CHPE308 Engineering Economy Estimation Of Capital Cost

Adjusting costs for changes in capacity Outline Types of estimate Adjusting costs for changes in capacity Adjusting costs for changes in time Total plant cost estimates Direct, indirect, etc. Lang Factors Module cost approach Effect of temperature and pressure Capcost program

1. Order of Magnitude Estimate (Feasibility) Types of Capital Cost Estimate 1. Order of Magnitude Estimate (Feasibility) + 40%, - 20% BFD , Process Modification 2. Study Estimate / Major Equipment + 30%, - 20% PFD , Cost Chart 3. Preliminary Design (Scope) Estimate + 25%, - 15% PFD , vessel sketches , equip. diagrams 4. Definitive (Project Control) Estimate + 15%, - 7% PFD , P&ID, all vessel sketches, equip. diagrams, preliminary isometrics The + and – numbers are interpreted as the range of actual plant costs compared to the estimate. Thus +40% to -20% means that the actual cost of the plant is likely to be in the range of (1.40)(estimate) to (0.80)(estimate)

Detailed (Firm or Contractors) Estimate + 6%, - 4% Types of Capital Cost Estimate Cont 5 Detailed (Firm or Contractors) Estimate + 6%, - 4% Everything included – ready to go to construction phase Estimate low so actual cost will be high (+) Estimate high so actual cost will be low (-) Why is + # > - #.?

Cost of Estimate – See Also Table 7.2 Read Page 179(text book)

Cost of Estimate – See Also Table 7.2 Accuracy 1 2 3 4 If we want high accuracy then it takes a lot of man/woman hours (engineering work). 5 Cost of Estimate (Time)

Expect the actual capital estimates to vary? Example 7.1 The estimated capital cost for a plant using the study estimate method (Class 4) was calculated to be $ 2 million. If the plant were to built, over what range would you Expect the actual capital estimates to vary?

Example 7.2

Estimating Purchased Equipment Costs Vendor quote Most accurate based on specific information requires significant engineering Use previous cost on similar equipment and scale for time and size Reasonably accurate beware of large extrapolation beware of foreign currency Use cost estimating charts and scale for time Less accurate Convenient

Effect of Size (Capacity) (7.1) Cost Exponent Equipment Cost Attribute - Size Cost Re-arrange the equation 7.1 to to: (7.2) See Table 7.3 for values of n

Effect of Size (Capacity) Figure 7.1

Effect of Size (Capacity) cont. n = 0.4 – 0.8 Typically Often n ~ 0.6 and we refer to Eq.(7.1) as the (6/10)’s Rule Assume all equipment have n = 0.6 in a process unit and scale-up using this method for whole processes Order-of-Magnitude estimate

7.3 Another way of scale up: Another way of scale up equation 7.2 can re arrange: 7.3 If equation 7.3 is plotted on log-log scale curve will have negative as shown in Figure 7.2. the meaning of the negative slope means, the capacity of piece Equipment increases, the cost unit decreases.

Another way of looking at economy of scale

Also see example 7.4

Example 1 A New Plant Ordered a Set of Floating Head Heat Exchangers (Area = 100 m2) cost $92,000. What Would Cost be for a Heat Exchanger for Similar Service if Area = 50 m2 and n = 0.44 ?

100 m2 Exchanger is not twice as expensive as a 50 m2 exchanger Example 1 - Solution 100 m2 Exchanger is not twice as expensive as a 50 m2 exchanger  Economy of Scale

Time increases – cost increases (inflation) Effect of Time Time increases – cost increases (inflation) Inflation is measured by cost indexes - Figure 7.3 or Table 7.4 Chemical Engineering Plant Cost Index (CEPCI) Marshall and Swift Process Industry Index Numbers based on “basket of goods” typical for construction of chemical plants - Table 7.5

Equation for Time Effect C = Cost I = Value of cost index 1,2 = Represents points in time at which costs required or known and index values known

Example 2 Cost of vessel in 1993 was 25,000, what is estimated cost Sept 2007 (Sept 2007 – CEPCI = 500)?

Example 2 - Solution

Example 7.6

Example 7.6 solution

Example 3 – Accounting for Time and Size

Example 3 - Solution Must First Bring Costs to a Common Time A = 70

Example 3 – Solution (cont’d)

Example 4 How much ($) would the new vessel cost? Date Vessel Capacity Purchased Cost (pounds sterling = £) Exchange Rate 1993 75 £ 7,800 $ 1.40/£ 1998 155 £ 13,800 $ 1.65/£ 2007 120 $ 2.00/£ Key here is to scale with time in pounds and then convert to US dollars at the end – this assumes that the CEPCI is similar in the UK as in the US How much ($) would the new vessel cost?