CHE 425 Engineering Economics and Design Principlesfaculty.kfupm.edu.sa/che/alamer/ChE_425/CHE_425_Ch… · · 2008-04-15Engineering Economics and Design Principles. ... existing

Prof. Adnan AlamerChemical Engineering Dept., KFUPM

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CHE 425 CHE 425

Engineering Economics and Engineering Economics and Design PrinciplesDesign Principles


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CHAPTER 5CHAPTER 5


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DefinitionDefinition

Capital cost pertains to the costs associated withCapital cost pertains to the costs associated withconstruction of a new plant or modification to anconstruction of a new plant or modification to an

existing chemical manufacturing plant.existing chemical manufacturing plant.


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Types of Capital Cost EstimateTypes of Capital Cost Estimate

Order of Magnitude Estimate (Feasibility)Order of Magnitude Estimate (Feasibility)

Study Estimate / Major EquipmentStudy Estimate / Major Equipment

Preliminary Design (Scope) Estimate Preliminary Design (Scope) Estimate

Definitive (Project Control) EstimateDefinitive (Project Control) Estimate

Detailed (Firm or Contractors) Estimate Detailed (Firm or Contractors) Estimate


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Types of Capital Cost Estimate (cont.)Types of Capital Cost Estimate (cont.)

Order of Magnitude Estimate (Feasibility)Order of Magnitude Estimate (Feasibility)

Data: Cost information for a complete processData: Cost information for a complete process

Diagram: BFDDiagram: BFD

Study Estimate / Major EquipmentStudy Estimate / Major Equipment

Data: List of major equipmentsData: List of major equipments

Diagram: PFDDiagram: PFD

Preliminary Design (Scope) Estimate Preliminary Design (Scope) Estimate

Data: Accurate equipment sizes, layout of equipment, piping, Data: Accurate equipment sizes, layout of equipment, piping, instrumentation and electrical requirementsinstrumentation and electrical requirements

Diagram: PFD and preliminary PI&DDiagram: PFD and preliminary PI&D


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Types of Capital Cost Estimate (cont.)Types of Capital Cost Estimate (cont.)

Definitive (Project Control) EstimateDefinitive (Project Control) Estimate

Data: specification of all equipment, utilities, Data: specification of all equipment, utilities, instrumentation, electrical and offinstrumentation, electrical and off--sites.sites.

Diagram: Final PFD and a preliminary PI&DDiagram: Final PFD and a preliminary PI&D

Detailed (Firm or Contractors) Estimate Detailed (Firm or Contractors) Estimate

Data: Complete engineering of the process and all Data: Complete engineering of the process and all related offrelated off--siessies and utilities.and utilities.

Diagram: Final PFD and P&IDDiagram: Final PFD and P&ID


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Types of Capital Cost EstimateTypes of Capital Cost Estimate


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Example 5.2 Example 5.2


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Estimating Purchased Equipment Costs Estimating Purchased Equipment Costs Vendor quote Vendor quote

Most accurate Most accurate •• based on specific information based on specific information •• requires significant engineering requires significant engineering

Use previous cost on similar equipment and Use previous cost on similar equipment and scale for time and size scale for time and size

Less accurate Less accurate •• beware of large extrapolation beware of large extrapolation •• beware of foreign currency beware of foreign currency

Use cost estimating charts and scale for time Use cost estimating charts and scale for time Reasonably accurate Reasonably accurate ConvenientConvenient


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Effect of Size (Capacity)n

b

a

b

a

AA

CC

⎟⎠⎞

⎜⎝⎛=

naa KAC =

bn

b

CKA

=where

(5.1)

(5.2)


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Effect of Size (Capacity)


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Effect of Size (Capacity) (cont.)(cont.)

nn = 0.4 = 0.4 –– 0.8 Typically 0.8 Typically

Often Often nn ~ 0.6 and we refer to Eq.(5.1) as the ~ 0.6 and we refer to Eq.(5.1) as the (6/10)(6/10)’’s Rule s Rule

Assume all equipment have Assume all equipment have nn = 0.6 in a process unit = 0.6 in a process unit and scaleand scale--up using this method for whole processes up using this method for whole processes

OrderOrder--ofof--Magnitude estimateMagnitude estimate


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Another way of looking at economy of scaleAnother way of looking at economy of scale


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⇒ Economy of Scale


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Effect of Time

Time increases Time increases –– cost increases (inflation) cost increases (inflation)

Inflation is measured by cost indexes Inflation is measured by cost indexes -- Figure Figure 5.3 5.3

Chemical Engineering Plant Cost Index (CEPCI) Chemical Engineering Plant Cost Index (CEPCI)

Marshall and Swift Process Industry Index Marshall and Swift Process Industry Index

Numbers based on Numbers based on ““basket of goodsbasket of goods”” typical for typical for construction of chemical plants construction of chemical plants -- Table 5.5Table 5.5


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Equation for Time Effect Equation for Time Effect

⎟⎟⎠

⎞⎜⎜⎝

⎛=

1

212 I

ICC


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ExampleExample

QuestionQuestion

Cost of vessel in 1993 was 25,000, what isCost of vessel in 1993 was 25,000, what isestimated cost today (Sept 2003 estimated cost today (Sept 2003 –– CEPCI = 402)?CEPCI = 402)?

