1. Capital Cost Estimating for Chemical Engineers
David Mody

2. Purpose Context of the Capital Cost
Different Methods of Capital Cost Estimating

3. Economics Question: Why build a chemical process?
Investment Decision: Chemical plant investment or Gov’t bond?

4. Project Evaluation
Does the revenue we generate warrant the initial outlay of money?

5. Project Balance Sheet Summary Of The Economics
Capital Cost (fixed and working)
Variable Costs
Raw Material Costs / lb of product
By-Product Credits
Utility Costs
Labour
Maintenance
Depreciation
Fixed Costs

6. Capital Cost Estimating
Also Known as the “Initial Cost”
Can be a strong or weak factor to the overall economics
Requires 2 parts engineering, 1 part hand waving

7. The Total Estimate DIRECT FIELD COSTS Equipment Cost
INDIRECT FIELD COSTS
CONTINGENCY AND FEES
Equipment Cost
bulk materials & labour to install
off-sites (pipe racks, rail spurs …)
engineering, freight, insurance, overhead
first fill of plant, taxes, duties
escalation
TOTAL PROJECT
COST

8. Types Of Estimates Educated Guess Capacity Factor Equipment Factored
Semi Detailed
Detailed
Estimate Types:
-Wild Ass Guess Estimate - Experience person + 5 minutes of thought (no eng)
-Capacity Factored Estimate - modicom of enginering - useful for justifying to your boss that you should spend $ to do an equipment factored estimate
-Equipment Factored Estimate-
-Semi and Detailed Estimates - Often called Construction Cost Estimates. Expensive and require a lot of engineering $ to complete.

9. The Time Accuracy of Estimates
% Time vs Estimate Accuracy & % Completion
100
100
Work Completed 90 90 80 80
Project
Capacity Factored 70 70
Completion 60 60
Semi Detailed 50 50
Estimate Accuracy
Equipment
% Work Completed
Factored 40 40 30
Construction 30
Detailed 20
Begins 20 10 10
Estimate Accuracy increases as Engineering is Completed
The Capacity factored estimate typically needs 2 to 5% of the total engineering to be done (that includes civil, mechanical, electrical, instrumentation).
Since the process engineer leads the job the 2 to 5% is closer to 20 to 30% of the total engineering a process engineer will do on the job
Since percentages don’t mean much to you or me we’re going to state it in terms of tangible products that you, the process engineer, will produce. 20 40 60 80
100
Time (% of total schedule)

10. Capacity Factored Estimates
The Capacity factor estimate has two reqt’s:
1) The Plant you intend to build has a sister plant, at a different capacity, and
2) The sister plant was built at another time and thus inflation must be dealt with.
Part 1) The 6/10th’s rule - corrects capacity
Cost of New Plant =
Capacity of New Plant
Capacity of Similar Plant
0.6
Cost of Similar Plant X

11. Capacity Factor
The exponent (0.6)

12. Capacity Factor - Cost Indices
Part 2) Correct for Inflation
Use compound interest laws (1 + 4%)years
Chemical Engineering Plant Cost Index
Located in the back of the McGraw Hill magazine “chemical Engineering”
Ratio cost index values
Marshall and Swift Index
Indices are dangerous to use beyond a 5 year window
changes in technology, enviro req.'s etc.

13. Capacity Factor - Cost Indices
Chemical Engineering Magazine

14. Capacity Factor
A plant was built in 1995 with a capacity of 10 million lb/hr at a cost of $20 million. We would like to build a similar process in 2002, but with a capacity of 17.5 million lb/hr. What would the cost be?
Cost in 1995 dollars = (17.5/10)0.6 * $20 million = $28.0 million

15. Capacity Factor Correct for Inflation
The CECPCI for 1995 was 381.1, The CECPCI for July of 2001 is and for the year We judge the CECPCI for 2002 to be 398.
Therefore the cost to build the plant in 2002 is:
Cost in 2002 dollars = $28.0 million * (398/381.1) = $29.2 million

16. Capacity Factor
Other Factors can be brought into the equation such as:
location factors
weather
Where Technology, Environmental Regulations or Safety Aspects have changed the process this estimate may not be very accurate.
Test the sensitivity of the overall economics to Capital Cost

17. Equipment Factored Estimates
Types
Lang Factor
Equipment Factored, equipment costs estimated (parametric equations)
Equipment Factored, with major equipment quotes

18. Equipment Factored Estimates
Total Capital Cost =
Flang * (Sum Of Purchased Cost of Equipment)

19. Equipment Factored Estimates
DIRECT FIELD COSTS (50%)
INDIRECT FIELD COSTS (32 %)
CONTINGENCY AND FEES (15% + 3%)

20. Equipment Factored Estimates
Direct costs - everything associated with the equipment and it's physical installation.
Equipment itself
Labour to mount and install the equipment
Piping, instrumentation around the equipment
Concrete and steelwork required to hold the equipment in place
Electrical equipment required to run the equipment.

