TE CH N I CAL AR TI CL E

estimation method. W ith this method, the

desig n activ ity is prog ressed betw een 0 -2
S u itab le M e th od for Capital percent. T his is the simplest method of
estimation and only needs data on plant

Cost E stim ation in Ch e m ic al capacity and cost in a specified capacity. It is

a u sefu l method du ring the concept
screening stag es.
P roc e sse s I n d u strie s
T his relationship can be show n as:
M o h a m m e d R e z a S h a b a n i a n d R e z a B e h ra d i Y e k ta

AB S T R AC T : S election of a cost estimation method is g enerally dependant u pon the lev el of

prog ress in eng ineering and desig n in each project. T he main capital cost estimation methods
for chemical processes, tog ether w ith capital cost items, are introdu ced in this article. T he main (eq u ation 1 )
capital cost estimation methods inclu de capacity factored, eq u ipment factored, parametric
model, semi-detailed and detailed cost estimation. T his article w ill show how to u se cost esti- T he plant cost ($ B ) in new capacity
mation methods in different desig n stag es of a project. (C ap B ) is simply calcu lated by hav ing the
cost of plant ($ A ) in another capacity (C ap
KE Y W O R D S: C ost estimation, capital cost, and chemical indu stries A ). It is recommend [2 ] that the ratio of (C ap
B ) to (C ap A ) mu st be eq u al or smaller than
technical and economical feasibility main items of capital cost or fix ed inv estment 2 . (e) or the ex ponent g enerally is eq u al to

A stu dy is a v ery important item in

determining the cost of bu ilding a
chemical plant. T he resu lts of su ch a stu dy
inclu de the follow ing [5 ].

• D ire c t P roje c t E x pe n se s inclu de

can be u sed by manag ement to decide
w hether to continu e or stop a project. S tu dy
resu lts can also be u sed for allocating bu dg et
resou rces.
A s desig n prog resses, the accu racy of cost
estimation increases.
A t the final desig n stag es of a project, all
items of the proposed plant are specified in
detail. It is possible to beg in tak ing cost
q u otations from manu factu res of the needed
eq u ipment.
H ow ev er, back at the preliminary desig n
stag es, only g eneral specifications are
specified, and the capital cost has to be
estimated by u sing other methods.
T here are sev eral methods to estimate
capital cost. One method is to u se factors on
main eq u ipments cost. It is v ery important to
k now how to u se these methods in different
stag es of a project desig n.
A n accu rate cost estimation at the
beg inning stag es of a project can prov ide the
details one needs to k now in deciding
w hether to continu e a project or reject the
project as being u nfeasible. T his can prev ent
an u neconomical project from being
continu ed.
A t the end stag es of a project, accu rate
cost information can be u sed for cost control
and bid ev alu ation. D ifferent cost estimation
methods w ill be considered in this article.
S ix -Te n th P ow e r M e th od or Capac ity
Capital Cost
F ac tore d E stim ation
C apital cost inclu des all the capital
C lass 5 in table 1 relates to the six -tenth
needed to ready a plant for start u p. T he pow er method, or capacity factored au thoriz ed to continu e for completion in
0 .6 bu t it w ill be g reater in hig her capacities
(see fig u re1 ).
A s an ex ample of u sing eq u ation 1 , u se a
eq u ipment f.o.b. cost (C p), Material plant cost w ith a capacity of 1 5 0 0 0 0 ton/yr of
(C M) req u ired for installation, and labor 5 0 million $ , then according to eq u ation 1 ,
(C L) to install that eq u ipment and the plant cost for the capacity of 1 0 0 0 0 0
material. ton/yr is:
• I n d ire c t P roje c t E x pe n se s inclu de
freig ht, insu rance, and tax es (C F IT ),
constru ction ov erhead (C O) and
contractor eng ineering ex penses (C E).
• Con tin g e n c y an d F e e inclu des W hen the plant siz e is v ery larg e and the
contractor fee (C F EE) and ov erall ex ponent (e) reaches the u nit lev el, it is
conting ency (C C ont.). recommended that tw o small plants be u sed
• Au x iliary F ac ilitie s inclu des site for calcu lations in place of one big plant.
dev elopment (C S IT E), au x iliary T he tw o plants (A and B ) mu st be similar
bu ilding s (C A u x .) and off sites and in process (both batch or continu es), and the
u tilities (C Off). produ ct mu st hav e a relativ e similarity w ith
each other in order to u se this method.
T he cost estimated by this method is the
T o create an accu rate estimate of the
cost of battery-limit.
capital cost of a plant, one needs a larg e
T he six tenth method does not accou nt
amou nt of detailed data. H ow ev er, this isn’t
for differences in escalation at different points
defined u ntil the detailed desig n stag es.
in time. F or this method to be u sefu l, the tw o
W hen one is at the starting point
eq u ipment costs or plant siz e data mu st both
(preliminary desig n stag e) one only has
be from the same time period.
approx imate information on thing s lik e the
siz e of eq u ipment.
E q u ipm e n t F ac tore d E stim ation an d
T here are some cost estimation methods
P aram e tric M od e ls
that are su itable for these stag es. A ccording
C lass 4 in table 1 relates to the
to A A C E International, there are fiv e classes
eq u ipment factored estimation and
for cost estimation [2 ]. T hese are dependent
parametric models method w here the desig n
on the lev el of eng ineering desig n prog ress as
activ ity is prog ressed betw een 1 -1 5 percent.
show n in table.1 .
T his method is su itable for u se du ring the
feasibility stu dy stag es. T he accu racy rang es
betw een -3 0 percent (low er limit) and + 5 0
percent (u pper limit). T he project is

