ConcepSys Solutions LLC

ConcepSys Cost Estimating Methodology

Introduction
This document provides an explanation of the cost estimating methodology implemented in
ConcepSys. Starting with an overview of generally accepted estimating practices for the process
industry, the details of cost estimation via ConcepSys are discussed.
discussed The last part of this document
discusses the factors that impact the confidence interval for ConcepSys as well as tips on improving
the estimate quality in ConcepSys.

Project Front-End
End Design and Estimating
Estimating in Process Industry

Front-End
End Loading Process Overview
ConcepSys
oncepSys is developed within the context of a three stage front-end loading (FEL) process
commonly used for process industry capital projects.
projects Figure 1 depicts how ConcepSys fits into a
three stage FEL Process along with the primary
prima deliverables for each of the three FEL stages.
stages

Figure 1 - ConcepSys Role in Front-End

Front Loading

5/26/09 ConcepSys Estimating Methodology Page 1

www.concepsyssolutions.com
 ConcepSys Solutions LLC

FEL-1 Activities and Cost Estimate Quality

The primary activity in the first phase of project front-end loading, FEL-1, is identification of
the necessary unit operations along with preliminary heat and material balances. Primary tools
used in this phase are simulation software and/or preliminary equipment sizing software. Almost
all of the work during this stage is done by the process (chemical) engineer.

While large projects typically require creation of a new simulation model, small to medium
size projects in existing facilities do not always need a new simulation and can be initiated directly
with equipment sizing tools. For example, if a small project involves addition of a few bypass lines, a
small tank, and a new pump, the process engineer may choose not to build a simulation but instead
start directly with equipment sizing tools. The equipment sizing tools used in this stage are
typically either specialized software or in-house developed macros and routines implemented in
spreadsheets. Most simulation software also have preliminary equipment sizing functionality for
common equipment types such as pumps, flash tanks, and heat exchangers.

The process engineer uses the simulation and equipment sizing results to develop a
preliminary flow diagram with minimal details. At the end of this phase, a high uncertainty cost
estimate (+/-50%) may be obtained by making an educated guess of the total equipment cost and
multiplying it by a factor between 2 to 4. The exact choice of the multiplication factor depends on
the complexity and nature (e.g. grass roots versus retrofit, new versus proven technology) of the
project.

FEL-2 Engineering Activities and Cost Estimate Quality

In the second front-end loading, FEL-2, the projects physical layout (equipment
arrangement) is created along with further refinement of the equipment design. Major pipes
connecting the equipment are also sized at this stage based on flow and pressure drop
requirements. Operating mode and reliability input is added to the project to make decisions about
tank sizes, pump duplication, and control schemes as well as raw material and product handling
and tie-ins. The project flow diagram skeleton created in FEL-1 is taken to 90% completion as more
equipment design data is selected. In addition to the process engineer, discipline engineers such as
civil, structural, electrical, and control systems join the project development effort. The civil
engineers will provide preliminary design for any required foundations and structures. The control
systems engineer will start to identify instrument specifications and process control requirements.
The electrical engineer will develop the electrical one-line diagrams. Also, CAD designers join the

5/26/09 ConcepSys Estimating Methodology Page 2

www.concepsyssolutions.com
 ConcepSys Solutions LLC

project team to start creating 2D drawings and preliminary 3D models. Finally, preliminary process
and instrument diagrams (P&IDs) are generated during this stage.

The cost estimate at the end of this stage has less uncertainty (+/-30%) than the FEL-1
estimate. The estimate confidence is improved by using the project specific equipment design data
to obtain budgetary quotes. Internal company databases or commercial estimating software may
also be used to obtain equipment cost. The equipment cost is multiplied by discipline specific
factors to estimate civil, structural, electrical, controls, detailed engineering, and construction
(installation) costs. The factored estimate is reviewed by the respective discipline engineers to
check if the value is in the ball park.

FEL-3 Engineering Activities and Cost Estimate Quality

The final stage in the front-end loading stage, FEL-3, involves further project design by the
multiple engineering disciplines using specialized software. The process engineer and mechanical
engineer work together to design pressure vessels, heat exchangers, and other equipment. The civil
engineer uses foundation and structure design software to refine the civil scope. Similar
development of the electrical and control systems scope is also performed. The project P&IDs are
finalized for design in this stage.

