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Copyright© 1977

THE INSTITUTION OF CHEMICAL ENGINEERS

All rig hts rese rved

Reprinted 1980

Reprinted 1982

Reprinted 1984

Reprinted 1985

ISBN 085295 088 aPublished by I ChernE Services fo r

The I nstitution of Chemical EngineersGeorge E. Davis Building,165-171 Railway Terrace, Rugby,Warwickshire, CV21 3HQ England.

A NewGuideto

CAPITAL COST

ESTIMATING

Prepared by a joint working party of

The Institution of Chemical Engineers andThe Association of Cost Engineers

THE INSTITUTION OF CHEMICAL ENGINEERSGEORGE E. DAV IS BUILDING,

165-171 RAILWAY TERRACE, RUGBY

WARWICKSHIRE, CV21 3HQ, ENGLAND



PREFACE

Since the publication in 1969 of A Guide to Capital Cost Estimation and Noteson Project Evaluation the economic climate affecting particularly the westernworld has changed considerably: rapid increase in th e costs of raw materials,fuels and labour have resulted in a general down-turn of industrial activity,

accompanied by pressures on the profits and liquidity of companies. Investmentdecisions have become much more difficult to take in view of the greater

uncertainty of markets and costs. To meet these circumstances more sensitivetechniques of project appraisal, and more flexible approaches to project

management, have been developed. At the same time a change in social climate

has resulted in a significantly greater emphasis being placed on safety andenvironmental effects of processing units.

An attempt has been made in this book to reflect these changes. Moreover,although the first book was well received, it was felt that the cost engineeringaspects should be further developed, and the Institution of Chemical Engineersaccordingly invited the Association of Cost Engineers to collaborate in this

revision.This book is therefore a major revision whilst retaining th e original purpose -

to be a guide to the student or young practising engineer to the processes of

capital cost estimation and project development as they are practised. It tries to

indicate the areas which need to be studied and the approaches used for this.Whilst the cost information has been updated, presented in SI units, and the

data basis recorded, the data are still indicative only, and show pri marily how

costs change with size for particular types of equipment. As specifications canvary greatly within any equipment type with very great changes in cost, the

graphs do no t necessarily correlate with each other. This guide is not intendedto be a presentation of real cost data for direct use in estimating - for this the

engineer should always refer to specialists in this field.The emphasis adopted throughout is on good current practice, rather than on

a theoretical discussion of the underlying principles. Commercial and time

pressures frequently prevent these principles from being rigorously appl ied, to

be replaced by the judgement of experienced members of the organisation.Nevertheless, it is hoped that this guide will help the reader to understand the

factors which enter into a project study and to guide him in the areas of

quantitative assessment.

H.A.Anson

Chairman,IChemE/ACE

Working Party

1.

2.

3.

4.

5.

6.

7.

8.

CONTENTS

INTRODUCTION (B.A.J. Jones)

PROJECT DEVELOPMENT (H.A. Anson)2.1 Time and Cost - The Balance2.2 Feasibility Studies and Reports

2.3 Project Implementation

COST ESTIMATION IN RELATION TO PROJECT

DEVELOPMENT (B.A.J. Jones)3.1 Introduction

3.2 Order of Magnitude Estimate3.3 Study Estimate3.4 Budget Estimate

3.5 Project Control Estimate

3.6 Detail ed Est i mate

3.7 The Cost of Cost Estimates3.8 Reliability of Estimates

ESTIMATING METHODS (A.W. Putnam)4.1 Introduction

4.2 Exponential Cost E,stimating Method

4.3 Factorial Cost Estimating Method4.4 Typical Distribution of Costs4.5 Firm Price Estimates (Based on Detailed Design)

4.6 Use of Computers

4.7 Updating of Cost Information

COMPOSITION OF ESTIMATES (A.W. Putnam)

SELECTION OF COMPONENTS AND MATERIALS

(A.W. Putnam)

REVIEW OF APPROXIMATE COMPONENT COSTS

(V. Thompson and B.A.J. Jones)7.1 Introduction

7.2 Costs of Basic Metals7.3 Costs of Vessels, Tanks and Plant Items7.4 Materials Supply and Construction Costs

PROJECT EVALUATION (G.L. Wells)8.1 Introd uction8.2 Review of Existing Knowledge8. 3 Study of Past Achievement8. 4 Size and Complexity of the Plant8.5 Operating Costs8.6 Assessment of Project Profitability8.7 Sensitivity of Process Economics to Various Parameters

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9. AN EXAMPLE OF A PROJECT EVALUATION (G.L. Wells)

10. SOURCES OF COST IN FORMATION (D.J. George)10.1 Survey of Sources

10.2 Some Key References

Appendix: TYPICAL ESTIMATING CHECK LIST·

ACKNOWLEDGEMENTS

64

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The membership of the working party established by the Institution of Chemical Engineers andthe Association of Cost Engineers to prepare this new guide comprised:

H.A. Anson (Chairman) May & Baker Ltd, Dagenham.D.J. George Cremer & Warner, Hertford.

B.A.J. Jones (Editor) B.A.J. Jones & Associates, London.

A.w. PutnamV. ThompsonG.L. Wells

& ENTEAM, Technical & Management Services.Humphreys & Glasgow Ltd, London

Imperial Chemical Industries Ltd, London

University of Sheffield

The support and encouragement of their employing organizations in this work is gratefully

ac knowledged.In addition, the working party wish to record the valuable contribution by L.F. Williams

(Humphreys & Glasgow Ltd) during the preparation of the text and to acknowledge the detailed

and.constructive comment on the draft text provided by several members of the Institution andthe Association: however, responsibility fo r the contents remains with the authors and the

editor.

Finally, several companies provided cost data which has been most helpful in th e preparation

of this new guide and their interest and contribution is happily acknowledged.

APV-Mitchell Lt d

Chemineer Lt d

T. Giusti and Son LtdHumphreys and Glasgow Lt d

Imperial Chemical Industries LtdJohnson-Hunt LtdJohn Laing Construction Lt d

Welding Technical Services Ltd

1979 - 1st Revision

The Editor

On the occasion of the first major reprint the opportunity has been taken to make some minoramendments by way of correction and clarification suggested by users of the guide; the Editorhappily acknowledges their help and interest.

In addition, some data has been revised to accord with latest practice.In Tables 4.4 and 4.5 the indices are calculated to the base 1975 = 100, the base date now

used by the Department of Industry for this data.The fundamental data presented in Tabl e 7.1 Basic Metal Costs, and Table 8.1, Typical

Energy and Utility Costs, have been extend ed to show current typical costs.Section 7.4.2, Civil and Building Work, has been updated with current cost data, because

there is no set of indices in the guide directly related to such work.The importance of energy costs in project evaluation, first headlined by the 1973 oil price

increases, has been increasingly emphasised during the succeeding five years. The dramatic

changes in Iran in late 1978 have not only underlined the continued upward trend for energycosts bu t have also indicated the vulnerability of the continuity of oil products supply. On anational scale this will result in the search fo r the provision of alternative sources of energycoupled with a steadily enlarged program fo r achieving improved efficiency of energy usage.

At the plant scale this will be reflected in considerable attention being directed to maximising the overall efficiency of process plant operation, to the provision of equipment able to use

alternative fuels and the provision of fuel storage.All such schemes will require engineering and economic studies involving the preparation of

cost estimates: the succinct presentation of the principles and good practice of capital costestimating and project development as a guide to the young engineer remain the objectives of

this book.

The Editor

1. INTRODUCTION

The chemical industry has been a major growth industry during th e period 1948

to 1973 except for relatively minor pauses. In th e four succeeding years a general

levelling-off and then down-turn in world trade has inevitably been reflected in th e

chemical ind ustry: in this period the index of output for the chemical and alliedindustries fell approximately 10%. However, when th e present:recession conditions

are overcome, it is forecast that chemical industry output wi II/again grow

substantially through to the mid-1980's, 21beit at annual rates below those

experienced in th e 1960's.

Forecasting th e UK chemical industry growth pattern over the next five to tenyears is complicated by several new factors. Of considerable influence will be the

World competition fo r energy supplies. Although th e UK will obtain a steadily

increasing proportion of basic energy supplies from th e North Sea and other

surrounding offshore "fields", these are high-cost production areas with limited

production life and they will inevitably be developed under strong political

"guidance". Again, th e UK is now a full member of the EEC and undoubtedly

major decisions about chemical industry investment will be affected to an even

greater extent than previously by th e European scene. Further, major production

facilities ar e often nowadays much larger than the average size unit built in the

1960's with th e result that, whilst th e extra benefits of increased scale of operation

are th e target, th e penalty for error when planning and implementing such

investments is also magnified. The impact of factors such as these on th e planning

of new chemical industry investments will be to require even greater attention to

be paid to capital cost estimates and th e scheduling of decisions and actions

necessary to achieve profitable production from new facilities.I n common with a number of other major industries, th e chemical industry

employs large expensive plant which must be planned several years in advance.

Typically th e procedure from the in itial concept of a project, moving through the

stages of board consideration, board approval, detailed design, procurement,

construction, commissioning and th e eventual establishment of full production

level will occupy three to five years. Preferably therefore, there is a firm plan for

three to five years ahead and provisional plans for the following tw o or three years.

Proceeding beyond this point, plans might be vague, bu t nevertheless planning

must be projected in order to provide a secure basis fo r research and development.

In order that this planning may be effective, economic forecasts must be

produced at an early stage and reviewed regu larly in the I ght of current techno

logical and economic trends. These economic forecasts will be built up from

analysis in th e following areas:

• The market. Raw material costs, demand for product, extent of competition,maintenance of share of market or entry thereto, acceptable product selling

price, effectiveness of advertising, etc.

• Technology. Advances in scientific knowledge, technical research and

development of process routes and equipment.

• Engineering. Plant design, cost and timing.

• Production. Capacity, cost and timing.

• Resources. Financial, management and technological manpower.

• Profitability. Th e efficient use of the investment.



From among these many items to be considered in th e development and

evaluation of a project, th e main purpose of this booklet is to provide a guide to

the methods used to estimate the capital cost of process plant and th e key factors

affecting such estimates. A commentary on th e overall evaluation of a project and

an example of the economic assessment of a chemical process are included inChapters 8 and 9. Suggestions for further reading complete the guide.

2

2. PROJECT DEVELOPMENT

2.1 Time and Cost - The Balance

2.1:' In order to assist th e young engineer to appreciate his role in a new venture

and to enable him to make th e greatest contribution to its success, it is necessary

for him to understand something of the manner in which a new project is

developed in a commercial organisation and of th e vitlal influence of time during

all steps of this development. Although his more immediate concern is likely to

be the reliability of future production, first cost and operating costs, improve

ments in any of these areas will usually require the allocation of further skilled,

frequently scarce, manpower resources, and will often result in delay to theproject. Th e balance of these factors is a matter of experienced judgement. It

should be understood that th e same overall considerations apply whether t he

project involves the production of a ne w product by a manufacturing concern, or

by a contractor working' for th e manufacturing industry, although there are

considerable differences between the approaches of these interests.

2.1.2 In recent years not only has th e rate of technological innovation increased

rapidly bu t this has been accompanied by sharp fluctuations in market conditions,

interest rates, raw materials prices and, at times, rapid escalation of labour and

materials costs. One immediate result of these factors is th e increasing i n a b i l i t y ~to make quantified predictions with any confidence for more than a very limited

period ahead of an y decision point in time. Th e corollary of this is that it is

becoming rarer for design development effort aimed at achieving complete data

and "perfection" in design to be justifiable. Not only may th e delay in reaching

this design stage lead in most instances to higher capital costs, bu t th e increasing

imprecision caused by this delay on other relevant factors make any close decision

of questionable validity. Time-consuming and costly effort by th e design team to

achieve "elegance" or "perfection" of design must be guarded against.

2.1.3 Feasibility studies must often be carried ou t before development work is

complete and, with increasing frequency, investment decisions are taken at this

stage and funds released. As illustrated by th e example in Chapter 9, inaccuracies

in estimating costs at this time are'often less serious than errors in estimating time

to production. For this reason it is important for th e engineer to ensure that th e

time estimates submitted are as realistic as possible.

2.2 Feasibility Studies and Reports

2.2.1 All new capital facilities projects involve th e following phases:

DesignProcurement

ConstructionCommissioning

Most companies appoint a project manager to ensure th e effective coordination of

these activities and of th e many special ist departments (safety, accounts, legal etc)

directly and indirectly concerned. However, he is often not appointed until funds

have been allocated and in this case th e engineer preparing th e f ~ } l s i b i l i t y study

would be well advised to consult fully with an engineer having such experience to

ensure that he takes the relevant factors into account (see Chapter 5).

3



2.2.2 In developing the process flowsheet and layout, and particularly if develop-

ment work has not been completed and can still be influenced, the design

engineer must be aware of th e effects of h is decisions on th e project timetable

even more than its cost.

2.2.3 The value, of using standardised items of equipment and fittings, and readily

available materials of construction whenever practicable, cannot be over

emphasised: these normally permit a choice of vendors and therefore of price

competitiveness and some reliability of delivery dates. Specially designed equip

ment, or items made of exotic construction materials need to be designed,

fabricated, proved and then sometimes modified with possibly disastrous effect

on project time. This would be particularly so where a large item is involved

having many auxiliaries and located centrally in a plant, where its late delivery

would prevent progress on a substantial amount of other work on site.

2.2.4 These, and similar considerations, enable th e engineer to submit a feasibility

report where alternatives have been properly studied in respect of efficiency,

cost, time and safety. Th e report is intended to demonstrate the technical and

commercial viability of th e proposed venture. Th e report should state on what

assumptions th e estimates of time are made and what the margins of error are

likely to be, as these considerations may influence a decision. Time estimates fo r

design and development and the parameters on which they are based must be

agreed with th e relevant departments to ensure that they are realistic and will be

adhered to . Time control for the total project must begin at this stage and must

include th e time to approval of funds, as time lost in this interval cannot be

recove red lat er.

The amount of detail incorporated is usually a matter of company philosophy

bu t it should always include a process flowsheet identifying main equipmentitems, and sizes, type and extent of control instrumentation and materials of

construction. Th e scale of manufacture and expansion potential must be stated,

as well as th e demands on company resources.of space (including storage),

services and personnel. Operating costs must include no t only labour and

materials but, where significant, also items such as effluent t'reatment. Safety

and environmental factors must also be assessed (see also Chapters 5 and 8).

2.3 Project Implementation

2.3.1 As has been indicated above, once a decision has been taken to proceed and

funds approved th e control of th e project is usually vested in a project manager

(or project engineer) who must coordinate th e many different activities, and

often conflicting priorities, to ensure that an efficient and safe plant is handed

over for production, on time and within th e funds allocated. The framework for

detail design, cost contr,ol and plan n ing will be established at th is time.

For process plants it is usual fo r the client and contracting organisations to

appoint a project manager (or project engineer) each, to coordinate activities

within their own companies and between them to ensure good liaison throughout

th e project.

2.3.2 One of th e earliest decisions to be taken is the type of contractual arrange-ment to be adopted. Although many variations are possible, construction contracts

are essentially of two types, lump-sum or cost-reimbursible.

4

2.3.3 Lump-sum contracts are sought when all main design work is completed

before contractors are invited to tender for th e work on a competitive basis for

completion by a specified date. The contract price includes no t only the direct

cost of the works, but also that of any outstanding detail design, overheads and

profit, and a provision for the contractor's risk involved. Provision is made in th e

contract for price adjustments arising from variations or other factors outside the

contractor's control.

A lump-sum contract based on full design generally leads to th e best defined

programme and lowest direct cost. However, the time required for this approach

is often unacceptable, particularly fo r major capital projects, and in uncertain

economic cond itions such as 1975/76 few contractors are prepared to acceptbusiness on such terms.

2.3.4 Cost-reimbursible contracts are appropriate when a contractor is appointed

before design work is complete and when, therefore, a final cost of th e work

cannot be established with any accuracy. With contracts of this type it is usual

for part of th e cost to be on a fixed fee or percentage-of-works basis, with all th e

remaining costs incurred by th e contractor directly reimbursed by th e client.

When negotiating a contract of this type the main elements to be considered areany or all of the following:

Profit and overheads Site supervision~ ~ ~ ~ ~ t ~ ~Project management Construction and erectionProcurement and inspection Commissioning

2.3.5 A negotiated contract of the cost-reimbursible type is often adopted for

process plants to obtain th e greater flexibility (e.g. to accept design 0 r specificationchanges) offered by it and ye t achieve th e shortest overall time to commissioning

of th e new facilities. At a time of rapidly changing costs, this type of contract has

the further advantage that the tenderer does no t need to guess at the I kely effect

of time on h is costs, as he must do when bidding on a lump sum basis. As a result,

reimbursible type contracts are frequently adopted at th e present time, even in

cases where design work is complete. These contracts are more costly and difficult

to administer and are therefore sometimes converted to lump-sum contracts when

risks have been reduced during th e course of th e project.

2.3.6 Th e choice of contract route and negotiation with and final selection of a

contractor require th e appl ication of considerable experience and judgement, th e

discussion of which is outside th e scope of this book: bu t useful information will

be found in the Institution of Chemical Engineers' publication The Organisationof Chemical Engineering Projects [Out of print. Copy for reference in IChemE

Library].

2.3.7 In th e case of cost-reimbursible type contracts construction on site

commences at a stage when design is sufficiently advanced to ensure that

construction work can proceed smoothly and efficiently to completion. As th e

site establishment costs (supervision, clerical, hutting etc.) are a significant

proportion of the total cost of th e work and are incurred i r r e s p ~ p t i v e of work

load on site, close control of design and procurement is necessary to avo id partial

suspension of work arisi ng from design changes, late information, late deliveries

and similar causes. For this reason th e pressure to open up a site early to

5



demonstrate activity to management must be resisted. It should be recognised

that gearing design and procurement to a progressive pattern will somewhat

increase th e cost of these activities to achieve the overall benefit of shorter

project time. Th e natural inclination of design engineers to seek improvements

must be recognised and controlled if the programme isnot to be put at risk.