22 Cost E n g in e e rin g V ol. 4 8 /N o. 5 MA Y 2 0 0 6

Table 1 — Cost Estimation Classes
class 3, if good results were achieved in class
4.
In this class, the cost of equipment is
multiplied by factors to estimate the total
plant cost. The cost of equipment can be
attained by direct quoting from
manufacturers or by estimating methods.
Equation 1 can also be used to estimate
the cost of equipment. The (e) value is given
for some equipment as well as chemical
processes by W.D. Bassel [1]. For equipment,
a key parameter such as surface area for heat
exchangers or flow rate for pumps is used
instead of capacity as in equation 1.
Equipment Factored Estimation (EFE)
Method
In the equipment factored estimation
(EFE) method, having the cost of main
equipment, the total plant cost can be
Figure 1 — Capacity v s. Cost in the 0 .6 Method
determined by inserting factors on equipment Process type EF
cost. U se of the Lang Factor [2] is the simplest Solid 3.1
method as shown in equation 2. Solid + Fluid 3.63
Fluid 4.7 4
TP C = (TEC) X (E.F)
(equation 2) Table 2 — EF V alues v s. Process Type
for its installation is 2860$. The DFC factor
Where TP C is total plant cost, TEC is total ranges 2.4 - 4.3 (with instrument) and 2 - 3.5
equipment cost and EF is a factor that relates (without instrument) for different equipment.
to the process type, the EF values are given in The total direct field cost of the plant is the
table 2. sum of the DFC for each equipment and the
total plant cost can be calculated as shown in
In figure 2, a comparison of TP C costs Table 3-B on page 24.
for different processes type is shown, the TEC
is equal to 100 in this figure. For example for a DFC equal to 100, the
The Hand method [2] is another EFE total project cost is 185.56, according to
method in which specific factors are specified equation 3 as shown in table 3-B. R eferring to
in each discipline for equipment. An example table 4 gives one the other cost items of
is shown for a heat exchanger in table 3. equation 3.
If we have a heat exchanger with 1000$ The factors in table 3 and equation 3 are
cost (f.o.b), the total direct field cost (DFC) given for illustrative purpose only. The real
values differ depending on the regional
conditions for installation. It is possible to
calculate the cost of each discipline and
compare it in different projects by this
method.
Module Costing Method
The module costing method is a very
important method of EFE that was
introduced by M.K . G uthrie [3]. It later
improved and earned many applications.
The main relation in this method is as
shown in equation 4. For other items the
related relations are given in table 5.
Cost Engineering Vol. 48/No. 5 MAY 2006 23
 Heat exchanger cost 1
Labor for installation 0.05
Steel structure 0.11
Piping 1.18
Electrical 0.05
Instrument 0.24
Paint 0.01
Concrete 0.11
Insulation 0.11
Total 2.86
Table 3 — Hand Factors for a Hear
Exchanger