SolutionSolution

990,27$359402000,25

19931993 =⎟

⎠⎞

⎜⎝⎛=⎟⎟

⎠

⎞⎜⎜⎝

⎛=

IICC now

now


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Example Example -- Accounting for Time and SizeAccounting for Time and Size

2 heat exchangers, 1 bought in 1990 and the other2 heat exchangers, 1 bought in 1990 and the otherin 1995 for the same service in 1995 for the same service

AA B B Area = Area = 70 m270 m2 130 m2 130 m2 Time = Time = 19901990 1995 1995 Cost = Cost = 17 K17 K 24 K 24 K

I I = = 358358 381381

What is the Cost of a 80 mWhat is the Cost of a 80 m22 Heat Exchanger Heat Exchanger Today? (Today? (II = 402)= 402)


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Example Example -- SolutionSolution

Must First Bring Costs to a Common TimeMust First Bring Costs to a Common Time

AA = 70 = 70

AA = 130 = 130

089.1935840217)2003( =⎟

⎠⎞

⎜⎝⎛=aC

323.2538140224)2003( =⎟

⎠⎞

⎜⎝⎛=bC


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Example Example –– Solution (cont.)Solution (cont.)

nKAC =19.089 (70)nK=

25.323 (130)nK=

( )( )

log 25.323 log(19.089)0.4565

log 130 log(70)n

−= =

−

745.2$70

089.194565.0 === nA

CK

( ) 290,20$288.20$80745.2 4565.0 ===C


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Total Cost of Plant Total Cost of Plant

Purchased equipment cost Purchased equipment cost –– equipment f.o.b. equipment f.o.b. Installed cost Installed cost –– Often 3 to 8 times larger than Often 3 to 8 times larger than purchased equipment costpurchased equipment cost


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Installed Cost of Equipment (Table 5.6) Installed Cost of Equipment (Table 5.6)

1. Direct Project Expenses 1. Direct Project Expenses

Equipment Equipment

Material for installation Material for installation

Labor for installation Labor for installation

2. Indirect Project Expenses 2. Indirect Project Expenses

Freight, insurance, and taxes Freight, insurance, and taxes

Construction overhead Construction overhead

Contractor engineering expensesContractor engineering expenses


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Installed Cost of Equipment (Table 5.6) (cont.)Installed Cost of Equipment (Table 5.6) (cont.)

Contingency and Fee Contingency and Fee

Contingency Contingency

Contractor feeContractor fee

Auxiliary FacilitiesAuxiliary Facilities

Site development Site development

Auxiliary buildings Auxiliary buildings

OffOff--sites and utilitiessites and utilities


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Lang FactorsLang Factors

Table 5.7 Table 5.7

Use multiplier depending on type of plant to escalate Use multiplier depending on type of plant to escalate equipment costs to installed costs equipment costs to installed costs

FFlanglang = 4.74= 4.74 Fluid processing plant Fluid processing plant = 3.63= 3.63 SolidSolid--Fluid processing plant Fluid processing plant = 3.10= 3.10 Solid processing plantSolid processing plant

This estimating technique is insensitive to changes in This estimating technique is insensitive to changes in process configurationprocess configuration


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Lang Factors (cont’d)

∑=

=n

ipiLangTM CFC

1


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Lang Factors (cont’d)


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Module Factor Approach Module Factor Approach

Table 5.8

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

Details given in Appendix A

( )opC


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Module Factor Approach Module Factor Approach

Bare Module Cost

Purchased Equipment Cost for CS and 1 atm pressure - Appendix A

Bare Module Factor (sum of all multipliers)

FBM = B1 + B2FpFM

Fp = pressure factor (= 1 for 1 bar)

FM = material of construction factor (=1 for CS)

1 2oBMF B B= +

op p p MC C F F=

BMopBM FCC =


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Pressure FactorsPressure Factors


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Illustrative ExampleIllustrative Example

Compare Costs for Compare Costs for

1. Shell1. Shell--andand--tube heat exchanger in 2001 with antube heat exchanger in 2001 with anarea = 100 marea = 100 m22 for :for :

Carbon Steel at 1 bar Carbon Steel at 1 bar

Carbon Steel at 100 bar Carbon Steel at 100 bar

Stainless Steel at 1 bar Stainless Steel at 1 bar

Stainless Steel at 100 barStainless Steel at 100 bar


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Effect of Materials of Construction and Pressure on Bare Module Cost

PP MOCMOC CCBM BM

1 bar1 bar CSCS 25 K25 K 82.3 K82.3 K

82.3 K82.3 K

82.3 K82.3 K

82.3 K82.3 K

82.3 K82.3 K

1 bar1 bar SSSS 25 K25 K 154 K154 K

100 bar100 bar CSCS 25 K25 K 98.1 K98.1 K

100 bar100 bar SSSS 25 K25 K 197.4 K197.4 K

opC o

BMC


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Bare-Module and Total-Module Costs

BM BM –– Previously Covered Previously Covered TM TM –– Includes Contingency and Fees at Includes Contingency and Fees at 15% and 3% of BM15% and 3% of BM

all equip

1.18TM BMC C= ∑


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Materials of Construction

Very important

Table 5.9 – rough guide

Perry’s – good source


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Results of Example 5.14Results of Example 5.14


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Capcost

Calculates costs based on input

CEPCI – use current value of 401 or latest from Chemical Engineering

Program automatically assigns equipment numbers

Documents

CHE 425 Engineering Economics and Design Principlesfaculty.kfupm.edu.sa/che/alamer/ChE_425/CHE_425_Ch… · · 2008-04-15Engineering Economics and Design Principles. ... existing