1. CHPE308 Engineering Economy Estimation Of Capital Cost

2. 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

5. 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)

6. 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 + # > - #.?

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

8. 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)

9. 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?

10. Example 7.2

11. 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

12. 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

13. Effect of Size (Capacity) Figure 7.1

15. 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

16. 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 the meaning of the negative slope means, the capacity of piece Equipment increases, the cost unit decreases.

17. Another way of looking at economy of scale

18. Also see example 7.4

19. 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 ?

20. 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

23. 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

27. 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

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

29. Example 2 - Solution

30. Example 7.6

31. Example 7.6 solution

32. Example 3 – Accounting for Time and Size

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

34. Example 3 – Solution (cont’d)

35. 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?