CBM = Cp* FBM Figure 2 — TPC for Different Processes According to Lang Factor Method (TEC = 100)
(equation 4) 7 = material factor; 8 = labor factor; 9 = Which FBM0 is the module factor for
in which, freight and insurance factor; 10 = overhead non-base case, Fp is the correction factor for
CBM = Bare module cost of equipment factor; and 11 = engineering factor. pressure and Fm is the correction factor for
(direct plus indirect costs)
material. B1 and B2 are calculated on the
Cp = Equipment cost in base case (carbon The bare module cost includes the
basis of fixed investment components
steel material at atmospheric pressure) direct and indirect cost only and doesn't
(equation 6) which obtained for different
FBM = Module factor (a factor that includes include contingency and auxiliary services
equipments in specified ranges [6]. Usually
all direct and indirect costs) each component costs.
the equipment cost (CP) is obtained by
of fixed capital investment can be considered For example, if one has the cost of a heat
as a factor of equipment cost. For example exchanger in a base case (with carbon steel parametric models with a cost relation as
the required material cost (CM) is calculated material and operating at ambient pressure) shown in figure 8.
as shown in equation 5. equal to 10000 $ then for (αM = 0.7, αL =
log10 CP = K1 + K2 log10 A + K3 (log10A)2
0.37, αFIT =0.08, α0 = 0.7, αE = 0.15) the
(equation 8)
CM = αMCP bare module cost can be calculated from
(equation 5) equation 4 to equal to 31800 $. in which A is a key parameter of
equipment and the pressure correction factor
And then the FBM can be written as shown in To obtain the equipment cost in a non-
(FP)can be calculated by a relation as shown
equation 6. base case, using the following as shown in
equation 7. in equation 9.

FBM = (1+αM7) (1+ αL8+ αFIT9+ αLα0+ αE11) log10 FP = C1 + C2 log10 P + C3 (log10P)2
FBM0 = (B1 + B2FpFm)
(equation 9)
(equation 6) CBM = CP * F BM
0 0

(equation 7)
The coefficients K1, K2, K3, C1, C2, C3
are given for different equipment [5].
Direct Field Labor Cost (DFL) = 0.25 * DFC By totaling the above module cost for
Indirect Field Cost (IFC) = 1.15 * DFL equipments, the total module cost can be
Total Field Cost (TFC) = DFC + IFC (equation 3) obtained. To calculate the total plant cost one
Home-Office Cost (HOC) = 0.3 * DFC needs to add the auxiliary services and
Other Project Cost (OTC) = 0.03 * DFC + 0.15 * (TFC + HOC) contingency costs, so 15 percent of the
Total Project Cost (TPC) = OTC + TFC + HOC module cost is considered for contingency,

Table 3 B — Calculation of Total Plant Cost

Item Cost
Labor CL = αL (CP + CM) = 1 + αM) αLCP
DFC 100
Direct
Freight CFIT = αFIT (CP + CM) = 1 + αM) αFITCP IFC 28.75
TFC 128.75
Over-Head C0 = α0 CL = (1 + αM) αLα0CP HOC 30
Indirect OTC 26.8
Engineering CE = αE (CP + CM) = 1 + αM) αECP
TPC 185.56
Table 5 — Capital Cost Items as a Factor of Equipment Cost Table 4 — Cost Items of Equation 3

