Cost Estimation PDF

Cost Estimation Dr. Rakesh Kumar  Capital investments Before an industrial plant can be put into operation, a large sum of money must be supplied to purchase and install the necessary machinery and equipment. The capital needed to supply the necessary manufacturing a...

Cost Estimation Dr. Rakesh Kumar  Capital investments Before an industrial plant can be put into operation, a large sum of money must be supplied to purchase and install the necessary machinery and equipment. The capital needed to supply the necessary manufacturing and plant facilities is called the fixed-capital investment(FCI). The capital necessary for the operation of the plant is termed the working capital(WC). The sum of the fixed-capital investment and the working capital is known as the total capital investment(TCI) The fixed-capital portion may be further subdivided into manufacturing fixed-capital investment and nonmanufacturing fixed-capital investment  Fixed capital investments Manufacturing fixed-capital investment: represents the capital necessary for the installed process equipment with all auxiliaries that are needed for complete process operation. Expenses for piping, instruments, insulation, foundations, and site preparation are typical examples of costs included in the manufacturing fixed-capital investment Nonmanufacturing fixed capital: required for construction overhead and for all plant components that are not directly related to the process operation is designated as the nonmanufacturing fixed-capital investment. These include the land, processing buildings, administrative, and other offices, warehouses, laboratories, transportation, shipping, and receiving facilities, utility and waste-disposal facilities, shops, and other permanent parts of the plant Delivered cost Fixed capital cost  Working capital investment The working capital for an industrial plant consists of the total amount of money invested in (1) raw materials and supplies carried in stock, (2) finished products in stock and semifinished products in the process of being manufactured, (3) accounts receivable, (4) cash kept on hand for monthly payment of operating expenses, such as salaries, wages, and raw-material purchases, (5) accounts payable, and (6) taxes payable. The raw-materials inventory included in working capital usually amounts to a 1-month supply of the raw materials valued at delivered prices. Finished products in stock and semifinished products have a value approximately equal to the total manufacturing cost for 1 month’s production. The ratio of working capital to total capital investment varies with different companies, but most chemical plants use an initial working capital amounting to 10 to 20 percent of the total capital investment  Types of capital cost 1. Order of Magnitude Estimate: Based on similar cost data 2. Study Estimate: Based on knowledge of Major Equipment 3. Preliminary Estimate: Based on sufficient data 4. Definitive Estimate: Based on almost complete data 5. Detailed Estimate: Based on complete engineering drawings, specifications and site surveys  Capital Cost Estimate Classifications Estimate Type Accuracy Data Diagrams Notes Order of + 25%, - 15% Existing plants BFD Capacity + Magnitude inflation Study (Major + 30%, - 20% Roughly sized major PFD Generalized equipment, equipment charts cost Factored) Preliminary + 25%, - 15% major equip. + piping PFD Group project Design (scope) + instr. + Elec. + util. Definitive + 15%, - 7% Prelim spcs for all PFD + equipment P&ID Detailed (firm or + 6%, - 4% Complete engineering contractor Capital Cost Estimate Classifications  Example The estimated capital cost from a chemical plant using the study estimate method (Class 4) was calculated to be $2 million. If the plant were to be built, over what range would you expect the actual capital estimate to vary? For a Class 4 estimate, from Table 5.2, the expected accuracy range is between 3 and 12 times that of a Class 1 estimate. A Class 1 estimate can be expected to vary from +6% to -4%. We can evaluate the narrowest and broadest expected capital cost ranges as: Lowest Expected Cost Range High value for actual plant cost ($2.0 x 10 6)[1 + (0.06)(3)] = $2.36 X 106 Low value for actual plant cost ($2.0 x 10 6)[1 - (0.04)(3)] = $1.76 x 106 Highest Expected Cost Range High value for actual plant cost ($2.0 x 10 6)[1 + (0.06 )(12)] = $3.44 x 106 Low value for actual plant cost ($2.0 x 10 6)[1 - (0.04 )(12)] = $1.04 x 106 The actual expected range would depend on the level of project definition and effort. If the effort and definition are at the high end, then the expected cost range would be between $1.76 and $2.36 million. If the effort and definition are at the low end, then the expected cost range would be between $1.04 and $3.44 million.  