2.3.8 With lump sum contracts control of all th e features listed above is essentialto ensure that the project proceeds on time and within budget and that no

"surprises" arise. I n this case the detailed monitoring of costs is carried ou t

within th e contractor's organisation but the client must still exercise effective

management control of the time taken in making decisions, th e authorisation

of changes and th e detailed design and progress of work.

2.3.9 When developing the construction programme the possibility of achievingearlier completion by accelerating certain activities (at increased total project

cost - e.g. by overtime working) may need to be evaluated against th e total

financial benefit to the company arising from earlier production. If th is course

is adopted, particularly in respect of early a c t i v i t i e ~ on site, there must be

reasonable assurance that any time advantage gained will not be lost by slippageof later work.

2.3.10 Delays at the commissioning stage are not only amongst th e most

frequently encountered but are also th e most expensive as by this time most of

the funds have been expended, operating personnel engaged and process materialsemployed. Considerable effort to minimise these delays is therefore justified and

includes th e following (in addition, of course, to adequate development, designwork and operability studies):

40t Provision of additional instrumentation, sampling points and means ofwithdrawing or recycling streams in the event of failure of certain itemsto perform to specification.

• Early proving of compone'nts and circuits under simulated conditions to

identify shortfall of performance and operating problems, leaving

sufficient time for their rectification if required.() Adequate provision of construction materials, fittings, operating spares,

instruments and some equipment items additional to those required to

construct th e plant as designed. Although increasing th e apparent project

cost they enable modifications to be carried ou t promptly and if not

required will become the basis of the operating plant's maintenance stock.

2.3.11 In order to ensure a smooth transfer from construction, through

commissioning to routine operation, adequate consultation and training of

personnel must be arranged with in th e project implementation period.

Consultation must include safety reviews to identify, for instance, necessaryadditional safeguarding control devices, possible abnormal service conditions to

which equipment or fittings may be subjected, emission or noise control, or the

need for modifications to increase th e safety of operating procedures. Reviewswith maintenance engineers may indicate design changes desirable to reduce down

time and cost during th e service life of the plant. Where appropriate, consultation

with Trade Union and Safety and Welfare Committee representatives must alsobe given timely consideration.

6

Training programmes should ensure that operators, safety crews and maintenance personnel are familiar with operating procedures, special process and

plant features and control systems, as well as with th e layout of the plant and itsoperating points, before commissioning begins.

Th e engineer must ensure that these activities take place at agreed stages in the

project development and he would be well advised to allow some further time

and resource for dealing with items arising from discussion of these matters.

Unless these aspects are given adequate and timely attention during th e project

implementation stage, significant delays and additional expenditure are likelyto be incurred during commissioning and start-up of the plant.

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3. COST ESTIMATION IN RELATION TO

PROJECT DEVELOPMENT

3.1 Introduction

At an early stage after conception of a new process route or when a ne w or

extended production facility is contemplated th e experienced engineer will

prepare a quick appraisal of costs. If th e project goes beyond this early stage

then th e initial cost appraisal will be developed until it is finally a very detailed

and accurate listing of anticipated expenditure against which actual expenditure

can be monitored.

Th e purpose of this Chapter is to set ou t a typical scheme describing anddefining stages of development of a cost estimate by consideration of:

• The stage of project development and data available when th e estimate

is prepared.

• A summary of th e techniques used in preparing the cost estimate.

• The approximate cost of preparing the estimate.

• The probable order of error in th e estimate.

• The purpose fo r which th e estimate is generally suitable.

Commonly used synonyms applied to each estimate stage have also been listed

bu t great caution must be exercised before accepting th e equivalence of any

terminology until th e basis on which a particular estimate was prepared and its

purpose has been established.

Only rarely will all th e stages of estimating, described below, be followed in

the development of an estimate for a particular project. Sometimes a large

return on capital is foreseen, subject to a rapid entry into th e market. It may

then be decided to accept a more hurried estimate having wider tolerance and

to enter into th e engineering phase, includ ing ordering of long delivery items and

site preparation works. I n such cases it is usual fo r a detailed estimate to be

built up in stages as soon as practicable. Again, in the case of a company (either

owner or contractor) involved in a repetition of a very similar, recently

constructed unit, estimates within ± 10% and often within ± 5% can be rapidly

prepared avoiding much of the preliminary work and associated cost. However,

there is generally some progression from initial estimating, based on limited

information, to a more detailed estimate as th e project is more fully defined:

the stages of estimate development described below provide a guide to the type

of estimate in relation to the level of information available.

3.2 Order of Magnitude EstimateAlso known as: Ratio estimate, "Seat-of-the-pants" estimate, "Ballpark" estimate,

or "Guesstimate".

An approximate forecast of fixed investment may be obtained without flowsheet,

layout or equipment analysis by applying overall ratios (to account for differences

in scale of production) and appropriate escalation factors to published cost data

for previous installations considered to be broadly similar in nature to the scheme

under consideration. An illustration of th e use of power factor cost estimating is

given in Section 4.2.

8

Relatively little effort will be expended achieving this type of estimate: the

cost of th is effort is unlikely to exceed 0.1 % of the final project cost and will

usually be substantially less than this amount. This first, rough estimate is used

only as a very coarse screen to gauge the degree of further interest. The probable

error range is over ± 30%: some authorities will say that no confidence level canreasonably be applied to such estimates.

"Confidence Level" is a measure of the probability that the range of valueswith in wh ich the estimate may fall is a true statement. Most managements wi II

expect an estimate to be withi n the range of values stated and rigorous enquiry

is likely if th e final cost is outside these limits. With the type of information

available as described for subsequent estimate stages and with competentestimating based on a sound bank of cost data, a confidence level of 90 - 95%is usually achievable.

3.3 Study Esti mateAlso known as: Evaluation estimate, Predesign estimate, or Preliminary estimate.

When a scheme has been developed to th e stage of preliminary flowsheets,

and th e duty rating of principal items of equipment and a geographical location

are specified for the construction of th e facility, then it is feasible to prepare

a cost estimate based upon estimates fo r each main plant item or groups of items

obtained by applying appropriate exponents to previously established plant costs

to account for differences in duty rating or size and to include for minor

components, ancillaries and electrical, instrument, piping, civil and structural

work. An example of exponent estimating applied to elements of a process plant

project is set ou t in subsection 4.2.2. The cost of getting this estimate is likely to

be between 0.1 and 0.2% of th e total project cost and for this expenditure theprobable order of error will be within ± 30%.

It will be usual for th e degree of interest in th e project to be reviewed at this

stage. All the principal factors summarised in Section 3.1 affecting a decision to

proceed beyond this stage will be re-assessed. There may be a hold placed on

progress due to failure to identify a suitable site or source of raw material;

possibly further laboratory results are required. If, as a result of the review, a

decision to proceed further with th e project is made, then a marked increase in

the rate and amount of expenditure on engineering and associated activities wi II

result. This effort wi II yield, as on e of its results, a much more detailed and

accurate estimate upon which the important decision to sanction funds willdepend.

3.4 Budget Esti mateAlso known as: Sanction estimate, Funding estimate, or Scope estimate.

Following acceptance of a study estimate the further ~ ~ g i n e e r i n g work then

authorised will aim at obtaining and presenting the following information:

• Preliminary mass and energy balances, P & I diagrams, equipment listand material specifications, duty rating and sizing of equipment,

instrumentation and control equipment.

• A basic site layout of main plant blocks, roads, railways';Jsupportbuildings and a site survey.

• Preliminary general arrangement of plant.

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• Buildings approximately sized and form of construqtion stated includingoutline architectural sketches and main structural frame diagrams.

• Piping and insulation standards based on preliminary flowsheets.

• Preliminary utilities diagrams.• Preli minary electrical single line diagram , motor list, substation list

and lighting specification and scheme.

• Programme of work to achieve a stated date for production.

• Engineering manhour forecast to complete th e project.

With such data available a cost estimate having a probable error of less than

± 20% may be prepared. If th e data is too "preliminary" and incomplete then

even a ± 20% estimate will not be achieved: effort must be made to get th eproject defined and if this is successful then estimates in the range ± 15% to

± 10% may be ach ieved at th s stage.For several items, such as pipework, insulation, electrical and instrumentation

work, estimates will be derived by applying factors to the estimated costs of

main items of equipment. Specifying the principal materials of construction

will aid in selecting th e appropriate factor for piping cost. A ~ a i n , th e electricmotor list and preliminary total of installed power will enable the nature of

electrical work to be more clearly foreseen and the appropriate cost factor

selected. But much of th e estimate will be able to be determined by considering

th e cost of individual items, small groups of equipment, structures and buildings.A cost estimate is now in being which has considered almost all major equipment

on an individual basis and is related to a quantitative and q.ualitative description

of the equipment. Th e factorial estimating method is discussed further under

Section 4.3.

The cost of th e effort so far expended will typically total between 0.4% and

0.8% of project final cost; but for this expenditure a comprehensive statement of

forecast cost to carry ou t the project will'be available. This cost estimate will

form part of a report to management on all aspects of the intended project

including th e benefits which are anticipated to arise from the investment and,

most importantly, th e premises on which the JEPort is founded. It is on the basisof this type of report that approval from management to proceed should besought and provision of funds made.

All subsequent actions and decisions should be compared to this source

document; all proposals to change Trom the original plan in terms of money, time

or method should be analysed by reference to th e original intentions.

3.5 Project Control EstimateAlso known as: Definitive estimate.

Following authorisation to proceed and allocation of project funds based upon

th e budget stage estimate, it will be usual to further define and refine estimates

as design work proceeds and decisions are made. At a point short of complete

drawings and specifications bu t with th e benefit of substantial detail being known

and having held discussions with vendors and, when appropriate, with engineering

and erection contractors, the manager of the project will require a definitive

estimate to be drawn up. This estimate will normaHy aim for a probable error

of less than ± 10% and will be a key cost contro!' document used by th e project

manager to monitor all future expenditure against autho.rised funds. By th e time

this project control estimate is prepared between 1 % and 3% of the final project

cost is likely to have been spent.

10

3.6 Detailed EstimateAlso known as: Tender estimate, Firm price or Final estimate.

This estimate is prepared when all design, drawing and specification work is

substantially complete and bills of materials have been prepared which enable very

detailed estimates to be compiled by applying unit charges to each item. To

these estimates are added purchased equipment costs (derived from competitive

vendor quotations or from purchase orders), sub-contract estimated costs

and all other project estimated costs (see Chapter 5 and Appendix check list)

to arrive at the total estimated cost for the project.

The probable order of error is less than ± 5% for an estimate prepared in

this way and, with most of the design engineering completed, between 5 and 10%of the total project cost will have been expended (see also Section 4.5).

3.7 The Cost of Cost Estimates

The cost of preparing an estimate (at an y desired level of accuracy) tends to

decrease as a pementage of project total cost the greater th e size of project

under consideration. Analysis of a number of projects, none of which wereclosely repetitive of one another, and ranging in value up to £10M, yieldedthe envelope of data presented in Fig. 3.1. The cost of preparing an estimate

includes engineering, draughting and costing payroll, associated travel expenses,survey work and office overhead. Research and development, and market

survey and research costs are no t included.

Extended project study periods, frequent changes of scope of work,

uncertainty of basic data, development into new areas of technology for the

organisation, or inadequate management associated with the project, will often

result inthe cost of preparing an estimate exceeding th e upper curve shown inFig. 3.1. But repetitive project work (of th e nature illustrated by the example

set ou t in Table 4.1) will enable estimates to be prepared at costs substantially

less than the lower boundary of th e "cost of estimate" envelope.

10·00 ?

. h Envelope of typical cost5·00 ¥est imate preparat ion costs,

u for process plant projects. ~ costing up to £.10M

2·00 ,Q . ~·00 Data reported by

" Park 35

: : : ~ . ' t0·10 ~ ~ .0'051 I I I I

o 10 20 30 40 50

Accuracy of est imate ("to plus or minus)

Fig. 3. 1 - Estimating the cost of cost est imate preparation

11



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3.8 Reliability of Estimates

Th e precision of an estimate will be aided by a clear definition in advance of its

extent and programme. A few guidelines may be helpful:

• An estimate is only as good as th e technical information upon which it is

based. A check list must be used so that all necessary information is considered

to ensure that the estimate allows for the full scope of th e work. (see also

Chapter 5 and th e Appendix).

• The estimate should be related to prices at a fixed time and an escalation

formula should be agreed with th e sanctioning body.

• The rate of exchange used for foreign currency purchases should be

stated.• The estimate should be tied to a reasonably firm programme of construction

which clearly shows that it commences from authorisation to proceed

with th e project. Normally th e rate of expenditure will be planned by

years, quarters and months (as appropriate) from the date of full authori

sation to proceed.

• An appropriate contingency allowance must be added to th e estimate;

contingency should always be shown as a separate item. Th e overall

contingency may be built up from varying percentages on different sections

of the project, depending on the state of knowledge and when this is done

this development should be shown. The contingency may well vary between

25% for projects where new process development is involved down to 5%

where there is a substantial degree of repetition of previous experience.

(See Section 5.5).

• Almost certainly there will be a "client-contractor" relationship involved,

even if this is only between tw o sections of the same company. It is

important that the philosophy and scope of the design is clear to the

'client'.

• The estimate must be th e overall responsibility of th e project manager,

and he must have available a good system of cost returns, technical and

progress reports in order to be able to exercise cost control. During th e

course of the project, monies will pass from th e contingency to definite

items of plant; th e project manager must plan his commitments to prevent

his contingency sum from disappearing to o rapidly and unknowingly.

• At the stage when th e detailed estimate is produced, the design wi II havebeen subject to critical technical and cost analysis. Once the design basis

has been established changes in project requirement must be very thoroughly

vetted and obtain the approval of the project manager before implementation

as they will almost always have a significant (and usually undesirable) effect

upon cost and programme. During th e course of the project, critical analysis

will continue in order to control expenditure.

Finally, th e end objective of th e project should be kept under review. Markets

change and so do process econom ics. Even at a late stage in a project programme

a major redesign or even termination of a project may be a 'best' course in th e

long run"

12

4. ESTIMATING METHODS

4.1 Introduction

The type of estimate called for is determined by the degree of accuracy that is

required and it is axiomatic that, as stated in Chapter 3, accuracy is related to the

information provided.

4.2 Exponential Cost Estimating Method

4.2.1 This type of method is generally used for evaluating new processes and th e

profitability of a project, and to help establish the best design route to take or guidethe direction of research when alternatives are available. When historical data is

available on a similar type of plant is has been found that the cost of a new plant of

differing size is proportional to th e ratio of the relative capacity raised to an expon

ential power. The factors used vary from plant to plant. Overall plant cost factors

which are used for rough order-of-magnitude cost estimation of ne w facilities are

generally in th e range of 0.5 to 0.8. For rough order-of magnitude costs an overall

plant exponential factor may be chosen based upon experience. I n the case of anelectrolytic cell hall complete with its auxiliaries the exponent might be 0.8.

In th e following example the cost is required in January 1976 for a 1500 tonne/

day ammonia plant to be erected in the UK on a green field site.

Scope: Battery limit, process plant; feedstock, natural gas.

Process Units consist of a single reformer furnace; CO conversion; Benfield

CO 2 removal; ICI NH3 synthesis and recovery (single train compressors);

boiler feedwater and steam raising: bu t excluding offsites, storage andauxiliary services.

Known costs 1000 tid ammonia plant on the same basis in February 1975was £28 M.

Power Factor Equai,0n 0.66

X Y \ ~ i J x CF

Where

Say

X

C1

C2CF

y

x

Required cost of new plant

Capacity of plant with known cost

Capacity of plant for which cost is required

Correction factor for up-dating from February 1975

to January 1976, based on subjective assessment by

th e engineer using such data as given in Table 4.4 for

trend forecasting.

Actual cost of plant C1

£28 x 106 (1500) 0.66 x 1.221000

£36590 400 x 1.22£44640200

£44500000

13



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4.2.2 This method, widely known as th e "six tenths rule", can be used also for

estimating the cost of items of equipment from historical data for similar equipment.

It is a valuable aid in th e rapid development of preliminary estimates used for the

evaluation of new processes and projects. Exponential cost factors are published for

various items of equipment but should preferably be built up within each company

for components in regular use. Some typical power factors in use for cost versus

capacity are:

Tanks, rectangular 0.5

spherical 0.7

Pumps 0.7 - 0.9

Compressors, reciprocating 0.75turboblowers 0.5

Electric motors 0.8

Towers (constant diameter) 0.7

(constant height) 1.0

Evaporators 0.5

Heat Exchangers 0.65 - 0.95

Piping 0.7 - 0.9

The application of appropriate exponential cost factors against various cost code

items can be illustrated by considering the example of the 1500 tid ammonia plant

in greater detail. The working-up of the exponential cost estimate is set ou t in

Table 4.1.

4.2.3 It must be stressed that this method should never be used blindly and great

care should be taken to ensure that the proper comparisons and relationships arebeing made. Due to th e large diversity in process units, elements such as civil works,

plant and equipment, and bulk items like piping, electrical work and instrumentation

are present in different proportions. Consequently, th e exponent will vary from

plant to plant but with a mean figure of around two-thirds.

Great care mustbe taken that, in factorising upwards, physical and practical

limits are no t exceeded. It is also very important to establish, before applying any

factor, whether an increase in plant capacity is going to be achieved by an increase in

plant dimensions or by a multiplication of units or streams. Also it must be borne

in mind, when factorising downwards, that there are commercial limits to be con

sidered which will influence th e choice of exponent.