The goal of the FEL-3 engineering development work is to enable calculation of material
takeoffs and detail design hours which are converted into an estimate with an uncertainty range of
(+/-10%). A range of (+/=10%) is the maximum uncertainty accepted by most companies for
authorizing full project funding. Some companies may even insist on a narrower range of (+/-5%).
Firm quotes for equipment will have to be obtained and as much as 30% of the detail design work
may have to completed to generate an estimate with a range of (+/-5%).

Classes of Cost Estimates

The American Association of Cost Engineers (AACE) has formalized the cost estimate
quality and uncertainty ranges discussed so far in their Recommended Practice 18R-971. Table 2
presents a summary of the 5 classes of estimates and their characteristics.

1
http://www.aacei.org/technical/rps/18r-97.pdf

5/26/09 ConcepSys Estimating Methodology Page 3

www.concepsyssolutions.com
 ConcepSys Solutions LLC

Table 1 - AACE Estimate Classification System (from RP 18R-97)

ConcepSys Cost Estimating Process

Using the AACE Estimate classification system, ConcepSys estimates are considered Class 3
with an uncertainty range of (+/-25%). Since ConcepSys allows for addition and definition of
instruments and pipe attached objects (flow meters, block valves, etc.) as well as calculation of
orthogonally routed pipe lengths, ConcepSys estimates have a narrower uncertainty range than the
typical Class 4 estimates produced at the end of FEL-2 design work.

The cost estimate calculation implemented in ConcepSys has the following major steps:

1. For each piece of equipment, the cost calculation process begins with user entry of
critical design parameters for the project equipment. ConcepSys evaluates the user
entered parameters to find a match in its internal equipment cost estimate database
(Richardson2). If ConcepSys can find a cost estimate using the representative equipment
in the Richardson database, its value is assigned to the project item. ConcepSys

2
Richardson is a product of Cost Data Online Inc. (www.costdataonline.com).

5/26/09 ConcepSys Estimating Methodology Page 4

www.concepsyssolutions.com
 ConcepSys Solutions LLC

estimates can be viewed in the estimate parameters tab of the properties panel
displayed on the right side of the screen when an item is selected in ConcepSys.
2. Each equipments estimated cost is multiplied by either the project level or the
equipment level estimate factor for the following disciplines:
Factor for equipment installation labor
Factor for minor piping (installed)
Factor for instrumentation (installed) (unless specific instruments have been
added in which case the total estimated installed cost for each of the specific
instruments is used)
Factor for civil foundations and structures (installed)
Factor for electrical equipment and cables (installed)
Factor for paint and insulation (installed)
Factor for tracing (installed)

Table 2 on the next page lists the cost accounts and values calculated for each piece of
equipment.

5/26/09 ConcepSys Estimating Methodology Page 5

www.concepsyssolutions.com

Table 2 - Estimate Components Calculated for Each Piece of Equipment by ConcepSys
Estimate Component
ConcepSys equipment
estimate
Richardson adjustment
factor
Equipment installation
labor
Minor piping (installed)
Instrumentation (installed)
Foundations and structures
(installed)
Electrical (installed)
Paint and insulation
(installed)
Tracing
Engineering
Total Installed Equipment
Cost
5/26/09
ConcepSys Solutions LLC
Code ConcepSys Implementation Default Edited at Project Level or Equipment
Value Level
EC Calculated using the Richardson 0 Equipment level only
database
RA Factor to account for difference 1 Can edit for each equipment or use
between Richardson equipment project level value
price and company specific prices
LB EC x Factor entered by user 0.4 Can edit for each equipment or use
project level value
mP EC x Factor entered by user 0.2 Can edit for each equipment or use
project level value
IN EC x Factor entered by user 0.2 Can edit for each equipment or use
UNLESS specific instruments are project level value
added to the equipment. In such
case the sum of installed estimated
cost of each added instrument
replaces the factored
instrumentation estimate
CV EC x Factor entered by user 0.2 Can edit for each equipment or use
project level value
EL EC x Factor entered by user 0.1 Can edit for each equipment or use
project level value
PI EC x Factor entered by user 0.1 Can edit for each equipment or use
project level value
TR EC x Factor entered by user 0 Can edit for each equipment or use
project level value
EN EC x Factor entered by user 0.3 Can edit for each equipment or use
project level value
TO EC + LB + mP + IN +CV+ EL + PI + 1.50 Not Editable
TR
ConcepSys Estimating Methodology Page 6
www.concepsyssolutions.com
 ConcepSys Solutions LLC