Vendor quote  Most accurate - based on specific information - requires significant engineering Use previous cost on similar equipment and scale for time and size  Reasonably accurate - beware of large extrapolation - beware of foreign currency Use cost estimating charts and scale for time  Less accurate  Convenient  n Ca  Aa    Cb  Ab  Cost Exponent Cost Equipment Cost Attribute - Size Ca  KAa n Cb where K Ab n  Effect of Capacity Ca  K Aan where K  Cb Abn  Effect of Capacity on Purchased Equipment Cost Rearranging equation 5.2 C  K An C  K An1 A Effect of Size (Capacity) cont. n = 0.4 – 0.8 Typically Often n ~ 0.6 and referred as the (6/10)’s Rule Assume all equipment have n = 0.6 in a process unit and scale-up using this method for whole processes Cost Exponent  Economy of Scale Example: Use the six-tenths-rule to estimate the % increase in purchased cost when the capacity of a piece of equipment is doubled. Ca /Cb = (2/1)0.6 = 1.52 % increase = (1.52 -1.00)/1.00)(100) = 52% Example: Compare the error for the scale-up of a heat exchanger by a factor of 5 using the six-tenth- rule in place of the cost exponent given in Table 5.3. Using Equation 5.1: Cost ratio using six-tenth-rule (i.e. n = 0.60) = 5.00.6 = 2.63 Cost ratio using (n =0.59) from Table 5.3 = 5.00.59 = 2.58 % Error = (2.63 -2.58)/2.58)(100) = 1.9 %  Effect of Time  I2  C2  C1   I1  C = Cost I = Value of cost index 1,2 = Represents points in time at which costs required or known and index values known Cost Indicies Marshall & Swift Equipment Cost Indexes All-industry equipment index - arithmetic average of indexes for 47 different types of industrial, commercial, and housing equipment Based on an index value of 100 for the year 1926 Account for cost of machinery and major equipment plus costs for installation, fixtures, tools, office, and minor equipment Engineering News-Record Construction Cost Index Indicates variance in labor rates and materials costs for industrial construction One of three basis’ used: 100 for 1913, 1949 or 1967 Nelson-Farrar Refinery Construction Cost Index Petroleum industry construction costs Basis - 100 for 1946 Chem. Engr. Plant Cost Index (CEPCI) Construction costs for chemical plants Equipment, machinery and supports, 61%; erection and installation labor, 22%; buildings, materials, and labor, 7%; engineering and supervision, 10% Major components subdivided as: fabricated equipment, 37%; process machinery, 14%; pipe, valves, and fittings, 20%; process instruments and controls, 7%; pumps and compressors, 7%; electrical equipment and materials, 5%; structural supports, insulation and paint, 10% Basis - 100 for 1957-1959  Chemical Engineering Plant Cost Index from 1950 to 2008 700 600 y = 1E-07x6 - 0.0014x5 + 6.8648x4 - 17771x3 + 3E+07x2 - 2E+10x + 6E+12 R² = 0.9947 500 400 300 200 100 0 1950 1960 1970 1980 1990 2000 2010 Effect of Time Marshal & Swift and CEPCI  Basis for the CEPCI Components of Index Weighting of Component (%) Equipment, Machinery and Supports: 37 (a) Fabricated Equipment 14 (b) Process Machinery 20 (c) Pipe, Valves, and Fittings 7 (d) Process Instruments and Controls 7 (e) Pumps and Compressors 5 (f) Electrical Equipment and Materials 10 (g) Structural Supports, Insulation, and 100 61% of total Paint Erection and Installation Labor 22 Buildings, Materials, and Labor 7 Engineering and Supervision 10 Total 100 Example: The purchased cost of a heat exchanger of 500 m 2 area in 1990 was $25,000. a. Estimate the cost of the same heat exchanger in 2001 using the two indices introduced above. b. Compare the results. From Table 5.4: 1990 2001 Marshal and Swift Index 915 1094 Chemical