When comparing possible new green field projects, a much larger productive plant

may require very little extra by way of ancillary site services such as roads, railways,

site drainage, amenities and service buildings.

A satisfactory estimate may be compiled if th e previous historical data are broken

down into sections and a suitable exponent is applied to each. Fo r example, one

might decide that the services items listed in th e previous paragraph might only need

to be increased by, say 15% for a new plant of double th e productive output.

Other types of plant might require intermediate stages, for example feed prepar

ation or reactant recovery sections, before feeding into a reaction section. The cost

of th e productive reactors might, therefore, be a relatively small proportion of the

ancillary units, so that these auxiliaries may determine the overall plant cost factor.

14

TABLE 4.1 EXPONENTIAL COST ESTIMATING APPLIED TO INDIVIDUAL

COST CODES

Cost Cost

Cost Feb. 1975Power Cost

Feb. 1975

Code Descri ption 1000 tidFactor Factor

1500 tid

Ammonia Ammonia

£M £M

F Furnace Heaters etc. 3.20 0.7 1.328 4.25

G Package Plant 0.50 0.75 1.355 0.68

H Heat Exchangers 2.70 0.65 1.302 3.52K Compressors & Fans 1.50 0.75 1.355 2.03

P Pumps 0.50 0.8 1.384 0.70Q Turbines 1.10 0.7 1.328 1.46

T Tanks 0.50 0.65 1.302 0.07

V Vessels and Columns 2.30 0.65 1.302 3.00

Miscellaneous Items 0.15 0.6 1.274 0.19

TOTAL EQUIPMENT 12.00 0.68 1.325 15.90

E Electrics 0.90 0.7 1.328 1.20

J Instrumentation 1.20 0.6 1.274 1.53

L Piping 3.20 0.7 1.328 4.25

S Structural Steel 0.80 0.65 1.302 1.04

U Insulation & Painting 0.20 0.65 1.302 0.26

Z Catalysts & Chemicals 0.40 1.0 1.50 0.60

2 TOTAL BULK ITEMS 6.70 0.7 1.328 8.88

1 Total Equipment 12.00 0.68 1.325 15.90

2 Total Bulk Items 6.70 0.7 1.328 8.88

3 Civil Works 1.00 0.65 1.30 1.30

4 Construction 5.30 0.61 1.28 6.80

5 Engng & Procurement Fee 3.00 0.45 1.20 3.60

TOTAL C OS T - FE B 1975 28.00 0.66 1.3 36.48

PLANT COSTS FOR 1500 tId AMMONIA

Total Costs February 1975 £36480000

Correction Fac tor 1.22

Total £44500000

TOTAL COSTS JANUARY 1976 44.5M

Capacity factor is th e capacity ratio between the two plants under consideration

which is 1.5 in this example.

Power factor is th e exponential factor decided for the partiCular "cost area".

Cost factor is the arithmetical calculation of power factor applied to capacity

factor as explained in the example given in Subsection 4.2.1.



4. 3 Factorial Cost Estimating Method

4.3.1 In this type o f estimate it is necessary to make an assessment of the value of

the direct equipment. Having established the equipment costs, it is expanded by th e

costs of th e electrical, piping, instrumentation, structures, insulation, painting and

site erection elements. It is desirable to use one's own company cost data and feed-

back.Consider th e case of a carbon steel heat exchanger which costs £10,000 and is to

be located at ground level. Appropriate factors to allow for installation costs might

be as follows:Piping 0.35

Instrumentation 0.15Civil 0.1

Structures and buildings 0. 0

Insulation 0.15

Electrical (lighting only) 0.05

Painting 0.05

These factors, when summed, give an overall factor of 0.95. To allow for engineering

and overhead charges a further factor, of say 0.15 in the present case, is applied to

arrive at the overall installed cost. Hence, the total cost of th e installed heat exchanger

is estimated as follows:

£10,000 (0.95 + 1) (0.15 +1) = £22,425, or say £22,400.

A wider selection of approximate factors for use in preparing process plant capital

cost estimates are set ou t in Table 4.2(A). Use of these factors requires that (a) all

main plant items of a scheme be listed and separately considered, and (b) all main

plant items be costed on a common basis, namely that all fabrication is in carbonsteel; and this should be done before applying factors to main plant item costs to

arrive at total installed costs. Table 4.2(B) lists some typical conversion factors from

other materials to carbon steel fabrication for three classes of plant items. An example

of the application of this approach is set down in Table 4.3.

4.3.2 It should be emphasised that to obtain reliable results by factorial methods,

experience is required in selecting the correct factors as the overall values can range

from 2.5 to 5.5. Th e mean could be around 4.0 for a UK construction project, bu t it

is no t unusual for large overseas complexes to see the factor approaching 10.0.

Used by experienced engineers th e factorial method of estimating can give, in a

fraction of the time, estimates comparable in accuracy to those obtained by more

detailed and elaborate methods.

4.4 Typical Distribution of CostsBy way of illustration, Fig. 4.1 shows the distribution of costs for different process

plant ranging in value from £6M - £100M. The typical costs distributions should be

used with caution and mainly as a guide in the preparation of preliminary estimates.

4. 5 Firm Price Estimates (Based on Detailed Design)These are generally required to enable a contractor to make a firm commitment to

his client, and, therefore, have to be estimated to a greater degree of accuracy. To

achieve this accuracy a considerable amount of engineering work has to be done.

Here, very significant costs can be incurred in th e preparation of the information

16

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like piping, it is a cost element where definition is very difficult and the estimating

requires a high degree of skill. If sufficient definition is available with regard to

quantities, data sheets, material take-offs and layout drawings then construction

specialists can be invited to bid on a sub-contractor basis.

4.6 Use of Computers

4.6.1 A part of the estimator's work consists of the collection and storage of data,

its updating and the rapid retrieval of the required information from previous plant

costs. Generally, in the p;otst, these activities have been handled manually. Whilst this

may continue to be the practice in smaller undertakings, this work is more economically

handled on th e larger scale by computer techniques.At the most elementary level, th e computer may be used as a machine for the

storage of a wide range of costing data. Given the numbers and types of compon

ents, costs can be abstracted rapidly, updated if necessary, added or adjusted for

special factors.

4.6.2 For process plant, the computer will usually be put to greater use than

simply to supply stored data. A whole plant or a particular component can be

optimised commercially. Consider, for example, a vacuum distillation column.

A lower working pressure may give a better separation factor and hence requirea smaller number of theoretical plates and lower reflux ratio. Against this, the

cross sectional area of th e plates will be larger. The computer may be programmed

with the physical data as well as th e design equations and th e unit costs for

packing and shells. Output may be in th e form of a cost of plant for any given

set of operating conditions for minimum total cost together with a breakdown of

that cost and a summary of leading plant dimensions.

4.6.3 The estimate of capital cost may be integrated into an economic assess-ment incorporating costs and revenue. For example, consider a pressurisedcatalytic reactor. The program will allow for increased reaction rate as temperature

and pressure are increased, thus possibly reducing vessel size and catalyst

quantity. Against this, the yield may be reduced, thus adversely affecting

operating revenue. The computer allows both a design and a capital cost estimate

to be produced simultaneously in such a way as to achieve th e minimum overallcost.

Great care should be exercised to avoid improper optimisation. Sometimes alocal optimisation can set up a particular chain of further steps such that the

overall costs are greater than if a more expensive item had been selected at the

location in question. This is particularly true for reactors where savings at this

point may lead to higher separation costs.

I ncreasingly large computer packages are being used for theflowsheeting

andevaluation of chemical processes. I n such programs th e process input is in th e

form of an information flow diagram detailing the type of units and interconnecting streams. Data on the components, input flows, unit parameters and

utility costs are provided. The program then evaluates the system to derive th e

capital and operating costs. By observing key costs the user can then modify

unit parameters or even eliminate items altogether. In this way, an overallattempt is made to move closer to an optimum solution.

20

4.6.4 Computer programs are finding increasing use for planning pipe andcable routes, including the preparation of orthographic print-outs, schedules of

pipe or cable sizes, bends, fittings, supports, etc. Th e outputs from these

programs may be presented in suitable form for input to corresponding costingprograms.

4.6.5 One effect of computer use for cost estimation is that the functions of

process design and costing are no longer separated. Immediate feedback is

achieved so as to produce improved design and lower costs. For such work,

involving a variety of process plants, costing data may be prepared in such away as to facilitate feed-in as a sub-routine in design programs.

4.7 Updating of Cost InformationHistorical records of plant and equipment costs can be brought up-to-date by the

use of appropriate indices. Preferably the job should be broken down into variouscost categories of materials and labour. Each category can then be adjusted bythe use of the appropriate indices. Published indices by sources such as HMSO from

the UK Department of Trade and Industry and th e Department of Employment,

the British Electrical and Allied Manufacturers Association (BEAMA) and the

French Bulletin Officiel Services des Prix rBOSP) are extremely useful as a basisfo r checking th e trend of price movements. Some typical indices are illustrated

in Tables 4.4 and 4.5.

For some industries, composite indices have been produced in wh ich the average

relative contribution from each index is taken into account. Such an index for th e

process plant industry is published monthly in Process Engineering, and an example

of this data is shown in Fig 4.2. Other regular sources of cost data can be found in

the Oil and Gas Journal and Chemical Engineering, in these cases th e data are a l m o ~ twholly based on practice in th e USA.

It should be understood, however, that such indices do not always reflect the

true situation of market forces, supply and demand, premium payments and the

change in th e value of sterling relative to other currencies. Moreover, th e weightingof th e various commodities used in the make-up of an index may not be fullyrepresentative or sensitive enough for a particular piece of equipment or material.Therefore the emerging index number could well be unrepresentative of the true

pattern of price movements.

21



NN

100t ome Office Costs

90

80 Mechanical

Erection

..... 'v CivilsMiscellaneous

u 60 Structural Steel

o PIping

-0 50 Instrumenta ion+- ' Electrical......

o 40

-;!!

30

20L Equipment

10

0Plant A

Cost £32M

B

£20M

Fig. 4.1 - Typical distribution of costs

C

£6'OM

D

£6·5M

A. UK green field site. Battery limit ammonia plant, including storage.

E

£100M

B. Overseas green field site. Small refinery including tank farm and partial offsites.

C. UK existing site. Phosphate rock fertiliser plant with maximum client participation.

D. UK existing site. Acid plant with interconnecting facilities to the existing plant.E. Overseas existing plant. Fertiliser complex, including offsites and handling facilities.



285eII.::t:." 275 r omposite index -month by month (Jonuary 1970=100)

I cu C~ ' ' : : : ' ' : : : 1= 0'371

M+0 08I

E+0·10Ie

+01915+02610Ct l t : c2.g .. 265

..... c" C255- g

g'u. 0245

(J .- .... g:::I :; C. CtI LO ml ' - I ' - mo mC .... cu.c c . O o ) . . t o o c .Oooo 235o ( J ( J 0 ..-

l- £ l : ~ ~ l - L OL O(OOOO. . -M L O (0

:::::> 225c.. ell

l- cu

:::::> co 215(I )

0cu

en205

EC

(I ) 0195

N:::t: ·S 1;; '<::1'<::1'0'<::1' 001 ' -0 0 J

1976F M A M J J A S 0 N

u 00(J '- :::I

N L r i o ) N O L r i ~ . . t Mu en "Ca: .... _cc (O(O(OOOO"-M'<::I ' LO 320ll W W _ coc.. :::I s:: Component indices -month by month (January 1970=100)W

"C300

-I ..:<C ..... '>

e - - e - - . - - e - - e - . - - e 10(I ) 0 _en c: 280W ell CtI C

/.. --='___ - 1M-I 0

( J ' -

'c t - -----0 ! : 260 ~ ..... - r . : : : : " ' - - - - - - = - - ~ Ie.... Ctlcu ....

/---- ~ ~ ' ..-- . I:::t:(J

..c:.= ; M O . . - N (01'-00 (0cu """ ' - _ " . . 5

s: (I) (J en "C c .O o . . t o o o r ' c .ON .. t 240 ---=:!----....... ...___• ---- IE"C ~ J 1 - = L O ( o ( o I ' - O . . - M L O (0

U. CtI ~ . - - - - . - - - . ~ .0 220- .---I) al ------.-.--: .....W 0 en 200

al .... .§ ] N 0 J1976

F M M N2 :::I A J J A S 0c. c u · - · -

: > .... ali =:2 :::I C <C 1;; N . . -M O o o o m LO 320 Values of the indices

0 .- :::Ic . O o ) M r ' O r ' c .ON .. tX

en "C "C Historical index fo r November 1976cu C C C LOLO(oI ' -O . . -MLO (0 290

W ..c:W C t I _

(January 1970 =100)c ....

260 1M (mechanical engineering )=268'0:2 .....

0ell 230 IE (electrical engineering )=24"7cu

:::::> (J

:s ell ....200 le (civil engineering )=265-8u VI

LO C .;:: ::J

-t::i - .... "0

cu 'Q); " - I ' - LO M 0'<::1'1'- CX! .E 170 IS (site engineering )=258·3W

(Jcu"C o o o L r i r ' O O ~ . . t ..-

-I''::: .... C '<::I'LOLOI'-O N'<::I'LO (0 .....

140 10 (overheads)=280' 6.. (1)- 0al ....<C c

110 I (composite index) =267-1- cu

E....80-

1968 1970 1972 1974tI 19760.

a:; a:; a:; a:;cu

Fig. 4.2 - Composite cost inde x for UK process plant (November 1976)m .c .c ° .c.c (Based on Process Engineering, by kind permission of the Editor)

1 .0 0I'-..c:: EE 00..c:: EE Qj

, ,0..-NM'<::I 'LO (OI ' -OOmO. . -N m u c u . $ c u m U Q ) . $ Q ) U Process Engineering's composite plant construction cost index is the sum of five com-1'-1'-1'-1'-1'- 1 '-1 '-1 '-1 '-000000 .. - I- C o .U .. - I- C o .U I-c : n ~mmmmm mmmmmmm ~ : : J c u ~ ~ : : J c u Q ) ::J ponent indices. Al l these indices have the same base of 100 atCJanuary 1970. The

II . . - . . - . . - . . . . . . . . . .- . . . . . . . . . .-. .-. . . . . . . . . . - ,CfJ - ,C f JO 0CfJ composite index applies to a 'typical' process plant comprising 37% mechanical

engineering, 8% electrical engineering, 10% civil engineering, 19% site engineering and26% overheads. The derivation of the indices is explained in an article in Process

Engineering, January 1973, page 18.

2425



5. COMPOSITION OF ESTIMATES

5.1 Projects may vary in character from a new research development to a duplicationof an existing plant; from a green field project to a major modification of an operatingplant; from improving utilitiesto upgrading a main production line; from a simple to ahighly complex, integrated project. Nevertheless, the same estimating procedures are

fundamentally applicable to all cases, albeit to a greater or lesser extent.

5.2 The validity of an estimate depends upon inclusion of all relevant items. This is

particularly important when evaluating new processes resulting from research and

development as over-optimistic estimates are frequently produced without a truerealisation of the various ancillary services which are almost certainly required. Theseomissions produce the classic cases of projects whose costs increase dramatically during

development. Equally important is the need to avoid high estimates, wh ich may arisefrom the inclusion of unnecessary refinements, possibly causing a project to be rejected,

erroneously.

5.3 Some costs relating directly to the purchase and use of the job site will beincurred and must be added to the engineering and home office costs. Such itemsinclude inter alia, salaries, wages, payroll burden, company corporate overheads, andexpenses for general administration costs, site selection and purchase charges, wayleaves

compensation and legal charges. Credits may also derive from investment grants,

employment premiums, taxation allowances and other Government legislative procedures. I n the case of overseas contracts, the price will have to be modified to take

into account financing, short and long terms credit arrangements, import duties, local

taxes, rules, laws, ways of doing business and the political and social systems.

5.4 The sub-division of cost estimates is a matter for company policy and will berelated to the type of plant and the company code of accounts. A typical estimatingcheck list is given in the App endix.

5.5 ContingencyThe checklist given in the Appendix is extensive and its systematic applicationshould lead to a reliable estimate. However, every estimate must have a margin of

error associated with it and no matter how much detailed work has been carried ou t

the end result is an estimate, not a cost. The magnitude of the error depends on anumber of factors and the most significant should be considered quite separately,namely:

• Process uncertainty, the quality and reliabilityof data available for the estimate.• Extent of mechanical design and material take-offs carried out for the estimate.• Extent of market cover, the validity of any quotations received and the esti

mating methods used.

• Location and nature of the site, the local labour problems and regulations, andsuch problems as unexpected foundation difficulties.

• Adverse weather during construction, labour shortages and disputes andsubcontractors' delays.

• Organisational complexity of project (particularly overseas projects).• Currency exchange rate fluctuations.

26

These risk areas should be examined in detail and appraised statistically and final

addition made to the base estimate. A method commonly used in assessing such acontingency is based on th e probability distribution by th e use of the normal curve

and standard deviation.

5.6 Forward EscalationFrom the methods outlined above an assessment of the cost involved fo r carrying ou t

the contract work can be calculated. These costs will have been assessed asing pricesruling at a date of any quotation received or on statistics that have been updated to

current price levels. However, it will be necessary to make an assessment of the forwardescalation throughout the life of th e contract. It will be essential to establish trends

using the typical indices suggested in Tables 4.4 and 4.5 or to utilise the various contract

price adjustment formulae available, again using the appropriate indices as necessary.

5.7 Working CapitalThis item may be influenced by company policy in its extent of provision. It can begenerally defined as the funds, in addition to the fixed capital and land investment,which a company must provide a project (excluding start-up expense) to get it started

and meet obligations as they come due. That is the sum of cash, accounts receivable,and inventory, less taxes and accounts payable. Accountants define working capitalas current assets less current liabilities.

