1. CHPE404 Engineering Economy Estimation Of Capital Cost
Dr Mustafa Nasser

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
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?

37. Total Cost of Plant Purchased cost – equipment f.o.b.
Installed cost – Often 3 to 8 times larger than purchased cost

38. Installed Cost of Equipment (Table 7.6)
1. Direct Project Expenses
Equipment
Material for installation
Labor for installation
2. Indirect Project Expenses
Freight, insurance, and taxes
Construction overhead
Contractor engineering expenses

39. Installed Cost of Equipment Table 7.6 (cont’d)
Contingency and Fee
Contingency
Contractor fee
Auxiliary Facilities
Site development
Auxiliary buildings
Off-sites and utilities

41. Example 7.7:
The Capital cots of a 30,000 metric ton/year iso propanol, plant in 1992 was established to $ 23 Million. Estimate the capital cots of a new plant with production rate 50,000 metric ton/year in 2007 (assume CEPCI = 500)?

43. Purchased Cost of Major Equipment From Preliminary PFD
(Pumps, Compressors, vessels, etc.)
Total Module Cost
Disadvantage: Can’t accurately account the common problems of special material of
Construction and high operating pressures

44. Example 7.8

45. Module Factor Approach
Common for New Chemical Plant –Accepted as preliminary cost estimation.
Table 7.8
Direct, Indirect, Contingency and Fees are expressed as functions (multipliers) of purchased equipment cost at base conditions (1 bar and CS)
Each equipment type has different multipliers.
Deviation from base condition (I bar & CS) are handled using factors that depend on:
The specific equipment type.
The specific system pressure
The specific material of construction
Details given in Appendix A

46. Module Factor Approach
Bare Module Factor
(sum of all multipliers)
Bare Module
Cost
Purchased Equipment Cost for CS
and 1 atm pressure - Appendix A
FBM = B1 + B2FpFM
Fp = pressure factor (= 1 for 1 bar)
FM = material of construction factor (=1 for CS)
Please check
Appendix A (all figures and Tables)

47. Bare Module Factor (at 1bar& CS)

52. Figure A.18

53. Module Factor Approach
Figure A.18

54. Case Study Repeat Example 7.10 considering the following:
Operating pressure 12 bar.
Floating head, shell & tube constructed using stainless steel (SS)

55. Pressure Factors
Equ 7.9

56. Module Factor Approach – Pressure Factors
Equation 7.10

58. Effect of Materials of Construction and Pressure on Bare Module Cost
MOC Cp
CBM
1 bar CS
25 K
82.3 K SS
68.3 K
154 K
100 bar
34.6 K
98.1 K
94.4 K
197.4 K
This slides illustrates the effects of materials of construction and pressure on the bare module costs. This is also illustrated for 2006 numbers in Chapter 7, Examples 7.10 – 7.12

59. Bare-Module and Total-Module Costs
BM – Previously Covered
TM – Includes Contingency and Fees at 15% and 3% of BM

60. GR – grass-roots cost includes costs for auxiliary facilities
Grass-Roots Costs
GR – grass-roots cost includes costs for auxiliary facilities
Use base BM costs in GR cost (1 atm and CS) since auxiliary facilities should not depend on pressure or M.O.C.
The auxiliary facilities such as roads, changing rooms, tank farms, offsites, utilities, etc. should not be a function of the operating pressure or MOC. Therefore the value for them is taken based on the base-case conditions (1 atm and CS).

61. Materials of Construction
Very important
Table 7.9 – rough guide
Perry’s – good source
Based on the cost changes associated with changes in MOCs, it is very important to specify the MOC correctly.

62. Materials of Construction
Table 7.9

63. Materials of Construction
Table 7.9

64. Capcost Calculates costs based on input
CEPCI – use current value of 500 or latest from Chemical Engineering
Program automatically assigns equipment numbers

65. Capcost
There is a video showing how to use the capcost program. It is very straight forward – just follow the screens and fill in the numbers. A sequence for a shell and tube exchanger is shown on the next slide.

66. The input form requires a choice of MOC, operating pressures, required heat transfer area and number of shells. The program will calculate the base purchased cost (Cop) and the bare module cost CBM) for the equipment.

67. Once the information has been entered, the equipment list will be automatically updated with the correct equipment number and cost info. If the Utilities tab is pressed the CTM and CGR are given.

68. Once the information has been entered, the equipment list will be automatically updated with the correct equipment number and cost info. If the Utilities tab is pressed the CTM and CGR are given. Note that under the utilities column the word unspecified is written – this will be covered in the cost of manufacturing lecture.
Additional equipment are added until all the major equipment are accounted for.

69. Summary
In general, information about costs must be scaled for capacity and time using appropriate cost exponents and indices
Total plant costs involve a variety of factors that vary with equipment type, operating pressure, and materials of construction.
For additions to existing facilities, the total module cost should be used but for totally new projects grass roots costs are appropriate.
Once the information has been entered, the equipment list will be automatically updated with the correct equipment number and cost info. If the Utilities tab is pressed the CTM and CGR are given. Note that under the utilities column the word unspecified is written – this will be covered in the cost of manufacturing lecture.
Additional equipment are added until all the major equipment are accounted for.