Engineering Plant Cost Index 358 397 a. Marshal and Swift: Cost = ($25,000)(1094/915) = $29,891 CEPCI: Cost = ($25,000)(397/358) = $27,723 b. Average Difference: ($29,891 -27,723)/($29,891 + 27,723)/2)(100) = 7.5% Example: The capital cost of a 30,000 metric ton/year isopropanol plant in 1986 was estimated to be $7 million. Estimate the capital cost of a new plant with a production rate of 50,000 metric tons/year in 2001. Cost in 2001 = (Cost in 1986)(Capacity Correction) (Inflation Correction) = ($7,000,000)(50,000/30,000)°.6(397/318) =($7,000,000)(1.359)(1.248) = $11,870,000 Example: 2 heat exchangers, 1 bought in 1990 and the other in 1995 for the same service A B Area = 70 m2 130 m2 Time= 1990 1995 Cost = 17 K 24 K I = 358 381 What is the Cost of a 80 m2 Heat Exchanger Today ? Example: The capital cost of a 30,000 metric ton/year isopropanol plant in 1986 was estimated to be $7 million. Estimate the capital cost of a new plant with a production rate of 50,000 metric tons/year in 2001. Cost in 2001 = (Cost in 1986)(Capacity Correction) (Inflation Correction) = ($7,000,000)(50,000/30,000)°.6(397/318) =($7,000,000)(1.359)(1.248) = $11,870,000 Example: Heat exchangers, 1 bought in 1990 and the other in 1995 for the same service A B Area = 70 m2 130 m2 Time= 1990 1995 Cost = 17 K 24 K I = 358 381 What is the Cost of a 80 m2 Heat Exchanger Today 2008 ? CI(2008) = 575  Must First Bring Costs to a Common Time 575  A = 70   C A 2008 17  27 358  575  B = 130  CB 2008  24  36 381   C  KA n By solving we get n = 0.46   n 27  K 70  36  K 130 n C 27 K   3.74 An 700.46  0.46 C  3.74 80  28.7 Gate 2013 The purchase cost of a heat exchanger of 20 m 2 area was Rs. 500000 in 2006. What will be the estimated cost (in Rs. to the nearest integer) of a similar heat exchanger of 50 m2 area in the year 2013? Assume the six-tenths factor rule for scaling and the cost index for 2006 as 430.2. The projected cost index for the year 2013 is 512.6. Solution: From six tenth rule Cost of heat exchanger in 2006 Cost of heat exchanger in 2013  Factors Affecting Capital Cost Direct project expenses Indirect project expenses Contingency and fee Auxiliary facilities 1. Direct project expenses Factor Symbol Comments Equipment Cp Purchased cost of equipment at f.o.b. cost manufacturer's site Materials CM Includes all piping, insulation and installation fireproofing, foundations and structural supports, instrumentation and electrical, and painting associated with the equipment Labor CL Includes all labor associated with equipment and material installing mentioned above  2. Indirect project expenses Factor Symbol Comments Freight, CFIT Transportation costs for shipping equipment insurance, and materials to the plant site, all insurance and taxes on the items shipped, and any purchase taxes that may be applicable Construction CO Includes all fringe benefits such as vacation, overhead sick leave retirement benefits; etc.; labor burden such as social security and unemployment insurance, etc.; and salaries and overhead for supervisory personnel. It is about 8 to 10 % of the FCI. Contractor CE Salaries and overhead for the engineering, engineering drafting, and project management personnel expenses on the project. It is about 8 % of the FCI.  3. Contingency and Fee Factor Symbol Comments Contingency CCont A factor to cover unforeseen circumstances. These may include loss of time due to storms and strikes, small changes in the design, and unpredicted price increases. It is about 5 to 15 % of the FCI. Contractor fee CFee Fee varies depending on the type of plant and a variety of other factors. It is about 1.5 to 6 % of the FCI. 4. Auxiliary facilities Factor Symbol Comments Site CSite Land; grading and excavation of the site; development installation and hook-up of electrical, water, and sewer systems; and construction of all internal roads, walkways, and parking lots Auxiliary CAux Administration offices, maintenance shop and buildings control rooms, warehouses, and service buildings Off-sites and COff Raw material and final product storage & utilities loading & unloading facilities; all equipment necessary to supply required process utilities; central environmental control facilities; and fire