It could typically include: wages, salaries and purchased services for a period of

one to three months, stock in stores, feed tank and b unkers half full of raw materials,materials in process, stock of finished product equal to one half of storage capacityand fuel fo r a period of one to three months.

Working capital in terms of percentage of annual sales may vary widely dependingon the nature of the product and its cost of manufacture. When working capital,expressed as a fraction of total annual sales becomes significantly high it plays an

important part in the calculation of profitability by most methods.

5.8 Commissioning CostsThese should be estimated in as much detail as possible an d a deci.sion taken as to

whether they should be charged to capital or revenue, or apportioned between the

two. They consist of fixed cost and variable cost. Fixed costs include operating,

maintenance and supervisory staff and overhead charges. Variable costs include rawmaterials (assuming a low efficiency in the early months of the plant) and servicessuch as water, steam, compressed air and power. I n the earfy period, materials andservices may be used on trials or attempts to make product without actually achievingany good make. The net cost of start-up is a sum of fixed and variable costs less the

value of any good product made up to the time when the plant is producing

economically.In Fig. 5.1 four plant sections are shown, it being assumed that pre-commissioning

and commissioning will proceed sequentially partly to spread the work load on the

commissioning staff: the typical pattern of project cash flow is also plotted. No timescale is shown on this chart as times can vary widely from a few days to severalmonths, depending on the type of plant, its novelty and the exp:arience of the

commissioning staff. Equally it is not possible to lay down any standard data for

estimating start-up costs. They may vary from 1% to 10% of the capital cost

dependant upon the size, complexity and novelty of the plant. Wherever possible

27



Time table

Plantsections

A

B

c

o

Fixed

Fixed and variable !plan,ned costs plotted Iagainst value ofgood product made

I

plus

iAddi!ional prImaintenance personnel

of good product

Start of 'p r e - c o m m i s s i o n i n g ~ I I

Plant handed over to works having .. ; ••.Jcompleted 30 days at 2/3 f lowsheet ~ ,, ,I II

I,Break even point '

IMechanical -. ;

completion date I

i I Plant at steady II I lowsheet r a ~ ", I

Production date ---J II I '

Hand over daten I

Fig. 5.1- Plant commissioning and project cash flow

28

commissioning costs should be estimated from a breakdown of th e records of costsfor previous plants of similar nature, preferably referring to th e performance of the

same or comparable contractors.

Contractors prefer to carry out the commissioning and start-up of plants utilising

their own experienced personnel and charge on a per diem basis as it is extremely

difficult to quantify the length of time they are likely to be involved. A typicalweekly rate in 1976 for an experienced commissioning engineer would be in the

order of £500* plus expenses at cost. Therefore it is not difficult to understand why

on a highly complex plant the commissioning costs can be high. *£850 in mid 1979.

It is common practice for the contractor in collaboration with the process licensorto provide training facilities for the Purchaser's operating and maintenance personnel

especially if the Purchaser is inexperienced in the use of highly technologicalprocessing plants. Limited numbers of th e Purchaser's key operating and maintenance

staff would undergo training at the various works of the process licensors. This

would include process familiarisation comprising classroom instruction training with

the aid of a process simulator and various plant visits and specific on-site training in

operations procedures.

5.9 Changes of Scope and Cost Control

In the development of any process it should always be th e aim to establish definitivebasic data before starting design of th e process plant. This aim is not always achieved

in practice so that it is wise to make a contingency allowance to cover for changesin scope during the project life. Major changes in the basic data will usually involve

major rethinking of th e whole plant. This should be avoided as this can never behandled by the normal contingency allowance in an estimate, and would rather callfor a complete reappraisal and amended authorisation.

Changes in scope fall into tw o basic categories - additions or deletions to th e

project, and variations in the project consequent on design developme nt. Changes inprogramme follow upon delay in delivery schedules of materials related to th e latedevelopment or finalisation of design. Both the purchaser's and plant builder'sproject teams should endeavour to restrict variations and changes of scope to aminimum but inevitably they will arise and usually result in an increase in costs.

The Project Manager should be responsible for the continuing surveillance andcost control to keep these changes of scope to an absolute minimum. It cannot beemphasised strongly enough, and it must be continually borne in mind, that cost

control can only be achieved by management and this means management of the

entire project.

Monthly, or more frequently if circumstances warrant, systematic reporting andscrutiny of the progress of the work are necessary to enable effective control to be

carried ou t on any project. The details highlighted in such reviews shoul.d point to the

areas where corrective action is needed. It is th is action, taken promptly, that is the

real contribution to cost control. As soon as an unfavourable trend is discoveredmanagement should take action. If action is delayed time and money will have been

expended, which usually, cannot be recovered later.It is not unusual to see costs of changes of scope range up to 20% of the total

original capital cost of the plant. This may be justifiable in t h e ( : ~ i r c u m s t a n c e s of a

particular project: bu t generally it will be unsatisfactory if a change in cost of this

extent is no t foreseen in a timely and accurate manner.

29



6. SELECTION OF COMPONENTS AND MATERIALS

6.1 Economi c design is achieved more readily if the design engineer and th e

estimating engineer collaborate from an early stage in the process of evaluation. Thiswill assist in th e selection, wherever possible, of manufacturer standard component

sizes or will show the cost penalty for the use of non-standard components.

Expensive fabricating features or costly materials may be avoided.

6.2 Manufacturers of some items of equipment adopt standard sizes in order to

simplify their production lines and stockkeeping procedures. Frequently, they will

also supply non-standard items to special order which will clearly carry additionalcost. An enquiry for a non-standard component may be met with advice to adopt

the nearest standard size, but this will not always be the case. The onus must restwith the purchaser to confirm whether or not the size requested is standard.

Frequently the next larger standard component will be cheaper than the speciallymade item.

6.3 Performance margins should also be considered when taki ng standard sizes.

The designer may, quite arbitrarily specify a 10% margin on t h r o u g h p u t ~ The

suppliers, having one component 2% below specification may offer one 10%above. If, in fact, an 8% margin would have sufficed, then a lower cost item could

have been offered.

6.4 Another, sometimes costly example, may be found in tube wall thickness.Some manufacturers may supply certain sizes and materials with wall thickness

specified in inches or millimetres, whilst others will prefer standard gauges. Thestress designer usually arrives at a thickness in inches and may round up to the next

standard gauge. The supplier, using inches, may offer his next standard size. Thus,double rounding up may have occurred where none is required. Metrication mayeliminate this problem.

6.5 Sometimes a non-standard item is justified, particularly when this is larger

than the maximum standard size and where the alternative would be duplication.Each case should be examined for minimum overall cost.

6.6 Many engineering components are the subject of national and internationalspecifications (for example, British Standard Specification). I n some cases more

than one classification may be available, as in the case of the precision of

instruments. Wherever practicable, items confor ming to these specificationsshould be used and the appropriate classification should be assessed.

6.7 Some industries adopt higher standards than are usual, or may insist upon

their own standards. Usually this entails extra cost in order to eliminate a particularrisk. Each case shoul d be examined critically. A company may have developedspecial practices for flame-proofing electrical gearat a time when their sole product

involved a particular fire hazard. It would be unreasonable to carry similar specifications into a new separate factory manufacturing a different product where no suchhazard existed. Similarly, exceptional standards may be specifiedfor a component

30

whose failure would cause the shut-down of a major plant, bu t these same standardsshould not automatically be carried forward into other places, where similar components are used yet the situation is much less critical.

6.8 Choice ofMaterial of Construction

In process design and subsequent planning it should be general practice to specify the

materials most suited to the service conditions, although a cheaper material might beemployed if allowances were made in design, wall thickness, replacement costs etc.

An example of this is an electrically heated pipe line carrying molten lead at 773K

(500°C). On creep considerati on a low alloy steel (Cr Mo V) might be selected or,

better still, an 18/8 austenitic steel. Regular and thorough inspection would be

needed to ensure that there was no danger to plant personnel duri ng the lifetime of

the pipeline. The Flixborough and Seveso disasters serve to underline the paramount

importance of safety in process plant design considerations.The relative costs of the pipeline including fittings incarbon steel, low alloy steel

and 18/8 may be 1 : 3 : 6. An economic and safe solution therefore, might be to usecarbon steel, with greater wall thickness to reduce stress, and to replace it completelyevery one or two years.

6.9 Ammonia Plant- Case Study

An examination of costs may lead to conclusions which suggest ways of improvingprocess economics (see also Chapter 8). The development of the ammonia synthesisprocess provides an interesting case study.

In 1963 a radical improvement to the process economics was made possible by the

development of reUable high pressure centrifugal compressors. This in turn led to amuch better use of process waste heat to generate steam for driving these compressors.Consequently, expensive electric motor driven reciprocating compressors, generallyprovided with installed spares to cope with the known operational problems of theseunits, gave way to single centrifugal machines with no installed spares. Since centrifugal compressors work better with large throughputs this also led to a rapid increasein plant size. Before 1963 most plants were in the capacity range 30 0 - 400 tid; afew were being supplted up to 600 tid using reciprocating compressors. It was at

600 tid output that the first ammonia plants with centrifugal compressors weresupplied. However, within two or three years plants of 1000 tid capacity were on

order and by 1970 the world's largest plant of 1550 tid had been ordered.

The first centrifugal compressors were limited to 15 MNm- 2(2200 psig) but

even at this low pressure it was possible to design a very successful ammonia loopwhich is still being supplied today in spite of higher pressure compressors beingavailable. Other drive systems like gas turbines are considered for various ammoniaplant applications but the following Tables 6.1 and 6.2 will show why so few have

been chosen.By careful application of the best driver and compressor system, and by increasingthe size and efficiency of the plant there has been a considerable improvement

in the economics of ammonia production as can be seen from the data set out inTable 6.3. In this Table the feedstock and utility figures are expressed as aunit

consumption per tonne of ammonia p roduced .}

31



TABLE 6.1 OPERATING COSTS OF VARIOUS DRIVERS

kJ/kWh cal/kWh$/kW year

1963 1976

Electric Motor 50.5 241.5

Gas Engine 10.61 2534 16.1 146.0

Gas Turbine (open) 16.28 3886 24.7 222.0

Gas Turbine (heatrecovery) 10.61 2534 16.1 146.0

Back Pressure Steam

Turbine 4.25 1014 6.45 57.6

Condensing Steam

Turbine 15.57 3717 23.6 212.0

TABLE 6.2 APP ROXIMATE FIRST COST OF COMPRESSORS AND DRIVERS

Installed 1963 1976

kW $/kW $/kW

Centrifugal Compressors 7457 40.3 159.0

Steam Turbine (including condensers) 7457 27.0 99.0

Gas Turbines 2983 80.6 196.0

Motor Driven ReciprocatingCompressors 1491 94.0 246.0

TABLE 6.3 CHANGES IN AMMONIA PLANT OPERATING AND CAPITAL

COSTS 1965 to 1976

Year of Order

Capacity (t/d)Natural Gas (GJ/t N H3 )

Electricity (MJ/t NH 3)

Cooling Water (t/t NH 3 )

Erected Cost USA ($M)

1965

30 0

34.5

2650

2216

1965

1000

37.7

20

330

13

1970

1000

35.2

90

300

18

1976

1000

34.8

108

280

56

From 600 to 1500 ti d the conventional 0.66 power factor rule gives a reasonablyaccurate idea of the variation of cost with size.

It is immediately obvious that most of the advance in efficiency was made with

the introduction of centrifugal machinery. This also led to a reduction in th e plantcost per tonne of product. However, present day efficiency gains are almost alwaysobtained by spending more money. Consequently, ammonia plants have moved from

the innovative era of the mid-60's to a development phase in the early 70's. As th e

theoretical minimum energy requirement of the modern catalytic system is closelyapproached by modern plants, it is obvious that the next major step forward willrequire another innovative step of similar magnitude to that of the mid-60's.

32

7. REVIEW OF APPROXIMATE COMPONENT COSTS

7.1 Introduction

In this Chapter examples are given of the costs of various types of plant and equipment, and constructional work wh ich often arise in the construction of processplants. These cost data are included to give an indication of the orders of magnitudeand serve to indicate a way of building up a cost data file. If used for th e preparation

of study estimates (and this cost information is unsuitable for th e preparation of

more detailed estimates) this data should be updated by cost indices as discussedin Section 4.7.

The cost information providedin

this chapteris

grouped under three headings:Basic metal costs (7.2), Vessel, tank and plant item costs (7.3), Materials supplyand construction costs (7.4). These cover the items listed below and constitute a

COST DATA FILE

BtMic constructional materialsVessels and tanksJacketed reactorsRubber liningRefractory lining

Tubular heat exchangersStandard compressorsPackage boilersRibbon blendersTurbine agitatorsCentrifugal pumps

Civil and building workStructural steelworkSite built storage tanks and spheresPlant item installationPipe workElectrical cablingInsulation (pipework and vessels)Surface coatings (structural steel-

work, pipework and plant

items)

33



7.2 Costs of Basic Metals

As a guide to trends in fabrication costs it is often useful to examine the change inth e cost of basic metals over the period concerned. Table 7.1 sets ou t a selectionof such data.

TABLE 7.1 BASIC METAL COSTS

April 1976 July 1979Approxima te Cost Factor Approximate Cost FactorPrices ex Mill Relative to Prices ex Mill Relative to

METAL £ per tonne Carbon Steel £ per tonne Carbon Steel

Carbon s.teelRolled Plates

BSS 1 501-1 51 /1 54 140Fully killed carbon steel

1.0 200 1.0

(low temperature)Series LT50 151 1.08 220 1.1Series LT1 00 168 1.2 240 1.2

Low Alloy SteelsSeries Cr-Mo 2809% nickel

2.0 400 2.0

(low temperature) 560 4.0 800 4.0Austenitic steels

304 S15 835 5.96 1345 6.72321 S12 950 6.78 1475 7.37316 S16 1138 8.13 1870 9.35

Copper 802 5.72 900 4.5Aluminium 1136 8.11 730 3.65Monel 400 3470 24.78 5500 27.5Titanium 3695 26.39 10000 50.00

Notes: 1.0 All molybdenum bearing steels are subject to surcharge of between£200 and £400 per tonne at Ju Iy 1979

2.0 The price of titanium is based on small quantities, but prices aresubject to wide fluctation in the range £9000 to £12500

34

7.3 Costs of Vessels, Tanks and Plant Items

7.3.1 Estimation of Cost of Vessels

A preliminary estimate of the cost of a vessel is frequently made on the basis of cost

per unit weight, this preferably being obtained from records of vessels of similar sizeand complexity.

Whenever possible, for all subsequent stages of estimate preparation (see Chapter 3)competitive quotations for vessels should be sought because of the many factorswhich can significantly affect the item cost. Important factors affecting cost will be:

• The availability of dished ends to suit the vessel diameter.• Whether the tangent length corresponds to a standard plate width or

whether intermediate seams are needed.

• The number of manholes and other connections.• Worki ng pressure.• Welding quality requirements.• Special tolerances and surface finish.• The extent of inspection and test requirements.• The length of fabricators order books.

For vessels having a nominal number of inlets and a single manhole, approximatecosts, inclusive of delivery, are shown in Table 7.2. In making preliminary assessmentsof vessel costs, the weight of the vessel skirt and simple internals may be added to

the basic vessel weight and the resultant cost derived from the total weight. Thisapproach would not be appropriate for complex distillation trays or extensive internalpipe coils.

TABLE 7.2 APPROXIMATE COST OF VESSELS, INCLUDING DELIVE RY

Non Pressure Vessels Pressure VesselsNominal

to BSS 1500 Pt. 1Material Capacity

(m3)

Weight (t) Cost (£) Weight (t) Cost £

Carbon Steel 0.25 0.26 312 0.38 500

1.00 0.65 780 0.90 1300

5.00 1.86 1860 2.95 2976

10.00 2.76 2208 5.03 3312

Stai nl ess Steel 0.25 0.22 484 0.38 1748

(304L) 1.00 0.65 1430 1.00 4600

5.00 1.55 3100 3.03 11514

10.00 2.54 4826 5.10 18870

Monel ADD £2500 per tonne of vessel weight to Stainless Steel cost.Aluminium ADD £200 per tonne of vessel weight to Stainless Steel cost.

Costs for vessels of other capacities may be obtained by interpolation.

April 1976

35



TABLE 7.3 DETAILED COST ANALYSIS FOR A RANGE OF JACKETEDAGITATED STAINLESS STEEL (316 S 16) LOW PRESSURE DUTY VESSELS

Nominal Capacity m3

0.250 0.500 0.750 1.000 1.500 2.000Brim Full Capacity m

30.310 0.565 0.860 1.240 1.665 2.480

Overall Dimensions - Diameter mm 80 0 990 1140 1220 1300 1370- Depth mm 760 90 0 1030 1270 1560 1900

Diameter of Bottom Outlet mm 50 75 75 75 75 100Power of Agitator Drive (single speecH MJ 4 4 5 5.5 8 8Power of Contra-Rotating Agitator MJ 4 8 8 13.5 13.5 20Power of Emu Isifier MJ 13.5 27 27 40 40 65

Price of Basic Vessel £ 3195 3974 4768 5854 6981 7289

316 SS inner, CS Jacket, fixed speed anchor type agitator with PTFE scrapers, dished and clamped

SS cover, all SS dull polished; internal spiral in jacket space; fo r full vacuum or 170 kNm -2 with275 kNm -2 in jacket).

OPTIONAL EXTRAS

Emulsifier

(SS head with mechanical seal, 3000· rev/min -unit bolted to bottom or side!.

