy
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Correction factor 1.3 1.2 1.1 1.0 (base) 1.1 1.2 1.3 Correction factor 1.3 1.0 (base) 1.05 1.1 1.2 1.4 Correction factor 1.0 (base) 1.05 1.065 1.075 1.11 1.28 to 1.5 1.41 1.54
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Monel alloy Nickel / inconel alloy Titanium

1.65 1.71 2.0

(C) Method C: Percentage of Delivered Equipment Cost Requires determination of delivered equipment cost for estimating FCI & TCI Other items of total direct plant cost are estimated as % of delivered equipment cost Additional components of CI are based on average % of total direct plant cost, total direct & indirect plant cost or TCI Method is summarized by an equation--Cn = [(E + (f1E+f2E+f3E+----)] (fI) % used should be based on type pf process involved, design complexity, required MOC, location of plant, past experience, other items dependent on unit under consideration used for preliminary and study estimate Yields good results when applied to projects similar in configuration to recently constructed plants

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 Table-17 (CH-6, Timmerhaus): Ratio factors for Estimating Capital Investment Items based on Delivered Equipment Cost

ITEM

% of Delivered Equipment Cost

Solid Solid-fluid Fluid Processing Processing Processing plant plant plant

Purchased (including fabricated equip +process machinery) Purchased equip installation Instrumentation & control (installed) Piping (installed) Electrical (installed) Buildings (including services) Yard improvements Service facilities (installed) Land (if purchase is required)

DIRECT COSTS equipment delivered 100 45 9 16 10 25 13 40 6 264

100 39 13 31 10 29 10 55 6 293 32

100 47 18 66 11 18 10 70 6 346 33

TOTAL COST

DIRECT

PLANT

INDIRECT COSTS Engineering & supervision 33

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Construction expenses

TOTAL DIRECT & INDIRECT PLANT COSTS

Contractors fees (about 5% of direct & indirect plant costs) Contingency (about 10% of direct & indirect plant costs)

39 336 17 34 387 68 455

34 359 18 36 413 74 487

41 420 21 42 483 86 569

TOTAL FCI
Working Capital Investment (about 15% of TCI)

TOTAL INVESTMENT

CAPITAL

(D) Method D: LANG Factors for Approximation of Capital Investment Proposed by Lang Used for order-of-magnitude estimate Plant cost obtained by multiplying basic equipment cost by some factor to approximate capital investment Factors depends upon type of process Lang multiplication factor obtained by combining % factors given in Table 17 & are used to get total direct, fixed & TCI Table - 18 (CH-6, Timmerhaus): Lang Multiplication Factors for estimation of FCI or TCI Type of Plant Factors for FCI TCI
Solid Processing plant
6

3.9

4.6

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Solid-fluid processing plant Fluid processing plant

4.1 4.8

4.9 5.7

Gives more accurate result if no. of factors are used instead of only one Can use different factors for different equipments or breaking up each item of cost into material and labor factors Each factor has range value & past experience is needed to decide whether to use high, average or low figure Method is summarized by equation proposed by Hirsh & Glazier--Cn = [E (1+fF+fp+fm)+ Ei +A] (fI) Where 3 installation cost factors are defined by following 3 equations--log(fF)=0.635-0.154log(0.001E)-0.992 (e/E)+0.506(fv/ E) log(fp)= -0.266-0.014log(0.001E)-0.156 (e/E)+0.556(P/ E) log(fm)=0.344+0.033log(0.001E)+1.194(t/ E) (E) Method E: Power Factor Applied to Plant Capacity Ratio Used for study estimate or order-of-magnitude estimate
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 Relates FCI of new process plant to FCI of similar previously constructed plants by an exponential power ratio Cn = C (R)x Closer approximation to above equation involving direct & indirect plant costs is as below: Cn = f [D (R)x + I] Table 19 (CH-6, Timmerhaus): Capacity Power factors (x) for various kinds of processing plants (based upon type of product, process, FCI and capacity of plant) FCI for new similar single-process plant at a new location with a different capacity & with same no. of process units, can be well determined by equation--Cn = Rx[(fEE+fMM+fLfFeL(EL+fyML')]fI [C/(C-I)] Above equation is modified for situation same as above but instead of same no. of units multiple of original process units are used Cn = [(RfEE+ RxfMM+ RxfLfFeL(EL+fyML')]fI [C/(C-I)] (F) Method F: Investment for Cost Per Unit of Capacity
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 Many data have been published giving FCI required for various process per unit of annual production capacity Unit investment cost should be applied for average conditions Used to get order-of-magnitude estimate for FCI Obtained by multiplying appropriate investment cost per unit of capacity by annual production capacity of proposed plant Necessary cost correction done with cost index (G) Method G: Turnover Ratios Rapid evaluation method for order-of-magnitude estimate Turnover Ratio (TR) = (Gross annual sales) / (FCI) Gross annual sales = (annual production rate ) (average selling price) Reciprocal of TR is Capital Ratio or Investment Ratio TR of value 5 is common for many business establishments; sometimes it is as low as 0.2 For chemical industries, roughly TR is approximated to 1

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Compiled by Prof. Prasad Parulekar