protection systems Installed cost of equipment – Often 3 to 8 times larger than purchased cost  Capital Cost Modules 1. Total Module Cost (Lang Factor) 2. Bare Module Cost n CTM  FLang  C pi i 1 Total Module Cost  Chemical Plant Type Lang Factor FLang Fluid Processing Plant 4.74 Solid-Fluid Processing Plant 3.63 Solid Processing Plant 3.10 Example: Determine the capital cost for a major expansion to a fluid processing plant that has a total purchased equipment cost of $6,800,000. Capital Costs = ($6,800,000)(4.74) = $32,232,000 Module Factor Approach Direct, Indirect, Contingency and Fees are expressed as functions (multipliers) of purchased equipment cost(Cop) at base conditions (1 bar and CS) Each equipment type has different multipliers. Details are given in Appendix. Module Factor Approach CBM  C p FBM o Bare Module Factor (sum of all multipliers) Bare Module Purchased Equipment Cost for CS Cost and 1 atm pressure - Appendix A FBM = B1 + B2FpFM o FBM  B1  B2 Fp = pressure factor (= 1 for 1 bar) FM = material of construction factor (=1 for CS) Bare Module Cost Factor 0 FBM  1   M 1   L   FIT   LO   E  Example: The purchased cost for a carbon steel heat exchanger operating at ambient pressure is $10,000. For a heat exchanger module given the following cost information: Item % of Purchased Equipment Cost Equipment 100.0 Materials 71.4 Labor 63.0 Freight 0 8.0 F Overhead BM 63.4 Engineering 23.3 Using the information given above, determine the equivalent cost multipliers given in Table 5.8 and the following: a. Bare module cost Cfactor, 0 BM b. Bare module cost, Item % of Purchased Cost Multiplier Value of Multiplier Equipment Cost Equipment 100.0 1.0 Materials 71.4 M 0.714 Labor 63.0 L 0.63/(1+0.714)= 0.368 Freight 8.0  FIT 0.08/(1+0.714)= 0.047 Overhead 63.4 0.634/0.368/ O (1+0.714)= 1.005 Engineering 23.3 E 0.233/(1+0.714) = 0.136 a. Using Equation : 0 FBM = (1 + 0.368 + 0.047 + (1.005)(0.368) + 0.136)(1 + 0.714) = 3.291 b. From Equation : 0 C BM = (3.291)($10,000) = $32,910  Bare Module Cost Factor For Heat Exchangers, Process vessels, and Pumps CBM  CP0 FBM  CP0  B1  B2 FM FP  0 FBM   B1  B2  The bare module equipment cost represents the sum of direct and indirect costs associated with the equipment.  Pressure Factors Pressure Factors: As the pressure at which a piece of equipment operates increases, the thickness of the walls of the equipment will also increase. For the simple case of a cylindrical vessel operating at greater than ambient pressure, the relationship between design pressure and wall thickness required to withstand the radial stress in the cylindrical portion of the vessel, as recommended by the ASME is given as; Where t is the wall thickness in meters, P is the design pressure (bar), D is the diameter of the vessel (m), S maximum allowable stress of material (bar), E is a weld efficiency, and CA is the corrosion allowance (m). A minimum wall thickness is often required to ensure that the vessel does not buckle under its own weight or when being transported. The weld efficiency is dependent on the type of weld. Typical values are from 1.0 to 0.6. The corrosion allowance depends on the service, and typical values are from 3.15 to 6.3 mm (0.125 to 0.25 inches). Pressure Factors for Carbon Steel Vessels tmin is the minimum allowable vessel thickness (assumed to be 0.0063 m).  Pressure Factor for other Equipment Pressure Factor, FP , for other equipment is calculated using the following log10 FP  C1 C2 log10 P  C3  log10 P  general expression; 2 Material Factors(FM)  Material Factors material FM. carbon steel 1.0 stainless steel clad 1.7 stainless steel 3.1 nickel clad 3.6 nickel 7.1 titanium clad 4.7 titanium 9.4 Material Factors(FM)  Bare Module Cost Factor For equipment not covered in Table A.3  Purchased Equipment Cost Cost of the equipment in the year 2001, at near ambient operating pressure and using carbon steel construction, Cop, were fitted to the following equation log10 C  K1  K 2 log10 ( A)  K 3  log10 ( A)  0 2 p Where A is the capacity or size parameter for the equipment and K1, K2, and K3 are given in Table A.1  Example Find the bare module cost of a floating-head shell-and-tube heat exchanger with a heat transfer area of 100 