Contra-Rotating Agitator

(Anchor with PTFE scrapers, three contra-rotating

paddles, 1m3

and above with bottom steadybearing)

Variable Speed Drive

(For either single rotational or contra-rotatinggear boxes, giving infinitely variable speeds inrange 5 - 25 rev/min.)

Stainless Steel Jacket

(321, dull polished finish & legs or brackets)

Insulation

(38mm of fibreglass with 321 SS sheath, dull

polished)

Instrument Panel

(Two starters with ammeters and wired to motors.Pressure and temperature gauges. 380/440/3/50only)

Tw o Year's Spares

Emulsifier Pad

Blank Flange

Packing and F.O.B. London

36

All costs in Pounds Sterling

1366 1475 1475 1617 1617 1750

1395 2190 2468 3038 3122 4039

388 603 603 833 833 1042

336 428 648 776 860 964

755 877 928 1204 1308 1411

320 320 320 320 320 320

165 191 214 290 387 550

79105 105 105 105 105

52 79 79 79 79 79

182 226 258 308 366 446

March 1976

7.3.2 Storage Tank Costs

These items may be estimated by weight as for vessels, but it is usually more convenient

to estimate on the basis of storage volume and to record data on a volume cost basis.See also Section 7.4 for data on site constructed tank costs.

7.3.3 Jacketed Reactors

I n Fig. 7.1 an indi catio n is given of the increase of cost with size for three 'typical'

material specifications for this class of equipment. It should be noted that the

detailed design of apparently similar units can vary a great deal and substantially

affect unit cost. An indication of how cost varies with size and improved equipment

specification for a range of small stainless steel, low pressure duty vessels is shown in

Table 7.3.

40 000

35 000

30 000

25 000

20 000

tt..I

: 15 000If)

0u

10 000

8000

6000

50001 2 3

Carbon steel, glass lined304 SS Shell with CS jacketAl l carbon steel I

5 7 10

Capacity (m 3)

Fig. 7.1 - Approximate cost of acketed agitated reactors (April 1976)(Moderate pressure, 1 MNm-

2; including motor)

7.3.4 Rubber Lining of Tanks and Vessels

There are a number of different specifications for lining material and standard of

workmanship, and the work may be carried ou t either in a rubber liner's workshop,

if the vessel or equipment is transportable, or at site. Naturally, these factors affectthe final cost. The approximate cost for lining a simple vessel is £22 per square metre(April 1976).

37

100



7.3.5 Refractory Linings

The costs of these linings can vary very widely depending on the duty, materialspecification, accessibility,complexity and size of the contract to be let. As a firstapproximation of cost £120 per tonne oflining material should be allowed (July1976).

7.3.6 Tubular Heat ExchangersFigure 7.2 shows the variation of cost with change in surface area for three materialspecifications. An indication of overall cost increase with pressure is also provided.

100 o o o ~ I I LJ80000

60000

50000

40000

30000

20000

1 Al l carbon steel, 1 MN m rating

2 Tubes in stainless steel

3 5hellside - C5 clad with 55

Tubeside - C5 l ined with epoxy resin

Tubes and tubeplates, 55

I'" .., - ..,V; 1 0 0 0 0 1 ~ ~ ,ou 8000

6000

50001 ~ ~ ~Pressure

MN m2

1246

2000 8121632

I I I I

I! I I I1000' __ I I

Cost factorsfo r pressure

1· 01'21· 52'02·3

-i·53'53·8

I I10 20 30 40 60 80 lOU 200 300 400 600 8001000

Surface area (m 2 )

Fig. 7.2 - Approximate cost of tubular heat exchangers (March 1976)(Floating head; Tubes 5 m)

38

,0

7.3.7 Compressors

The variation of cost with output for a range of compressors (excluding motors) isprovided in Fig 7.3.

2500

1000

B(Y); 500

I c

H

Ql

250Q-0

L- 1500

Ql

LL

100

50

25

J

I A E M p

10, I I II II II I

000L() 0 1.0

o 0o 0N (V)

kN m- 2

o o o o ~ 1.0

P r e ~ ~ ~ r eo

000,.,:...1.0 C -C OO)

- - - - - ~

N (T) 1.0 0 1.0N N

MN m':"' 2

Fig 7.3 - Prices fo r standard compressors (March 1976)

£/kW £/m 3 h- 1

A * Non rolling drum rotary 28 1.5

B* Blower 35 0.9

C* Sliding vane rotary 28.5 2.2

E Single stage vertical 43.5 5.1H Two stage double acting vee 52.8 4.8

J Two stage vertical 37.5 7.7

L Three stage hor izontal 40 8.8

M Three stage horizontal 54 12N Three stage vertical 188 71

P Four stage vertical 231 81

* Can be used as exhausters

39



>.....

'0

7.3.8 Package Boilers (i.e. shop built)

Figure 7. 4 shows th e typical variation of unit cost with steam generation capacity

for two ranges of generating pressure.

5rouc:o.;:;ro

o 40-ro

"f -o

....

i: 3C1

Q)

0-

<+.I

4·5 to 6·0 MN m- 2

,. 5 to 4·5 MN m- 2

- 2' I20 25 30 35 40 45 50 55 60

uMaximum evaporation rate (kg h -1 x 103 )

Fig 7.4 - Basic prices ofpacka ge boilers (March 1976)(Saturated steam conditions) Basic boiler unit complete with burners, oil heating and

pumping set, economiser, FD fan, and motor, integral valves, fittings and piping, 12 -15 m stack, safety interlocks, feed water controls and indicating instruments.

Terminal points: feed regulator inlet, oil inlet to pump and heating set, main steam

stop valve, blow down and drain valves. Delivery cost excluded.

40

7.3.9 Ribbon Blenders

The approximate cost of these widely used solids mixing devices can be obtainedfrom Fig 7.5.

10000

8000

6000

5000

4000

3000-t; 20000u

1 0 0 0 ~ 7 '800

Al l carbon steel construction

2 55 contact surfaces

6005 0 0 L ' - - - - - - ~ - - ~ - - ~ ~ ~ ~ ~ ~ - - - - ~ ~ ~o·z 0-3 0·5 1 2 3

Blender capacity (m3)

Fig 7.5 - Approximate cost of ribbon blenders (July 1976)Costs include geared motor drive, outlet valve, mot.:>r push-button starter, lid fittr.d

with motor cut-out switches, all mounted on a steelwork frame allowing space for

bin/bag discharge beneath and access steps and platform on one side of unit.

Excluded: dust or fume extraction; charging devices.

41



7.3.10 Turbine Agitators

From Fig 7.6 the cost of units in carbon steel and stainless steel, suitable for openor closed vessels, may be estimated.

10000,"""" =l8000

6000 _

50001 / // 7

4000

3000

2000

E~ 1000Q)

:::J

crI-0

800

600

500

400

300

200

100' , ,o .--- ----10uu 2000

Carbon steel; fo r open top vessels

2 Stainless steel; fo r open top vessels

3 Carbon steel plus mechanical sealfo r use in a pressure vessel

4 As curve three but stainless steel

3000 4000 5000

Cost (£ )

6000 7000 8000

Fig 7.6 - Approximate cost of turbine agitators including drive and gearbox (April1976)

Note: The break point in the curves arises from a change in the construction of thegearbox and drive.

42

\

7.3.11 Centrifugal Pumps

Figure 7.7 shows the approximate cost for a range of process pumps. A TEFC,2900 rpm motor with class B insulation is included in the cost.

2 0 0 1 r - - - - - - - ~ - - _ . - - _ r - - r - ~ ~ " . _ - - - - - - ~ - - ~

- 100I-QI

8000.

0. 60E 50::J0.

..... 400

30:y

I-Q)

0.

'-Ii 20

......

1fI

0u

1010 20 30 40 50 60 80 100 200 300

Pump power requirement ( k ~ ) at maximum efficiency point

Fig 7. 7 - Approximate costs of single stage end suction centrifugal pumps, excludingdrive (October 1976)

(Specification: Generally to API 610 fo r continuous service at fluid temperatures upto 698K (425° C) steel casing, cast iron overhung impeller; coupling; soft packedgland shaft seal; baseplate; two pole drivers)

Multiplying Factors:CS casing/CI impellerAll steel

CS and 13Cr internalsSilicon iron

Rubber I ned steel

1.01.15

1.21.251.4

43

All 13CrAll 316S 16

MonelNickel

Hastelloy

1.72.0

3.34.56.0





II,II

1

"1

1

",,,

1:1

I:illi

I

II

IiiiI

i

I

l 1

,

7.4.3 Structural SteelworkThe schedule of unit costs for structural steelwork is an average cost for projectswhich require approximately 1000tonnes of steel for main frame, subsidiary steelwork and vessel and plant item supports.

TABLE 7.5 COST OF STRUCTURAL STEELWORKIncluding supply, fabrication, erection and surface preparation.

ITEM

Main frameSubsidiary steel

Excluding painting on site.

Plant item and vessel supports

Staircases and handrailing

Gantries

Supports for pipework (major)

Testing lifting beams

Holorib decking (per square metre)

COST (£ft)

425513550

Lump sum

425650

58.5

April 1976

7.4.4 Site Built Storage Tanks and SpheresSome typical costs fo r larger sizes of floating roof storage tanks are shown on Fig 7.8

and the cost of spheres suitable for products such as LPG and butane are se t ou t in

Fig 7.9. The costs allow for the basic tank or sphere construction only. Th e completeinstallation cost may be obtained by mUltiplying by a factor varying between 1.8and 2.2 depending on the extent and complexity of th e work.

2 0 , ~ - - - - - - ~ - - - . - - - . - . - - . - , , - . . - - - - - - - - . - - - - . - - ' - - ' - - r - r T i nd

du

cd

;::: 10o

E 8'-

6

5' I I I I I I I I I I I I1 2 3 r- en')" 1: " en on 1n....

lflo

U

Fig 7.8 - Cost of floating roof storage tanks (June 1976)

46

..

500

400

300

0 2000

;:?x

1000u

80

60

50

40

301 2 3 4 5 6 7 8 10 20 30 40 50 60 80

Capacity (m3 x 100)

Fig. 7.9 - Cost of spheres suitable fo r LPG storage (June 1976)

The cost of tank construction is considerably influenced by the size of the contract:

one or two tanks constructed alone are likely to be more expensive than th e figuresobtained from the charts which relate to major tank farm contracts.

7.4.5 Plant Item InstallationThe costs for installation of plant items may be broken down into two distinct elements: Moving and lifting items into position, Installation and fitting work. Th e

first element will be greatly dependent on the type of cranage required: the second

is labour intensive.

A combined cost of these two elements is approximately 10% of the total cost

of supply of process plant items when a substantial number are involved and when

all plant of metal construction is costed as if constructed in carbon steel. An

indication of the range of installation costs for individual items of equipment may

be found in Table 7 ~ 6 .7.4.6 Pipework

The rates given in Table 7.7 cover th e supply, fabrication, erection and testing to

achieve a complete installation. Th e costs include for the supply and erection of all

piping, flanges and fittings, supports, hangers and brackets, and for the erection of

valves, steam traps, strainers, orifice plates et c which would be made "free issue"to th e piping contractor. The cost data were obtained by analysis of a number of

contracts where total quantities of pipe ranged between 2000 Q1 and 20,000 m.

47



TABLE 7.6 PLANT ITEM INSTALLATION COSTS

ITEM WEIGHT COST

(tonnes) (£)

Pump complete with motor, baseplate coupling and

guard 0.35 350

CS Tank 29 m2 capacity complete with agitator,

drive unit etc. 14.75 1850

CS Vessel 35 m3

capacity 7.00 80 0

CS Vessel 2.1 m3capacity 2.5 500 I

Weigh Scale 0.60 200

Discharge Chute 1.5 160

Autoclave 18 m3 capacity complete with agitator

drive unit etc. 29.10 3150

PVC Water Tank 18.4 m3capacity 1.63 290

CS Scrubbing Tower complete with ceramic saddles 9.50 1680

April 1976

TABLE 7.7 PIPEWORK SUPPL V, FABRICATION, ERECTION AND

TESTING COSTS

Nominal size Material

of pipe Plasticmm CS ANSI 150 SS ANSI 150 Copper CINP16 (UPVC/GFR)

£/m £/m £/m £/m £/m

15 34.95 43.40 26.00

20 35.30 43.80 27.40

25 32.50 42.30 28.80 35.75

40 32.40 42.15 30.20 35.64

50 40.70 50.90 32.00 44.77

80 52.60 75.50 37.68 57.85

100 61.60 94.00 41.40 67.76

15 0 77.00 137.00 49.15 84.70

200 92.20 56.90 101.42

250 104.10 114.51

300 143.20

350 166.50

ADD for: CS ANSI 3005%; SS ANSI 3005%; CS ANSI 600 10%;Rubber lined 10%; Polypropylene lined 35%.

The wall thickness fo r carbon steel pipe is:

schedule 80 up to 40mm nominal size; schedule 40 50 to 150mm nominal size;

schedule 30 200mm nominal size and above.Wall thickness for stainless steel and copper is 3.25mm in all cases.

April 1976

48

1-

7.4.7 Electric CablingElectric cable installation contracts are of two main types, "fix only" or "supply andfix". In th e first type the plant owner (or main contractor) purchases the cable and

makes it "free issue" to th e electrical contractor to install. In the second case the

electrical contractor provides the necessary cable as well as all accessories and carriesout the installation and testing.

Th e data presented in Tables 7.8 and 7.9 are based on the following allowances:

• Cable runs varying in length between 25 m and 80 m, and an average runof about 50 m;

• The cable being continuously supported over its entire length by cable tray,

brackets and fabricated steelwork; and• Cable being supplie d in lengths of 150 m minimum.

"Fix only" Rates (see Table 7.8) in addition to th e points above these ratesallow for:

• Running ou t cable;• Terminating cable at each end;

• Cable tray, clips and strapping;• Fabricating and erecting support steelwork and brackets for cable tray;

• Proportion of "Preliminaries"; and

• An element of "Daywork".

Terminating includes such items as fixing cable ferrules, cable markers, proprietary

terminals, PVC shrouds for external protection etc.

"Supply and ~ i x " Rates (see Table 7.9) allow for all the items mentioned aboveand the supply o'f th e cable.

For cables up to 16 mm2

cable manufacturers purchase, in bulk, sufficient copperto enable them to set prices for three month periods and only exceptional circumstances

will affect prices. Larger size cable prices are determined by the daily price of copper

per tonne as fixed on the London Metal Exchange and as a result the price of such

cables continually fluctuates. It is for this reason that Tables 7.8 and 7.9 are presentedin two sections.

In th e case of smaller size cables (up to 16 mm2) quantity does not greatly affect

the unit price: for the larger cable sizes the order quantity has an important effect

on the unit price and for th e largest cables (and those of special construction) these

may only be available "t o 0 rder" and special quotation.

7.4.8 Surface CoatingsThe aggressiveness of a plant environment and the nature of the surface to be pro-tected will determine the surface protection process required. Unless exceptionally

aggressive cond itions abound on a particular project it is often found that surfacecoating costs amount to about 1% of the capital cost of the project. A guide to unit

costs fo r some painting specifications when applied to various surfaces is provided in

Table 7.10.

7.4.9 Insulation

The rates for insulation of pipework are set ou t in Table 7.11; vessel insulation costs

are dealt with in Table 7.12. I n both cases the rates quoted al16w for all costs incurred

in achieving a complete installation for the specification stated.

49



(J'1

o

TABLE 7.8 "FIX ONLY" RATES FOR ELECTRIC CABLE

Cable Description: 600/1000 Volt grade multicore cable, plain annealed copper conductors, insulated with general purposePVC type 1 to BSS 6746 : 1969, coloured for identification purposes; multicores laid-up together with PVC fillers and

bedded with extruded PVC; single wire armoured and sheathed overall with black extruded PVC, type 1. To comply with

BSS 6346 : 1969 for armoured PVC insulated cables. (Cables of 16 mm2to 300 mm2 conductors to be shaped.)

No. of Cores

2

3

4

No. of Cores

2

3

4

2

1.5

1.00

1.02

1.07

1.5

1.40

1.53

1.65

Nominal Area mm2Nominal Area mm2

2.5 4 6 10 16 25 35 50 70 95 120 150 185 240 300

Cost per Metre (£) (Cost per Metre (£)

1.06 1.15 1.27 1.29 1.38 1.21 1.38 1.53 1.79 1.96 2.13 2.28 2.39 2.74 3.11

1.13 1.27 1.32 1.38 1.44 1.38 1.53 1.61 1.87 2.02 2.25 2.36 2.54 2.94 3.26

1.19 1.32 1.38 1.44 1.53 1.53 1.64 1.78 1.99 2.13 2.39 2.45 2.68 3.17 3.46

April 1976

TABLE 7.9 "SUPPLY AND FIX" RATES FOR ELECTRIC CABLE

Cable Description: as fo r Table 7.8

Nominal Area mm2Nomi nal Area mm2

2.5 4 6 10 16 25 35 50 70 95 120 150 185 240 300

Cost per Metre (£) Cost per Metre (£)

1.56 1.98 2.28 2.93 3.37 4.55 5.22 6.27 7.84 9.67 11.20 13.06 15.63 19.6423.43

1.70 2.23 2.77 3.51 4.30 5.34 6.40 7.91 10.01 12.54 14.80 17.6921.0326.6831.84

1.86 2.65 3.12 4.09 5.37 6.24 7.83 9.85 12.21 15.66 18.77 22.1626.6533.8040.80

Supply cost of cable Supply cost of cable on which above rates are basedon which above rates are based (copper price ·£802 per tonne)

Cable cost (£ /1 OOOm) Cable cost (£/1000m)

233 291 400 491 737 899 1314 1548 1907 2504 3172 3736 4379 5348 7467 9079

April 1976



01I\.)