21. Equipment Factored Estimates
InDirect costs
Freight, insurance and taxes for the equipment construction period
Construction overhead - vacation, sick leave, workman's compensation etc.for the labour personal an all costs associated with construction supervisory personnel
All engineering costs

22. Equipment Factored Estimates
Contingency - a factor to cover unforeseen circumstances.
loss of time due to storms
strikes
small changes in design, and
unpredictable price increases.
Fee

23. Equipment Factored Estimates
DIRECT FIELD COSTS (50%)
Equipment (20%)
Field Labour & Material to install equip. (30%)
INDIRECT FIELD COSTS (32 %)
CONTINGENCY AND FEES (15% + 3%)

24. Equipment Factored Estimates
Further refinement of the direct field costs has shown that each type of equipment (pump, column, exchanger) has a it’s own factor to obtain direct field cost.
Tanks and Vessels
Columns and Trays
Pumps and Compressors
Exchangers
Heaters
Direct Field
Cost x
Factors =

25. Equipment Factored Estimates
INSTALLED
COST
PURCHASE COST

26. Equipment Factored Estimates
Cost of the pump alone only a small fraction of the total cost to install the pump: The equipment factor allows us to account for:
- typical instrumentation (1 control valve, Pressure indicators)
- typical piping around the pump (manual isolation valves for maintenance)
- civil costs (baseplate)
- construction costs (bolting the pump up, aligning it)
- electrical costs (motor controls, electrical wiring)
Cost $9850
Installed Cost $36,500

27. Equipment Factors Shop Fab. Vessels Compressors Exchangers
Fired Heaters
Pumps
Material Handling Equipment

28. Total Plant Cost
Total Plant Cost = (Direct Field Cost + Stuff) x Factors
The typical installed pump or reflux system is only a fraction of the costs also:
For instance the plant could have pipe racks, buildings, cooling towers, waste treatment, flares, Sophisticated control systems all of which need to be included in the total cost
Show Diagram of Expone Scope

29. “Off Sites” Inside Battery Limits Rail Car Loading Cooling Tower
Rail Spurs
Office Bldg
Pipe Racks
Cooling Tower
Rail Car Loading
Steam Boilers
Fire Water Sys
Nitrogen Plant
Inside
Battery Limits 38

30. Equipment Factored Estimates
Direct Field Cost (DFC)
Direct Field Labour (DFL)
Allowances
Indirect Field Cost (IFC)
Home Office Engineering
Total Project Cost (ITC)
0.25 x DFC
1.0 to 1.6 x DFL
Equipment Purchase
Price
X Equipment
Factor
“Off Sites” Cost
1.18 x

31. Example A project is composed of the following equipment:
5 pumps priced at $8000 each
2 distillation columns priced at $30,000 each
2 sets of distillation column trays at $20,000 each
6 heat exchangers at $15,000 each
What is the final project cost?

32. Example

33. Equipment Factored Estimates
Understanding What’s NOT included in the Factors is Critical!
Suffers from poor accuracy if equipment is missing
Equipment Factored Estimates Produce good results with the right amount of data and REALLY bad results (worse than capacity factored estimates) when you miss stuff.
YOu must have ALL the equipment
Items like:
spare pumps or other equipment, boilers, air compressors, large storage tanks, pipe racks , special instrumentation, office buidings ... are all NOT included.

34. Factored Estimate Engineering Deliverables
Heat & Material Balance (simulation)
Preliminary Equipment Sizing
Materials Selection
Equipment List
1st Draft P&ID’s - recommended
Process Hazards Analysis - recommended

35. Equipment Costing
Three Methods
Vendor Quotes
Recent purchases
Graphs

36. Equipment Costing
Graphical Methods

37. Equipment Costing

38. Detailed Estimates Equipment factored estimates are plagued by
missing equipment due to inadequate design,
industry averages, and
historical numbers.
Detailed Estimates
Require Cost and Quantity of
Concrete, wire, instruments, structural steel etc. etc.
Require extensive engineering effort

39. Capital Costs - Working Capital
Usually costs that are not lost forever (i.e. the first fill of chemicals, solvents) when the plant is shut down
Typically:
1 month of raw materials inventory
2 to 3 months of product inventory
Usually 10 to 20 % of fixed capital

40. Types Of Estimates Educated Guess
Capacity Factor cost=capacity ratio0.6
Equipment Factored
Lang Factor
Individual Equipment factors
Semi Detailed
Detailed
Estimate Types:
-Wild Ass Guess Estimate - Experience person + 5 minutes of thought (no eng)
-Capacity Factored Estimate - modicom of enginering - useful for justifying to your boss that you should spend $ to do an equipment factored estimate
-Equipment Factored Estimate-
-Semi and Detailed Estimates - Often called Construction Cost Estimates. Expensive and require a lot of engineering $ to complete.

41. Kingston

42. Evaluation

43. Operating Cost Estimates
Yearly Cash flow has two components
revenue - from sales
expenses - from operations

45. NPV and IRR Analysis
Scenarios:

46. Risk Analysis
Test a range of values and determine the range of Outputs (Tornado Plots)
Develop 3 scenarios
“dismal decades”
“best guess”
“midsummer nights dream”
Combine the relevant parameters
Determine an IRR and NPV under these conditions. If they still exceed minimum requirements the project is acceptable.

47. Risk Analysis Probability Monte Carlo
A more sophisticated method that attempts to predict statistically the probability of a range of IRRs or NPVs.
requires not only the range of values but also an idea of the probability of these values occurring.
For instance if we think our initial cost will be $10MM and it’s likely to be +/- 10% but unlikely to be more than +/- 50%.
Probability
-50%
-10%
+10%
+50%

48. Risk Analysis
There are functions built into Excel to generate a gaussian distributed value based on random value
NORMINV(probability,mean,standard_dev)
Commercial Software for Monte Carlo Calculations
Refer to programs such and Crystal Ball

49. Summary Whew… it’s been a long one By now we should have
A way of determining a rough capital cost
An analysis of the whole Sheebang
So Long….