m2 for the following cases: a. The operating pressure of the equipment is 1 bar on both shell and tube sides, and the MOC of the shell and tubes is stainless steel. b. The operating pressure of the equipment is 100 bar on both shell and tube sides, and the MOC of the shell and tubes is stainless steel. Example: Find the bare module cost (in 2011) of a stainless steel tower 3 m in diameter and 30 m tall. The tower has 40 stainless steel sieve trays and operates at 20 barg. Solution: The costs of the tower and trays are calculated separately and then added together to obtain the total cost. For the tower: For the trays: Total-Module and Grass Root Cost TM – Includes Contingency and Fees at 15% and 3% of BM for add on facility to the existing plant CTM  1.18  CBM all equip GR – grass-roots cost includes costs for auxiliary facilities for new site CGR = CTM + 0.5 CBM,i° Use base BM costs in GR cost (1 atm and CS) since auxiliary facilities should not depend on pressure or M.O.C. Total cost of plant: Purchased equipment cost (f.o.b) and Installed cost( 3 to 8 times larger than purchased cost) Estimation of Manufacturing Costs Direct Costs Vary with production rate but not necessarily directly proportional Fixed Costs Do not vary with production rate but relate “directly” to production function General Expenses Functions to which operations must contribute – overhead burden  Direct Costs These all vary with the rate of production. Some are directly proportional to production rate – raw materials, utilities, patents and royalties and others vary to a lesser extent. For example operating labor may increase only slightly with production rate. Raw Materials Maintenance and Repairs Waste Treatment Operating Supplies Utilities Laboratory Charges Operating Labor Patents and Royalties Supervisory and Clerical Labor  Fixed Costs Depreciation: Costs associated with physical plant(buildings, equipment) Local Taxes and Insurance: property taxes and liability insurance Plant Overhead Costs: Associated with auxiliary facilities, safety services, medical services etc These are directly related to the production process but do not vary with production rate  General Expenses Administration Costs: includes salaries Distribution and Selling Costs: marketing and advertisement Research and Development: salaries and funds for R&D  Manufacturing Costs Cost of Manufacture(COM) = Direct manufacturing cost(DMC)+Fixed manufacturing cost(FMC)+ General expenses(GE) The cost of manufacture can be determined when the following costs are known; 1. Fixed capital investment (FCI): (CTM or CGR) 2. Cost of operating labor (COL) 3. Cost of utilities (CUT) 4. Cost of waste treatment (CWT) 5. Cost of raw materials (CRM)  Manufacturing Costs with depreciation as 10% FCI COM  0.280FCI  2.73COL  1.23CUT  CWT  CRM  COM d  0.180FCI  2.73COL  1.23CUT  CWT  CRM  COM without Depreciation Multiplication Factors for Estimating Manufacturing Cost Example: The following cost information was obtained from a design for a 92,000 tonne/y nitric acid plant:  Cost of Operating Labor NOL  (6.29  31.7P2  0.23Nnp )0.5 NOL = the number of operators per shift P = particulate processing steps Nnp = non-particulate processing steps – compression, heating/cooling, mixing, separation, and reaction Important note – Above equation based on data from chemical plants and refineries where number of particle processing steps is low. For units with more than 2 solids processing steps ignore middle term and add 1 operator per solids step Operating Labor – Acetone Facility Equipment Number of Nnp Compressors 0 0 Exchangers 8 8 Fired Heaters 1 1 Pumps 5 - Reactors 1 1 Towers 3 3 Vessels 4 - Total 13 Operating Labor – Acetone Facility NOL = [6.29 + (31.7)(0)2+ (0.23)(13)]0.5 = 3.05 Number of operators required for one operator per shift = 4.5 = (49 wk/yr)(5 shifts/operator/wk) = 245 shifts/year/operator Total shifts per year = (365)(3 shifts per day) = 1095 shifts/year 1095 / 245 = 4.5 operators (for a single shift) Note: 49 wk/yr(considering 3 wk for vacation and sick leave of the operator) Operating Labor – Acetone Facility Total Operators = (3.05)(4.5) = 13.75  14 Salary = $55,000/yr (2007 gulf coast average) COL = (55,000)(14) = $770K