TABLE 7.11 COST OF PIPEWORK INSULATION

Description and Thickness of Insulation

N lflam Rigid Moulded Sections finishedspirally wrapped with PVC tape.

Nilflam rigid moulded sections finishedwith Glass Scrim Cloth embedded inAluminium mastic and the wholecovered in a further coat of mastic

Nilf lam rigid moulded sections finishedwith BD6 cement

Asbestos free Magnesia sections

finished with Glass Scrim Cloth/Aluminium Mastic (as beforedescribed)

Asbestos Free Magnesia sectionsfinished with BD6 cement

Calcium Silicate sections finishedwith Glass Scrim Cloth/Aluminium

Mastic (as before described)

Calcium sections finished with

BD6 cement

Nominal Size of Pipe (mm)

mm I 15 20 25 40 50 80 100 -150 200 250 300

Cost (£ per metre)

25 15.10 5.40 5.70 5.90 6.20 7.60 8.9010.2011.3312.4813.63

25 17.46 7.96 8.46 8.79 9.28 11.6013.7515.90 17.70 19.5021.30

25 I 6.12 6.48 6.84 7.08 7.44 9.12 10.68 12.24 13.62 15.01 16.40

38 17.90 8.42 8.90 9.20 9.7111.8613.8816.1017.9519.8021.70

38 16.56 6.94 7.28 7.49 7.87 9.38 10.81 12.44 13.26 14.61 15.98

38 19.08 9.68 10.23 10.58 11.16 13.63 15.96 18.28 19.60 21.58 23.25

38 17.74 8.20 8.618.879.3211.1512.8914.6215.5217.0918.35

(continued)



TABLE 7.12 COST OF VESSEL INSULATION

All rates as £/m2 vessel surface

Thickness of Insulation 25 mm 37 mm

Radius of Surface Under Over Under Over

1m 1m 1m 1m

Nilflam slabs finished in

Glass Scrim Cloth em-

beddedin

Aluminium 12.19 9.40 16.44 12.69Mastic and the whole

covered in a further coat

of Mastic

Nilflam slabs finishedwith Aluminium 13.89 11.11 18.75 15.00

cladding

Calcium Silicate slabswith Glass Scrim Cloth/

11.69 8.91 15.78 12.03Mastic (as before

described)

Calcium Silicate slabs

finished with BD6 10.19 8.15 13.76 11.00cement

54

50 mm

Under Over

1m 1m

17.38 14.78

25.30 20.24

21.30 16.28

18.58 14.85

April 1976

8. PROJECT EVALUATION

8.1 IntroductionWhilst the main purpose of this booklet has been to describe good practice in capitalcost estimation, some mention must be made of project evaluation. The chemicalengineer initiating a new project must consider the overall profitability of th e

proposal as well as capital cost.

8.2 Review of Existing KnowledgeChemical process technology is advancing rapidly with th e result that a new

project will not normally be th e most economic if it is a replica of an existing plant.

Before the start ofa project evaluation, new scientific and technical informationshould be gleaned from both inside and outside the company and the profitability

of major technical innovation assessed: th e availability and cost of resources and

whether size benefits on major items of equipment are possible should also be

considered. After critical analysis and collation, this knowledge should be compiled

into a project data manual. Gaps in requisite knowledge should be defined, and

specific time-related programmes agreed with the Research Department for their

resolution.

Alongside th e rapid technical changes there may be rapid commercial changes.A product for which there was little demand a few years ago may be subject to

substantial growth in consumption whilst a long established commodity may be

almost unsaleable in a few years time. A critical review and analysis of sales trends

over recent years may establish the pattern to be expected in th e futu reo There may

also be knowledge of competitiors published expansion plans which will indicate

the proportion of the market available and total and regional production demands.

8.3 Study of Past AchievementA feature of investment criteria is that once th e investment is made and the plant

installed, they no longer apply. Once capital is spent, providing th e plant makes aprofit under marginal costs it probably will remain in operation. Despite this it is

important to maintain comprehensive histories of technical and commercial

achievement within the company. These serve as a guide in th e future and may helpto avoid expensive mistakes of installing processes or components which, despite

initial promise have given disappointing performance.

Th e engineer who has profited from reliable records of past achievement (or

suffered from inadequate records) should ensure that the history of his present

project becomes available in th e best form fo r use in the future: this record should

make use of modern data storage, collation, retrieval and analysis techniques when

these are available.

8.4 Size and Complexity of the Plant

8.4.1 Th e technical and commercial study will examine several specific cases of

plant production rates, in relation to the potential demand for the product as

determined by a preliminary market survey. One extreme case ie\ th e small plant

which will suffer proportionately higher depreciation charges ari"d manpower

costs resulting in higher unit production costs. It will, however, have a reasonable

assurance of a high plant loading throughout its life. A much larger plant, on the

55



other hand, may need to be run at reduced capacity initially bu t may prove substantially more profitable subsequently. It may also permit the company to increaseor develop its share of the market readily. Although, because of th e higher capitalinvestment, the larger plant carries the greater risk capital, th e smaller plant suffers

from limited maximum potential profit. Factors such as market development,

technological innovation and competitors' efforts may modify the commercial

climate in which th e plant will operate. These and other factors will be relevant to

the decision determining plant size. This decision will consider not only th e profit

ability of the venture but the availability of resources and th e effort which th e

company is prepared to invest in exploitation and expansion of the market and itsgross potential.

8.4.2 Throughput on a plant may be reduced by operating problems. Theplanned stoppages which are incorporated in maintainance and operating schedules

are relatively easy to assess. Problems arising through product being off-specification

and requiring reprocessing, or failure of a plant item causing shut-<lown of the

process are more difficult to quantify. On continuous plants with little inter

mediate storage, chain reactions to other plants can be established. Particularly in

th e early stages of plant operation process availability may be reduced to values aslow as, say, 40%.

8.4.3 The chance of simultaneous success of three systems, for the alternative

structu res of series and parallel is:

series: Rs Rl R2 R3

parallel: Rp 1 - (1 -Rd (1-R2) (1-R3)

where each R is the reliability measured as the successes divided by the trials.Thus, for three plants in series each separately giving 96 successes per 100 trials, the

combined reliability assuming negligible intermediate storage is 0.88 or an availability of 88%. A corresponding figure for the same systems operating in parallel is

greater than 99%.An assessment of the likely plant availability should be made by reference to

existing plants operating on identical or similar manufacturing processes. Poor reliability is often inherent in certain processes which are still economic to operate.

Increasingly, reliability data is being recorded fo r use in assessing overall processavailability.

8.5 Operating CostsOperating cost under varying operating conditions must be evaluated at th e sametime as the capital cost and the designer must study th e interaction of capital andoperating costs to determine the optimum process. Among the items to be included,

detailed in th e following subsections, are:

• Raw Materials and Process Yield

• Energy Requirements

• Additional Utilities and Raw Materials

• Manpower

• Maintenance

• General, Overhead and Sales Expenses.

56

8.5.1 Raw Materials and Process Yield

Preliminary estimates of raw materials cost may be assessed from published prices, but,

for firm economic analysis, quotations must be obtained from suppliers. These quo

tations may be influenced by:

• Purity. Is a low quality acceptable, or is normal commerical purity or exceptionalstandard required?

• Quantity. Discounts may be available fo r larger quantities (but this may be off-set by higher storage costs).

• Seasonal Variation. A lower price may apply for a uniform delivery rate.• Contract. Long term contracts may attract better prices.

• Delivery. Delivery distance and method of transport.• Containers. Special containment may prevent deterioration in transit and

affect storage and handl ing costs.

• Condition. Choice may be available between mass solid, fine powder, solutions

of various concentrations, compressed gas, refrigerated Iiquified gas, etc.

Frequently,the decision on the purchase of raw materials can necessitate th e modification of the proposed plant offsites. Such a study should consider the reliability of

supply as it affects storage and future trends in availability and price.

Often raw material is available from another section of the company at an internal

transfer price. The full benefit to the company of utilising th e material must be

allowed in the evaluation rather than simply accepting a current market value. This

is particularly important when the producing plant would otherwise be working undercapacity.

The raw material requirements for a process are determined from a realisticestimate of plant yield. The yield is made up of the theoretical chemical yield after

allowing for undesirable side reactions, less allowances for plant losses such as arisethrough vented materials, spillage, carry-over, reprocessing of material produced offspecification, processing error, etc. If, due to low conversion, a high recycle of raw

material occurs, then what are very small losses per pass can become appreciable in

terms of product actually produced. Studies of existing and similar processes canusually provide suitable information to determine ne t yield and th e plant capacitymay then be scaled accordingly.

8.5.2 Energy Requirements

ELECTRICITY

Each Electricity Board publishes its own tariffs and these are shown collectively in

the annual Electricity Supply Handbook. I n some cases, alternative tariffs areavailable. Generally, industrial tariffs have a two part structure; the maximum

demand component reflects th e capital cost of generation and distribution equipment to meet that demand, whilst the unit charge reflects the cost of producing

and supplying the electricity. The effect of this tariff is that a lower average unit cost

is achieved by an installation having a high load factor and avoiding excessive peak

demands. I n all areas , tariffs include a premium fo r reactive load and the installationof power factor correction equipment should always be evaluated. Some Area Boardsoffer lower industrial unit charges fo r night load.

FUEL

The delivered cost of solid fuels is influenced by: Quality of fuel (ash and moisture

content etc. Delivery distance. Method of transport. Quantity. Du ration of contract.

57



Similar considerations apply to the cost of fuel oil; in this case quality is relatedlargely to viscosity.

Gas is frequently available to industrial users under terms negotiated by the localGas Boards. These terms generally include guaranteed minimum consumption, anagreed maximum with a premium for exceeding this amount, and also usually aclause to allow interruptions to the supply for several weeks in anyone year. As

a result, standby fuel supplies must be provided unless intermittent operation is

acceptable.

Fuel quotations fo r a new project will result from negotiations with the supply

and transport undertakings. Table 8.1 sets ou t some typical energy costs in 1975.

Energy costs may well be under-estimated by considering only "on-stream

energy" at full production rate. If it is foreseen that production rates will be lessthan th e maximum design, then any additional fuel requirement resulting from

this should be taken into account. Some plants also will be started-up frequently

or possibly held on ho t standby and this may lead to additional fuel demands.

Further energy demands will be incurred by off-site heating loads and distribution

losses.

The engineer should consider the installation of dual fuel supplies enabling anattempt to be made to ensure continuity of supply.

S.5.3 Other Utilities and Miscellaneous Raw MaterialsOther utilities include steam, inert gases, compressed gas supplies, such as air,hydrogen and oxygen, special quality process water, and chilled water and

refrigerant services. Examples of miscellaneous raw materials are filter bed media,acids and alkalis, catalyst renewal and solvent make-up fo r gas scrubbing.

Steam generation can be based upon the primary fuels cited above, by combustion of process wastes and through heat recovery systems. Occasionally, steam

may be bought "over the fence" i.e. from an adjacent plant. When it is possibleto install an integrated energy scheme whereby medium or high pressure steam is

generated, passed through a turbo-generator set and the lower pressure steam

used for process and space heating, then maximum efficiency in utilisation of

energy is achieved; such schemes should always be given proper consideration.

For any scheme using steam careful attention must be given to condensate

recovery and the process credited with the savings.Large amounts of heat can be required for amenity space heating in buildings,

and preferably these costs should be kept as a separate item in the estimate.

Cooling water or make-up to an evaporative cooling system can be obtained

from a river, estuary, th e sea, town main supply, or borehole. The use of town

main supply for direct cooling service is often prohibited and usually expensive.

The use of air cooled heat exchangers should be considered to reduce or eliminate

water requirements: the noise from these units must be fully considered and may

restrict their use.Process water may be obtained from town main supply or by purification of

raw water supplies; the determining factor may be availability or cost.

Negotiations with water companies and river boards will normally be necessaryto establish the cost and quantity of water supplies available for a new industrialapplication.

58

TABLE S.1 TYPICAL ENERGY & UTILITY COSTS

Fuel Oil 102p/GJ 148p/GJNatural Gas 115p/GJ 190p/GJElectricity 433p/GJ 615p/GJMains Water 11 - 16p/m

314 - 19p/m

3

Mid 1976 Mid 1979

S.5.4 ManpowerManpower cost assessments will start by making comparisons with the manpower

used on existing plants, bu t it is always wise to enquire whether or not improvements can be obtained by the introduction of automatic control, especially as some

older plants may frequently be over-manned relative to that which could be expected

for future plant. Manpower requirements are frequently dictated by start-up or

shut-down requ ire ments rathe r th an co nd itions of steady operation.

Attention must be given to th e impact of trade union agreements, particularly ifthe new project calls for merging of trades, extension of th e activities of any trade

or changes in working conditions.

Th e estimates of basic manpower cost should take account of holidays, sickness,incidental overtime, pensions, health contributions, statutory deductions, costs of

recruitment, company welfare services etc. Adjustments may also be needed in

respect of employment premiums or taxes. Non-process personnel must be includedin the total manpower estimate.

S.5.5 MaintenanceIn assessment of repairs and maintenance cost, comparison with existing similar plant

is of very great value. Examples can be found where maintenance levels are as low as1%, whilst at the other end of the scale, annual maintenance costs may exceed 25%of the initial capital investment: a value of 5% of capital cost (replacement basis)may be considered typical for non-corrosive continuously operated plants makingof the order of 10000 tonnes per annum of bulk chemicals. In the case of capitalintensive processes, failure to make proper allowance for repair costs could have aserious effect upon the overall economics.

Initially, maintenance allowance can be based on fractions of the capital cost.If possible, estimates can be more fully developed to make separate allowance for

routine servicing, periodic overhauls and unscheduled breakdown: the cost under

each heading may be further sub-divided between maintenance manpower, materialsand external contract work.

S.5.6 General, 0 verhead and Sales Exp ensesGeneral expenses are those directly incurred as a result of th e process. They include

rates and insurance, laboratories (process control and direct research), site chargessuch as internal transport and rubbish disposal, and some administration. A reasonable estimate is 3% of capital per annum fo r new projects.

Overhead expenses apply for the directorate, long term research, commercial

department, accountancy, canteen, etc, say 4% of capital per anf;1um for new

projects. It may seem unfair to burden a new plant with such expense if this is

installed on a fully serviced site, but the next plant might involve a new site with

services to be supplied. It could never pay for these by itself and other plants of

the company must contribute.

59



Selling expenses, such as packaging and containers, product formulation, freight

and distribution, must be incorporated. The quoted selling prices must make du e

allowance fo r these costs.

8.6 Assessment of Project Profitability

8.6.1 There are many different systems in use fo r measuring th e profitability

of a process. No matter which method is used and regardless of the elegance of th e

mathematics involved any decision is based on a considerable degree of uncertainty

and depends fo r its success on th e hard commercial judgement of th e Board. Usually

th e chemical engineer will bebound by company accounting procedures and there

fore systems best suiting th e experience of those involved in decision making shouldbe used.

8.6.2 Time Value of MoneyAn appreciation of the variation with time of th e purchasing power of money is

important: also money can be reinvested to increase in amount. Thus, the time at

whi-ch a cash flow arises should always be taken into account in the financial analysis

of a project. Early profits earned by a plant have greater value than a similar amount

earned later in a plant's life.

If it is possible to invest a sum of money at 10% p.a. interest then £1 00 today

will return £110in one year's time. Alternatively, £100 earned in one year's time is

worth £100/1.1 at the present time at 10% p.a. interest rate. A generalised expression

fo r the worth of £1 earned in n years time at th e present time is:

(1 + r)n

where r equals the annual percentage rate of interest divided by 100.

Th e above factor can be used to convert all th e futu re ea rni ngs of the plant to

present value. Then the sum of all these discounted annual returns is used to estimate

th e gross revenue return or ne t present value (NPV) of the process. If th e value of r

is selected such that th e NPV of future earnings is zero then the rate of return is

significant and is termed th e discounted cash flow (DCF) rate of return. This may be

used to assist companies to assess th e financial merit of various projects. However, by

itself DCF is insufficient as it is also necessary to study the pattern of cash flows. The

three projects shown in Table 8.2 all give the same DCF rate of return bu t have vastly

different cash flow patterns examined over a three year period. Only by incorporating

the cash flow of the project with th e projected overall Company cash flow pattern can

a decision be made on the project.

8.6.3 Inflation

Future earn ings also vary as a result of inflation. At a constant annual inflation rate,

f (expressed as a decimal), a cash flow, no w of C, would need to be C( 1+f) after one

year in order to maintai n a constant real value. Converselv, a cash flow Cn

occurrinq

n years ahead has a real value in current monetary terms of Cn (1+f)n. If this value is

discounted we have a revised discount factor of :

(1+r)n(1+f)n {1+r+ f)n

VI/len thA tp.rm "rf" is small.

60

TABLE 8.2 CASH FLOWS OF DI FFERENT PROJECTS

Scheme A Scheme B Scheme C

CASH discounted discounted discountedFLOW at 10% at 10% at 10%

Year 0 -100.00 -100.00 -100.00 -100.00 -100.000 -100.00

Year 1 + 70.00 + 63.64 + 36.66 + 33.33 + 11.00 + 10.00

Year 2 + 30.00 + 24.79 + 40.33 + 33.33 + 50.00 + 41.32

Year 3 + 15.40 + 11.57 + 44.36 + 33.33 + 64.80 48.68

Net Present

Value 0.0 0. 0 0. 0

If it is assumed that all cash flows are inflating at th e same rate, the amount at

the present basis, C, would increase to C(1+f)n which when discounted at th e

higher rate gives th e previous factor value of 1/( 1+r)n. This means that it is approxi

mately correct to base th e analysis upon prices prevailing at the date of th e analysis

without allowing for inflation. Alternatively, th e inflated values can be used in th e

analysis and a higher rate of return sought. This does allow fo r inflation no t affecting

all items at th e same rate du e to effects of supply and demand. The chemical engineer

is bound by th e practice in his company as to which method is used. For post-mortem

purposes the actual earnings must be corrected for inflation.