3. For each pipe on the flow diagram, ConcepSys checks the pipe specification to
determine the material of construction and thickness schedule for the pipe. An attempt
is then made to look up the material cost for the given material and thickness schedule
in the ConcepSys cost database. If ConcepSys finds a match, the material cost is
presented in the estimate parameters tab.
4. Each pipes material unit length estimate is multiplied by the length of the orthogonally
routed pipe. This value is set as the pipe material cost and multiplied by either the
project level or pipe level estimate factor for the following disciplines:
Factor for pipe installation labor
Factor for instrumentation (installed) (unless specific instruments have been
added in which case the total of the user estimate of the installed cost for each
of the specific instruments is used)
Factor for civil foundations and structures (installed)
Factor for paint and insulation (installed)
Factor for tracing (installed)
5. If the pipe contains any inline objects, there is cost is calculated using the discipline
factors and default values described in item 2.
6. Table 3 lists the cost accounts and values calculated for each pipe.

5/26/09 ConcepSys Estimating Methodology Page 7

www.concepsyssolutions.com
 ConcepSys Solutions LLC

Table 3 - Estimate Components Calculated for Each Line by ConcepSys

Estimate Component ( per Code ConcepSys Implementation Default Edited at Project Level or
unit length) Value Equipment Level

Major pipe material cost MC Entered by user in estimate tab 0 Must be entered at pipe level

Major pipe installation LB MC x Factor entered by user 0.4 Can edit for each pipe or use project
labor level value

Inline Objects Installed Cost IO Sum of all inline object installed NA User can adjust discipline factors
cost for each inline object

Instrumentation (installed) IN MC x Factor entered by user 0.1 Can edit for each pipe or use project
level value

Foundations and structures CV MC x Factor entered by user 0.2 Can edit for each pipe or use project
(installed) level value

Paint and insulation PI MC x Factor entered by user 0.2 Can edit for each pipe or use project
(installed) level value

Tracing (installed) TR TR x Factor entered by user 0 Must edit at pipe level

Total Installed Pipe Cost TOTAL MC +LB + IN + CV + PI + MP.TR 0.9 NA

5/26/09 ConcepSys Estimating Methodology Page 8

www.concepsyssolutions.com
 ConcepSys Solutions LLC

7. After estimation of installed costs for equipment and pipe, ConcepSys calculates the
total project using the subtotal categories listed in Table 4.

Table 4 - Estimate Subtotals Created by ConcepSys

Subtotal Line Item Code ConcepSys Implementation

Project equipment cost PROJ.EC Sum of all EC values

Project equipment PROJ.LB Sum of all LB values

installation cost

Project piping material cost PROJ.MP. Sum of all MP.MC values

MC

Project piping installation PROJ.MP. Sum of all MP.LB values

labor cost LB

Project minor piping PROJ.mP Sum of all mP values

installed cost

Project instrumentation PROJ.IN Sum of all IN and MP.IN values

installed cost

Project civil installed cost PROJ.CV Sum of all CV and MP.CV values

Project electrical installed PROJ.EL Sum of all EL values

cost

Project painting and PROJ.PI Sum of all PI and MP.PI values

insulation installed cost

Project tracing costs PROJ.TR Sum of all TR and MP.TR values

Project major piping PROJ.MP Sum of all MP.MC, MP.LB, MP.IN, MP.CV, MP.PI,
installed cost and MP.TR costs

Engineering Cost PROJ.EN (MP.TOTAL + EC.TOTAL) * Factor entered by user

at project level

Project Total Cost Before PROJ.TO PROJ.EC + PROJ.EI + PROJ.mp + PROJ.IN + PROJ.CV
Contingency + PROJ.PI + PROJ.MP + PROJ.ENG

5/26/09 ConcepSys Estimating Methodology Page 9

www.concepsyssolutions.com
 ConcepSys Solutions LLC

Accuracy of ConcepSys Estimates

The equipment cost estimates for ConcepSys are based on the Richardson cost estimate
information for process plants licensed for use in ConcepSys. The confidence interval for ConcepSys
estimates depends on the following factors:

Differences between the engineering standards, details, and criteria of Richardson

estimate basis equipment and the engineering standards, details, and criteria to be used
for the ConcepSys project. This also includes any specially volume discounts available to
a ConcepSys users firm compared to the list prices used in the Richardsons database.
Fit between the Richardson sample equipment design parameters and the specific
equipment design parameters in the ConcepSys project.
Choice of discipline estimate factors
Number and extent of equipment on the flowsheet

Richardson estimate database uses a certain level of engineering standards, details, and criteria
to obtain current market pricing for process equipment. Differences between the engineering practices
of the representative equipment and the standards used by the ConcepSys users firm can impact the
cost estimate confidence interval (e.g. choice of default pump seal design). In addition, supplier
discounts negotiated by the user firms can cause the ConcepSys estimate to be higher than actual
expected costs. To allow the user to incorporate differences between the representative equipment in
the estimating database and his particular companys practices, ConcepSys uses the "Richardson
Estimate Adjustment" factor. By comparing the ConcepSys estimate with the internal estimate for a few
pieces of equipment, the user can calculate a Richardson Estimate Adjustment factor for ConcepSys.
This adjustment factor can be entered and applied at the project level for all items or just for specific
items.

In addition to variance due to differences in engineering practices, the match between the
equipment design conditions in a project and the sample equipment design conditions universe in
Richardson can also impact the accuracy of the ConcepSys estimate. For example, Richardson has cost
data available for an extensive range of pressure vessel diameters and operating pressures. ConcepSys
does not have to interpolate extensively between Richardson estimates to find a match for the project
pressure vessel design parameters. However, the sample list for compressors is not as extensive and the
match in the Richardson database will be less exact and require more interpolation.

5/26/09 ConcepSys Estimating Methodology Page 10

www.concepsyssolutions.com
 ConcepSys Solutions LLC

The users choice of discipline estimate factors (e.g. electrical factor, civil factor, etc.) can also
alter the estimate confidence value. The default factor values in ConcepSys are considered valid for
average projects based on textbooks and trade magazine articles. Increasing or decreasing the factors
can cause significant swings in the estimate quality. To avoid estimate quality issues due to improper
factor values, the user should review, and adjust if necessary, the factors used in a project to reflect the
companys experience.

The last factor to consider when evaluating ConcepSys estimate quality is the number of
equipment in a particular project. Extensive empirical research by the cost engineering profession
indicates that the accuracy of cost estimates improves as the number of pieces of equipment in a
project increases. The impact of the other three factors mentioned in this section is greater for a project
with only three pieces of equipment than for a project with ten pieces of equipment.

Avoiding Overestimation Errors in ConcepSys

While underestimation of a project cost is often the primary concern for projects,
overestimation can also be a problem if potential profitable projects are not pursued due to erroneously
high capital estimates. Since ConcepSys allows for project definition beyond the typical flow sheet
content, the user must take care to adjust the default factors as more detail is added. For example, the
default pipe installed cost factors are based on a certain allowance for purchase and installation of inline
objects such as block valves, check valves, etc. to the pipes identified in a ConcepSys project. If the user
adds and defines all the inline objects for a pipe, the pipe discipline factors should be adjusted lower to
avoid double estimation. The same is true for instrumentation factor. If the instruments are defined and
added for equipment and pipes, the instrumentation factor should also be reviewed.

Tips to Improving the Cost Estimate Confidence Interval

The accuracy of ConcepSys estimates can be improved by the following tips:

- Review and adjust the factors at the item level instead of the project level if the project
contains less than three pieces of equipment.
- Define and identify instrument and inline objects when possible and lower the related
estimate factors.
- Define and identify as many process lines as possible.
- For unique equipment, obtain a budgetary quote to override the ConcepSys estimate.

5/26/09 ConcepSys Estimating Methodology Page 11

www.concepsyssolutions.com
 ConcepSys Solutions LLC

- Upgrade to the ConcepSys Enterprise version which features allows setting of default
estimate parameters to reflect the user companys engineering practices, supplier
agreements, and historical data.

Summary
This document provides an overview of the ConcepSys cost estimate process as well as a
discussion of the confidence interval for ConcepSys estimates. Major factors impacting the estimate
confidence level are discussed along with tips for improving the quality of the estimates. ConcepSys
users are encouraged to contact ConcepSys at support@concepsyssolutions.com for more details and
answers to any further questions.

5/26/09 ConcepSys Estimating Methodology Page 12

www.concepsyssolutions.com