8.6.4 TaxationTaxes and capital allowances must be allowed for in economic evaluation. Legislation

changes from year to year and in th e Un ited Kingdom information is readily obtained

from th e appropriate Government Department.The overall company tax position determines the taxation on the project. I f th e

company is making a loss it will no t pay tax; if has no t been paid then no taxation

rebate will be obtained. However, assuming th e company is profitable, taxation will

follow a pattern similar to the following:

• Corporation Ta x at around 45/55% will be paid on profits, normally 1 or 2

years after the profit has been made.

• An initial allowance of 100% will probably be obtained which allows th e asset

to be depreciated for tax purposes in th e first year.

• Various other grants may also be available according to th e location of the

plant and current Government policy.

8.7 Sensitivity of Process Economics to Various Parameters

8.7.1 Th e results of a project economic assessment are used by management as a

basis on which to formulate policies. The chemical engineer should view themas

a feedback and consider whether modification of capital items might lead to a

worthwhile gain in overall profitability. Design is a cyclic activity and it will be

found useful to carry ou t a sensitivity analysis to examine th e relative effect of

changes in items contributing to cash flow on th e economic viability of the project

as a whole.

61



8.7.2 In Table 8.3 the sensitivity of cash flow and DCF rate of return to a selection TABLE 8. 4 EFFECT OF REDUCTION IN CAPITAL COST EXPENDITURE BYof factors is indicated for a number of projects. Assuming a project is profitable, VARIOUS ACTIONSthe best level of capital investment for a manufacturing chemical company fordifferent cash flow circumstances may be considered: an example of such an analysis EFFECT OF CHANGE ON PROCESSis shown in Chapter 9. cu

cu Eo!-'

E i=TABLE 8. 3 SENSITIVITY ANALYSIS OF SOME PROJECTS

en

0 i= Clu Ci-' i-'cu c

PERCENTAGE CHANGE > c en C) 0 c> > i-' cu 0 c '+=i

0i-' i-' .- E C)

'in- ro C)

in parameter in DCF rate of in cash flow over:.a

..Q C en C :Jen

REDUCE CAPITAL :.a co > 0 cucu .... 'E

PARAMETER return project life co 'x i-' ....'"0 '+= i-' i-'

.- 'ro .s: .- C en

E

COST BY THESE cu

cu

>cu

'+=i

cu::

co C>=

co 0 0Selling prices ± 10 ± 3 to 20 ± 20 to 60 ACTIONS a: « U) w ::J U U

Sales volume ± 10 ± 2 to 10 ± 10 to 15 Main items at minimum

Raw materi als cost ±1 0 ± 1 to 15 ± 3 to 15 cost P P ? P P

Yield ± 2 ± up to 3 ± 1 to 10 Units of minimum size P ? G G POperating costs ±1 0 ± up to 2 ± 1 to 3 Buy units abroad ? ?

Capital Costs ±1 0 ± upto 2 ± upto 3* Purchase of new innovation ? G ? ? G ? ?Delay to significant output ± 20 ± up to 2 ± up to 1 * Reduce installed spares P P P P P P ? G P

* Short term values are many magnitudes higher and may exceed all other valuesPurchase standard items G ? G ? G G G

in this column.Omit non-essentialitemst G ? G ? P P G G G

8.7.3 Generally, making a rapid investment decision is desirable to contain inflation- Less intermediate

ary trends. It also meets the requirement to enter the market earlier than competitors, storage P ? P ? G G P

or to use raw materials otherwise being wasted, or to provide back-up for an earlier Reduce process/investment. But inadequate pre-investment studies may result in underestimating mechanical standards P P P P P P P G G ?costs such as for environmental and site aspects and no t providing suffic ient spare Reduce installationparts, off-sites and infrastructure. standards ? P P P P

8.7.4 If medium and longer term cash flow are more important then market factors Reduce ancillaries P P P P P ?tend to dominate. Selling price and sales volume have the greatest effect on cash flow. Reduce instrumentation P P P P P P P ? G PClearly capacity of the plant must be correct. Also plant must be reliable and flexible.

Reduce safety standards P P P P GReliable, in that goods should be delivered on time and to the required specification;flexible, in that various qualities, output rates and differently packaged goods should Less construction. . *

P Pbe able to be readily produced. Raw material requirements may be reduced in cost supervIsion ? P P

by producing intermediates and by having plant which can process a range of raw Congest the plant layout ? P ? P Pmaterials. Process yield may be increased by improved control. Operating costs can Purchase intermediatebe minimised by appropriate equipment selection. products G P G G G

8.7.5 For a company with short term cash flow problems, the emphasis should be onP = Poor; G = Good; ? = Uncertain.

trying to reduce both capital cost and the delay to achieving significant output.However, reductions in capital cost by various actions can give a serious and lasting * Does not necessarily reduce capital cost and may well increase this cost.

effect on the performance of plant and, also, will often delay the achievement of t An example would be the omission of an exchanger not essential for making the

flowsheet production. Some of the measures which can be taken to reduce capital product bu t which saves energy.

cost and the possible effect on the process operation are set out in Table 8.4.

6263



9. AN EXAMPLE OF A PROJECT EVALUATION

9.1 The manufacture of DDT is selected as an example of the type of project evalu-

ation which confronts the chemical engineer. Th e assessment is of interest in that it

must consider no t only the optimum size of production unit bu t also whether manu

facture should be based upon primary materials or upon purchased intermediates. Data

quoted in the example will necessarily be imprecise but, within th e context of this

booklet this is unimportant. Because this example is further detailed in The EconomicEvaluation of Projects by D.H. Allen no changes have been made in prices which are

1969 values. The effect of inflation has been ignored for the same reason.

9.2 Plant Complexity

DDT can be manufactured in a simple plant by the reaction of chloral and chlorobenzene

with oleum all of which can be purchased on the open market. Alternatively, th e

intermediates themselves may be manufactured from primary materials in an integrated

plant. Chloral may be made from ethanol, chlorine and sulphuric acid, chlorobenzene

from benzene and chlorine. The chlorine may be produced from salt. The sulphuric acid

and oleum can be produced from elemental sulphur.

The costs of production will tend to be more stable for the integrated plant, since

all the prime materials are readily available from competitive and alternative sources.

Costs for th e simple plant could be seriously influenced by any shortages in supply of

the two essential intermediates; and there are likely to be fewer sources of supply for

the chloral and chlorobenzene.

9.3 Capital Cost and Working Capital

Capitalcost estimates

havebeen made for the two plants

assuming a designproduction

capacity of 30000 tonnes/annum. The simple plant would cost £3.5 M and th e inte

grated plant £12 M. Working capital would be respectively £0.5 M and £1.0 M.

9.4 Produ ction CostsThe costs which must be charged against the product fall into three groups. First, there

are capital costs. Second, there are those fixed works costs which are independent of

the quantity of saleable product. Th ird, there are production costs which are directly

related to the plant output.

Fixed works costs are assumed here to include labour, maintenance and overheads

and are taken as £919000 for the simple plant and £1 964000 for th e integrated

plant. Production costs which are directly related to output, i.e. variable costs, ar e

shown in Table 9.1.

9.5 Basis of Economic Assessment

The two schemes, simple and integrated may now be assessed using a discounted cashflow technique. The plants will be assumed to produce only 15 000 tonnes in the first

operating year and this will reach 30000 tonnes in th e second year. Thereafter, the

assumption is made that, with experience, production can be increased gradually to

36 000 tonnes without requiring increased capital investment.

64

TABLE 9.1 DDT PRODUCTION COSTS DIRECTLY RELATED TO OUTPUT

SIMPLE PLANT

Item

Chloral

Chlorobenzene

Oleum

Unit

Usage

of

DDT

ti t

0.45

0.90

2.00

Minor process materials

Steam and water

Minor services

Power

Maintenance

Packing and freight

Unit

Price

£/ t

20 0

10014

Cost

of

DDT

£/ t

90.0

90.028.0

16.0

TOTAL, (£/t of DDT) 22 4

INTEGRATED PLANT

Unit Unit CostUsage Price of

of DDT

DDTItem ti t £/ t £/ t

Benzene 0.9 25 22.50

Ethanol 0.35 55 19.25Salt 3.0 3.5 10.50Sulphur 1.0 10 10.0

43.0

Credit

Caustic soda 1.8 20 (36.0)

TOTAL, (£/t DDT) 69.25

Taxation plays an important part in any economic evaluation, so th e following

provisions are made:

• All taxation and allowances arise one year in arrear of th e earnings or expen-

diture.

• Corporation tax is at 52% on profits.

• There is an initial taxation allowance of 100% on all capital investment apart

from working capital.

• The plant operates within a large company operating at an overall profit.

Cash flows are discounted at an arbitrary rate of 15% which represents the. rate of

borrowing plus a company margin. Also, th e DCF rate of return for the tw o projects

is evaluated.

9.6 Financial Analysis

The financial analysis is shown for the two schemes in Tables 9.2 and 9.3.

A comparison will reveal several features:

• The alternative schemes break even at about the same t i m ~ . , i.e. the cumulative

present value discounted at 15%, changes from negative to'"positive in th e

same year. Both show a similar pattern of cash flow return although values aremuch higher for the integrated plant.

65

• The discounte d cash flow rate of return is higher for the integrated plant which



shows a slightly better return on capital than the simple plant. -5• The integrated plant represents a greater opportunity for investing capital. '0

Th is is good or bad accordi ng to the cash avai lable to the company and the L!) C") co o:;t L!) o:;t L!) 0 en N I'- 0 "*-. . P V I CO<OC")CO I ' - e n c oCOC" ) c o N

number of other projects open to the company as an active entrepre neur. resent a ue at L!) I '- e n c o C") <0 c o I '- c o 0

• A large proportio n of the cash flow for the simple plant is the cost of raw DCF Retu rn of f6 t8 co 0 L!) f6 L!) Q)

materials. Thus, relatively small increases in raw materials costs would either 25.16% C") N <0 0) ro N

force a rise in selling price or substantially alter the profitability. There is a '7 '7 '7 +-'

similar susceptibility to competitive marketing conditions which might force -ga reductio,n in selling price, The integrated plant is much less sensitive to Cumulative Present N I'- cg I'- [0 Rmarket prices. V' I'- 0) C") co L!) co I'- co co C") co co o:;t (I)

Th

' d I 'I hi' I h' h ' , k 'f '.j:i alue Discounted o:;t co co co co C") I'- o:;t I'- N I'll

• e Integrate pant Invo ves muc arger capita out ay w IC IS at ns I . ii at Annual Rate f NC " ) O ) I'- I'- en L!) o:;t 0) 0 0 ) L!) o:;t + - ' ~the process should fail in its early life for technical or commercial reasons. 8. 0 L!) :: 0 co N C") L!) co 0)

It also relies on a large revenue profit margin to offset the large capital out- CI) 0 I I '7 0..

lay, '00000000000000 Q)

;> 00 0 c o c o o : ; tO<o<O<O<O<oo : ; t :::l

9.7 Sensitivity Analysis Cash Flow 0 0 0 0 N N N co co

All f h f b' d ' , c Aft T 0 0 .... co L!) co N N N N N o:;t >

o t ese eatures must e taken Into account by management when etermlnlng er ax L!) o:;t C") o:;t 0 I'- L!) I'- I'- I'- I '- I'- 0) Q)

the preferred type of plant to be installed. These relative susceptibilities may be ; : :: N co co 0) co co co co 00

quantified by making a sensitivity analysis. F or this, a series of calculations are I I

made, similar to those in Tables 9.2 and 9.3 but with variations in individual factors. ...I -0

For example, one series would show the effect upon overall return of raw materials tl.. . 0 0 0 g gprice increases of 5%, 10%, 15% and 20%. Another series would examine the effect Tax on. Profit I'- M

of gross output being limited to 95%, 90%, 85% and 80% of the planned quantities. ( ~ ; ~ ) V I O U S Year t; co <0 ~ ~ ~ ~ o:;t 0)

Further analyses would explore write-off periods of 8, 9, 11 and 12 years in place Ci) 0 I ...... or I I I I I §of the planned 10years. . a: Tax allowanc ''B

Other factors include selling price, delay in commissioning, variation in capital 0 Ca ital I t

e

on t 0 0cost and variable inflation r ~ t e s . In Table 9.4 some of these cases are considered ( 5 2 ~ Tax ~ ~ ~ e ) e n 0 0 0 0 0 0 0 0 0 0 0

and the consequent change In the DCF rate of return measured for both plants. s:o...I O ~ ~ C " ) L ! ' ) I ' - I ' - I ' - I ' - I ' - I ' -

9.S Monte Carlo Simulation u.. Operating gj L!) 00 co 00 00 00 co '0.It is also possible to measure the effect on the DCF rate of return of several factors Profit 0 0 0 . . . . . . . . 0

all acting at the same time. To do this requires a knowledge of the distribution to « I g'

which the deviations refer and to have access to a computer routine known as (.) SalesMonte Carlo Simulation. Then a random value is selected within the range for each Revenue C! C!:! "'! CC! CC! CC! d d d 0

parameter and the overall DCF rate of return calculated. Th is process is repeated woo :;t 0) 0) 0 0 0 0 '+-

many times, say 2000, unti I: Each parameter has been fully sampled such that the C::. 0 0) 0 ) L!) C") C") C")

values used, if plotted, give a good representation of the distribution of that « Production g C") co co g gparameter, and: The DCF rate of return over a range is obtained. I- Cost 0 0 .::f ,...: cri cri ~ ~ ~ ~ ~ 0 e

To illustrate the technique the case studies have been reworked varying invest- ID

ment, fixed costs, variable costs, material costs, selling price of DDT and output by Capital L!) L!) L!) .; :

± 10% and assuming these limits represent the 95% confidence limits of a Gaussian Expenditu re 0 0 0 0 0 0 0 0 0 0 CC! E-i

distribution. The results are plotted in Fig 9.1 and show the relative risks and I I P 0 0rewards of the two projects. ;: ..::

This method works quite well except when the projects are very similar and so Production +-' 0 0 L!) 0 N o:;t <0 <0 <0 <0 <0 <0 0 §become hard to distinguish. However, great care should be taken that the sophisti- C") C") C") C") C") C") C") C") C") Ecation of the mathematics does not blur the fact that the initial data may be highly I'll ;:

inaccu rate often being derived from_personal judgement rather than objective Year N C") o:;t L!) <0 I'- co 0) 0 ;: : N C")

measurement. For further information see Ross(42). Q.

66



TABLE 9.3 CASH FLOWS FOR INTEGRATED PLANT (inflows are positive)

-< ""0 m(') ( ')""0 :JJU) " "00 - ( ' ) - -1 - - . --I »(') »<(') "':JJ""OCD X Q) o

§,16CJ1Q)Q) CJ1::JQ) -t.Q) ::J Q) C P : > ~ m

Q) 0"0"0

V> 0 < CD " ' "0 X " ' " "Ox .-+ V>::J C '30... CD _. .-+0... CD V> -. ?fi. ;:::t.. » Sm o

CD::r ~ c ~C ::J os C ::J '-+Q) ~ ~ C CD C(") (") .-+ - - 1 ~ - < ::J Q) - ? f i . 3 ~.-+

0. . . -

~ .C

Q) - 0" o· ""0-OQ)

CD ::J Q) 0 :JJ (i i ' o <0 .-+ 0 to X ::J C x::J C ::J : JJ (5Q)

V> 0 Q) (") < - t . ~. -+0 CD

CD Q) V> ::J - < ~ CDC ""0 C.-+'-+(") CD .-+ o ::J CD~ 3 C D Q) -t..-+CD Q)

CD 0 - - > C D ~ .-+

::J ::J CJ10...::J 0.-+ ~ Q ) ' - + (' )o .-+11

kt £M £M £M £M £M £ £ £ £

1 0 -6 0 0 0 0 0 -6.000000 -5 217 391 -4664710

2 0 -6 1.000 0 -1.000 3.120 0 -3880000 -8 151 229 -7 009900

3 15 0 3.00275 4.500 1.497 25 3.120 0 4617250 -5 115312 -4840 1804 30 0 4.041 5 9.000 4.9585 0 - 778570 4 179930 -2725423 . -3 313 100

5 32 0 4.180 9.600 5.420 0 -2578420 2841 580 -1 312656 -2506002

6 34 0 4.3185 10.200 5.881 5 0 -2818400 3063 100 11 607 -1 829606

7 36 0 4.457 10.800 6.343 0 -3058380 3284620 1 246417 -1 265711

8 36 0 4.457 10.800 6.343 0 -3298360 3044640 2241 715 - 859340

9 36 0 4.457 10.800 6.343 0 -3298360 3044640 3 107 192 - 543406

10 36 0 4.457 10:800 6.343 0 -3298360 3044640 3859780 - 297783

11 36 0 4.457 10.800 6.343 0 -3298360 3044640 4514205 - 106823

12 36 0 4.457 10.800 6.343 0 -3298360 3044640 5083270 41 63913 0 *2.2 0 0 0 0 -3298360 -1 098360 4904756 0

*This amount comprises return of working capital (see Section 9.3) and salvage value of plant, assumed to be 10% of the

plant capital cost.

10. SOURCES OF COST INFORMATION Electrical Services Price Book. Other useful sources of similar cost data are periodicals



10.1 Survey of Sources

10.1.1 This booklet has been concerned with th e principles of cost estimation: no

attempt has been made to provide a handbook of cost data, although some examples

have been included particularly in Chapter 7. It will be seen, however, that the

estimator must have access to comprehensive and reasonably accurate cost information

if well founded cost estimates are to be prepared. The contracting organisations, and

many of the larger chemical manufacturing companies, are able to justify having fully

staffed and equipped estimating departments. Such departments are responsible not

only fo r estimating, bu t also for the gathering, compiling and up-dating of the

necessary cost data.There are a large number of companies, however, who cannot justify full-time

estimating departments. The engineer is often required to make his own estimates

based on his experience and cost information retrieval. Th e methods adopted to

prepare a cost estimate depend to a large extent on the degree of definition of the

project under consideration and th e form and source of cost data available, as discussed

in Chapters 3 and 4. A number of sources of cost data are available to the engineer

faced with the task of preparing a cost estimate on his own account and a guide to

such data is presented below.

10.1.2 Suppliers Detailed QuotationsFor main equipment items, the most accurate costs will be obtained from suppliers

quotations submitted against detailed specifications. If the normal practice of

obtaining quotations from several suppliers is followed, even this method may resultin a wide spread of quoted costs, requi ring detailed technical and economic analysis

before selection can be made.10.1.3 Suppliers Budget QuotationsThe above method is time-consuming and is usually onli applicable for project

execution after authorisation. At the project study stage, however, suppliers will

frequently be willing to give budget prices, rapidly and without commitment, which,

in general, will be more accurate than published data.

10.1.4 Company RecordsCompany records of past projects and purchases usually contain a wealth of useful

cost information. If such information is systematically recorded and filed, together

with a suitable retrieval system, this forms a good basis for cost information. In

many companies, however, cost information gets buried with th e project records,

discouraging any search for cost data on a particular piece of equipment.

1 0 . 1 ~ 5 Trade LiteratureCosts for standard items of equipment such as valves, pipe fittings, etc., are often

circulated, or published in trade journals by traders in these items as part of theirsales and advertising efforts. The usefulness of these lists is often negated by beingundated. Because of the inflationary climate, the practice of publishing price lists

has declined in recent times.

10.1.6 Unit Pricing LiteratureUnit prices for measured work are published annually in Laxton's Building Price

Book, Spon's Architects and Builders Price Book and Spon's Mechanical and

70

such as Civil Engineering and Building Trades Journal. These are intended principally

for the building, civil and structural engineering trades where Bills of Quantities are

drawn up and priced. They do, however, contain a great deal of cost data of general

use, such as approximate cost of different types of building on an area or volumetric

basis.

10.1.7 Technical Literature and TextbooksOne of the largest sources of generalised cost data for process plants is th e chemical

and allied industry technical press. It is true to say that cost information has,been

published for most equipment items and project cost elements of the type encountered

in a chemical project. However, this information is widely spread in the literature.

Some cost estimating bibliographies and certain key references are presented at theend of this chapter, which should provide a starting point for a search of th e cost-

data literature.

A deficiency of this type of published cost data is that, in the interest of presenting

the data in a concise or correlated form, th e specifications of the items are no t fully

defined. Another drawback is that much of the data relates to costs in th e USA.

However, with judicious use, published cost data can provide a reasonable basis for

cost estimation.

10.1.8 Personal Cost BooksMany engineers keep their own cost data books into which they jot down pertinent

items of cost information gathered over the years.

10.1.9 Government DepartmentsVarious Government departments maintain statistics of wages, productivity and

material costs which are of value in compiling general cost indices and cost indices

for specific projects19 . Similar data fo r other countries are often available from th eapplicable Embassies, Trade Delegations, etc.

10.1.10 Computer DataThe Institution of Chemical Engineers has recently published a report on th e state

of the art of the application of computers to capital cost estimation29.

A number of programmes have been developed for capital cost estimating by the

contracting industry and by some of the major chemical manufacturers, and a few

of these have been made generally available through bureaux services. Th e programmes

available through bureaux services give access to sophisticated cost estimating

methods but do not provide cost data; this normally has to be 'user' supplied for the

programme to be operable. In some cases the cost estimation programmes are subroutines to broader process flow-sheeting and optimisation systems.

In addition to the general bureau programmes a number of the equipment vendors

have developed cost estimating programmes for their particular range of equipment

and a few of theseprogrammes

havebeen made

available through bureaux29 .

10.2 Some Key References

10.2.1 Bibliographies1 "A ready Reference Index of Cost Engineering I nformatiol t)", The Cost

Engineer, Vol '13, No 3, 1974.

2 "A Bibliography of the Cost Engineer Decennial Index, 1962-1972" (London:

The Association of Cost Engineers) and supplements, 1972.

71

3 "Cost Engineering - Select Bibliography", and supplements (London: CJB25 "Costs of Chemical Process Plants Abroad"; Bauman, H.C., Ind & Eng Chem,

Vol 54, No 9, Sept 1962.



Information and Library Service), 1970.

10.2.2 Cost Estimating Methods - Review Papers4 "Rapid Estimation of Plant Costs", Gallagher, J.T., Chem Eng. Vol. 74,

No 26,1967.

5 "How to Estimate Capital Costs", Holland, F.A., Watson, F.A., Wilkinson,J.K., Chem Eng, Vol 81, No 7, 1974

6 "The Development of an I mproved Pre-design Cost Estimating Method for

Chemical Plants", Allen, D.H., and Page, R.C., Paper A 1 pres ented at the

Third International Cost Engineers Symposium, 6 to 9 Oct. 1974 (London:

The Association of Cost Engineers), 1975.

7 "Rapid Cost Estimation in Chemical Process Industries", Bridgewater, A.V.,Paper A6, Ibid, 1975.

10.2.3 Module and Factorial Estimating8 "The ICI Fac-test Factorial EstimatingSystem", Kay, S.R., Paper A3, Ibid,

1975.9 "New Ratios for Estimating Plant Costs", Chem Eng, Vol 70, No 22, 1963.10 "New Cost Factors Give Quick, Accurate Estimates", Miller, C.A., Chem Eng,

Vol 72, No 2, 1965.

11 "Rapid Calculation Charts", Guthrie, K.M., Chem Eng, Vol 76, No 1, 1969.

12 "Data and Techniques for Capital Cost Estimating", Guthrie, K.M., ChemEng, Vol 76, No 6,1969.

10.2.4 Equipment, Etc, Costs13 "Cost Data Files for Chemical Engineers", Brit Chem Eng, May 1966 to

Feb. 1972 (a series).

10.2.5 Cost Indices14 "I ndices of Erected Costs of Chemical and Allied Plant", Eady, C.W., and

Royd, N.G., Chem & Proc Eng, Vol 45, No 3, 1964.

15 "Revisions of CPE Productivity and Cost Indices", Chem & Proc Eng,Vol 51, No 8,1970.

16 "Process Engineering's I ndices Help E stimate the Cost of New Plant",

Cran, J., Proc Eng, Jan 1973.17 "Comparison of Cost Indices", Chem & Proc Eng, Vol 45, No 6, 1964.

18 "Plant Construction Cost Indices - HowWe Compare with the US",

Cran, J., Proc Eng, Mar 1973.19 "Formulating Composite Cost Indices for Specific Projects", Hardman,

J.N., The Cost Engineer, Vol 13, No 3, 1974.

10.2.6 Costs Overseas20 "Location Index Compares Costs of Building Process Plants Overseas",

Cran, J., Proc Eng, April 1973.21 "Estimating Plant Costs in Developing Countries", Yen-Chen Yen,

Chem Eng, Vol 79, No 15, 1972.

22 "Costs of Overseas Plants", Johnson, R.J., Chem Eng, Vol 76, No 5, 1969.23 "Efficient Estimating of Worldwide Plant Costs", Gallagher, J.T.,

Chem Eng, Vol 76, No 12, 1969.24 "Equipment and Material Costs Abroad", Bauman, H.C., Ind & Eng Chem,

Vol 54, No 5, May 1962; and No 7, July 1962.

72

26 "Comparative Investment Costs in Western Europe", Stallworthy, E.A.,

The Cost Engineer, published in Chem & Proc Eng, Vol 44, No 7, 1963.

10.2.7 Complete Chemical Plan t Costs

27 "Up-dated Investment Costs for 60 Types of Chemical Plants", Haselbarth,J.E., Chem Eng, Vol 74, No 25, 1967.

28 "Capital and Operating Costs for 54 Chemical Processes", Guthrie, K ~ M . ,Chem Eng, Vol 77, No 27, 1970.

10.2.8 Use of Computers in Capital Cost Estimating

29 "The application of Computers to Capital Cost Estimation", Liddle, C.J.,

and Gerrard, A.M., (London: The Institution of Chemical Engineers) 1975.10.2.9 Economic Evaluation of Projects

30 "A Guide to th e Economic Evaluation of Projects", Allen, D.H., (London:The Institution of Chemical Engineers) 1972.

31 "The Finance and Analysis of Capital Projects", Merrett, A.J., and Sykes,A., (London: Longmans Green and Co. Ltd.) 1963.

10.2.10 Miscellaneous

32 "Cost Engineering Terminology", (London: The Association of CostEngineers) 1968.

33 "Estimating Check List for Capital Projects", Ibid, 1970.

34 "Fundamentals of Cost Engineering in the Chemical lndustry", Bauman, H.C.,(New York: Reinhold Pub. Corp.) 1964.

35 "Cost Engineering Analysis", Park, W.R., (New York: Wiley-Interscience)1973.

36 "Process Engineering with Economic Objective", Wells, G.L., (London:Leonard Hill) 1973.

37 "Strategy of Process Engineering", Rudd, D.F., and Watson, C.C., (New York:

John Wiley & Sons Inc.) 1968.

38 "Investment Decisions in the Nationalised Industries", Bates, R., and Fraser,N., (Cambridge University Press) 1974.

39 "Chemical Process Economics", Happle, J., (New York: Wiley) 1971.

40 "Plant Design and Economics for Chemical Engineers", Peters, M.S., and

Timmerhaus, K., (New York: McGraw-Hili) 1968.

41 "Economics", Samuelson, P.A., (New York: McGraw-Hili) 1970.

42 "Uncertainty Analysis Helps in Making Business Decisions", Ross, R.C.,Chem Eng, Vol 79, Sept 1971.

43 "Modern Cost Engineering Techniques", Popper, H., (New York: McGrawHill) 1970.

73

AppendixSERVICE PLANT AND EQUIPMENT



T ~ P I C A L ESTIMATING CHECK LIST

SITELand purchase plus all associated costs arising from legal requirements

Soil su rvey

Survey of special site hazards such as earthquakes, susceptibility to flooding and

abnormal meteorological conditions

Road improvements and diversions

Railway improvements

Pipe track and other wayleaves

Dock and wharfage requirementsWater supply contribution

Sewage disposal works

PROCESS PLANT

All process plant and equipment from detailed schedules

Special erection costs - e .g . c lean conditions etc

Costs of special materials

Costs due to special manufacturing techniques or pressure on manufactu ring capacity

Inspection and test

Delivery, particularly considering heavy, long or wide loads, heavy lifts and special

restrictions or consents

Catalysts etc., if they are to be charged as capital

Safety equipment

Containment of any hazardous operation

Ventilation, with particular reference to ho t conditions, toxic gases and vapours,

dusts and fire risks

Fire protection equipment

Equipment to meet requirements of Alkali Inspector, Factory Inspector, etc

Effluent treatment plants (inclu d ing development costs)

Instrumentation and control

Development of Instrumentation

Pipework and valves

Insulation and painting

Costs ·of process development and prototype testing

Allowance fo r modification after erection

Standby plant

Mechanical handling facilities

74

Steam raising plant and auxiliaries

Electricity connection charges

Transformers and switchgear

Cabling

Starters

Standby power suppl ies

Plant and pipework for storage and handling of water for process, cooling andpotable supplies

. W:!ter treatment plant

Internal transport, conveying and storage of raw materials, intermediate, finished

products and fuelHeating and lighting

Cranes, jigs, maintenance equipment

Test equipment

Lightning protection

Compressed air services

Refrigeration, local or centralised

Inert or special gas supplies

Operating and maintenance manuals, drawings etc.

Spares (msofar as chargeable to capital account)

Telephones and communications

CIVIL WORKS

Piling and soil stabilisation

Foundations

Main Plant Buildings

Plant structural steelwork

Chimneys

Buildings fo r service plant

Stores, storage buildings, warehousing,

Laboratories, workshops, offices

Medical and first aid centres, fire station

Canteen, change rooms, lavatoriesSite security, fencing, gate houses

Garages, car parks, cycle sheds

Customs and excise offices, weighbridge

Drainage - surface, chemical and soil water

Pipe and cable ducts

Land reinstatement, landscaping etc.

Compliance with Local and National Regulations

75

OVERHEAD COSTS



Engineering CostsProcess and detailed design, purchasing, and inspection

Use of consultants or specialists

Departmental overheads

Construction of models

Lloyd's or special inspection

Travel

Engineering involvement in commissioning

Temporary Facilities Required for ConstructionSite Engineer's office and furniture

Temporary power and water supplies

Temporary access and storage areas, fencing - site security

Construction workshops (can main project workshops be used?)

Site fabrication facilities and consumable materialsLabour camp - canteen

Major construction equipmen t (purchase or hire)

Direct Construction CostsDirect labour or contract labour

Subsidies to labour - travelling, canteen etc.Specialists

Transport costs

Overtime working, abnormal weather conditions, local customs and regulations

Miscellaneous Overhead Items

Process or Patent Fees

Agent's fees

Consu Itants' fees

Proportion of company's research expenditure

Proportionof company's central admin istration expenditure

Miscellaneous local or federal taxes

InsuranceFinancin g charges

Legal costs

Import duties

Special freight costs

Contractors overheads and profit

76

EFFECTIVE MANAGEMENT

The Dolphin Group is an association of technical specialists

o f f e r i n ~ ~ a highly professional approach to the problems

encountered by Clients in the Petrochemical and General

Process Industries in the conception and execution of new

or expanding manufacturing facilities.

Dolphin expertise can provide valuable assistance and

show considerable economic advantage in the fields of:

CAPITAL COST ESTIMATING

PROCESS DESIGN AND EVALUATION

EQUIPMENT DESIGN AND SELECTION

PROJECT ORGANISATION AND MANAGEMENT

PROJECT COST CONTROL

PURCHASING AND CONTRACTUAL PROCEDURES

CONSTRUCTION ORGANISATION

COMMISSIONING AND HAND-OVER

Information on a comprehensive range of services can be

obtained from the following group offices

Dolphin Development Company

Drews Park

Beaconsfield

BUCKS.

tel. 04946 2482

ENTEAM, Technical &

Management Services,

78, Third Avenue

Enfield, EN 1 1BY

tel: (01) 367 1343

telex: 261507 (ref. 3577)

THE DOLPHIN GROUP



LAING-

THI COMPRIHINSIVI

CONTRACTORSIt does riot matter whether you are contemplating asmall factory or a multi-million pound contract.John Laing Construction can tackle the job fromthe initial planning stages right through to you

turning the key in the lock.We are a truly comprehensive organization with

a network of local offices, and a spread ofmanagement and financial resources that cannoteasily be matched.

Call us in at the beginning on your next project.

John Laing Construction LimitedPage Street, Mill Hill, London NW7 2ERTelephone: 01-959 3636

LAINGBUILDING TOMORROW, TODAYPullman. KelloggEngineers of Energy

Punman K e / l o g g ; s p , r o i ~ c r f n a ~ \ ?me,nt teams

o f f e r l ' t l i l n Y 1 ~ a n . , ' i j ·that pay off for ol,lfclienlS.,

Consider, for instance, otIrabilities in organizing complexproject financing packages utilizingvarious world financing organiza-.tions. Including governmentalagencies for lending andguaranteeing loans, and commerCialand investment banks.

A Pullman Kellogg projectmanagemenrteam has the financialexpertise required to arrange tOOay'senormous financial packages. And,at the same time, to optimize theprofitability of your project.

For example,in IndoneSia, thegovernment awarded us contractstotaling more than a a l f ~ b i l l i o ndollars.

We worked closely with Indones/anofficials in coordinating the efforts ofall lending institutions involved. In

addition to Bank Bumi Daya andother leading commerCial banks,institutions involved in projectfinancing included the InternationalDevelopment ASSOCiation of theWorld Bank (IDA), the U.S. Agencyfor International Development (AID),the Asian Development Bank (ADB),and Japan's Overseas EconomicCooperation Fund (OECF).

Our point is this. Pullman Kelloggproject management is a part of anexperienced multi-national firm, withproven expertise in planning andhandling today's larger, morecomplex prOjects.

So when you have a complexproblem, anywhere in the world,consider our single-sourcecapability. Call the pros ofproject managernent.Pullman Kellogg.

Pullman Kellogg DiviSion of Pullman Incorporated, Three Greenway Plaza East, Houston, TX 77046Kellogg International Corporation, London W1M 2AD; Eff. May 1977, Wembley, Middlesex HA9 OEE, U.K.Kellogg Continental, De Boelelaan 873, Arnsterdam, The NetherlandsThe Canadiari Kellogg Company, Ltd., 20 Eglinton Avenue West, Torontd, OntariO, Canada M4R 1K8Other Kellogg offices in: Buenos Aires, Hackensack (New York Area), Hong Kong, Jakarta, Maracaibo,Moscow, Paris, Tehran, Tokyo .



DESIGN ENGINEERING AND

PROJECT MANAGEMENTOFPROCESS ANDINDUSTRIAL

'_. ~ ~'dIilr

PROJECTS

~ ~ ~ ,"

FEE, RE-IMBURSABLE OR LUMP

SUM CONTRACTS UNDERTAI<EN

PI P S Mill Hill . North West Ind. Estate••• Peterlee . Co. DurhamL IM ITED Telephone: Peterlee 5713

A MEMBER OF THE ~ GROUP, MERSEYSIDE

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