24 Cost Engineering Vol. 48/No. 5 MAY 2006

three percent for contractors, and 35 percent percent (lower limit) and +15 percent 3. Guthrie K.M. Process Plant
for auxiliary services. (upper limit). Estimating Evaluation and Control,
Finally, the cost of a grass root plant can 1974, ISBN.0-910460-5-1.
ifferent methods of capital cost
be calculated as shown in equation 10.

D estimation in chemical industries

were studied and reviewed in this
article. Their importance in helping to
4.

5.
Maples R.E. Petroleum Refinery
Process Economics,
Edition,2000, ISBN.0-87814-779-9.
Second

Mulet A., A.B. Corripio, L.B. Evans,

(equation 10) determine if a project should go forward, or
if the project should be rejected, in different
The auxiliary services and utilities do stages was emphasized.
not depend on the pressure or material of This article can be useful when read as
the battery limit. Its cost is 35 percent of the general guidelines for junior staff members,
module cost, at a base case of (CBM , i). In all or as an abstracted collection for senior staff
of the EFE methods, equipment cost is the members in process cost estimation. The
basis from which to multiply the factors. parametric models (cost relations) as useful
tools and can be used by companies or
Parametric Cost Estimation Method consulting engineers in preparing proposal
A parametric model is the or tender documents. Each company has its
mathematical relationship between own cost data that has been prepared as part
equipment cost and key parameters. The of the company’s projects archives. That
pressure and temperature correction factors data is the starting point for using these
or equipment type can also be written in capital cost estimation methods.

relationships of key parameters. By using
these relationships, a preliminary cost REFERENCES
estimation for equipment can be attained. 1. Baasel W.D. Preliminiary Chemical
One can then calculate a plant’s total cost by Engineering Plant Design, Second
exerting some other factors. Edition, 1990, ISBN.0-442-23440-6.
2. Dysert L.R.Sharp en You r C ost
The best way to obtain these
relationships is through the finished project E stimation Skills, Cost Engineering,
archives of an organization. A data bank of Vol. 45, No. 6, June 2003.
equipment costs needs to be prepared. Then
use regression methods and statistical tests,
such as F and t - tests, to drive the best
models [2, 5]. By using these models, it is
possible to fastly and easily prepare
feasibility reports or bid documents.
E stimate C osts of P ressu re V essels V ia
C orrelations, Chemical Engineering,
Oct.5, 1981, page.145.
6. Turton R., R.C. Bailie, W.B. Whiting,
J.A. Shaeiwitz. Analysis, Synthesis and
Design of Chemical Processes, 1998,
ISBM 0-13-064792-6.
ABO U T THE AU THO RS
Mohammad Reza Shabani and Reza
Behradi Yekta are with the Feasibility Study
Department of the Research Institute of
Petroleum Industry of Iran. Contact can be
made by sending e-mail to:
shabanimr@ ripi.ir.
Technical Articles - Each month, Cost
Engineering journal publishes one or more peer-
reviewed technical articles. Unless noted
otherwise, these articles go through a blind peer
review evaluation prior to publication. Experts in
the subject area judge the technical accuracy of
the articles, advise the authors on the strengths and
weaknesses of their submissions, and what changes
can be made to improve the article before
publication.

Detailed Cost Estimation Method

Classes 3, 2 and 1 in table 1 relates to a
detailed cost estimation where the design
activity has progressed up to 100 percent. In
class 3, the design is completed to about 40
percent. The semi-detailed unit costs, with
assembly level line items, are used with
accuracy ranges between -20 percent (lower
limit) and +30 percent (upper limit). In this
class, the budget can be authorized for the
project.
In class 2 ,where the design activity is
completed to about 70 percent, the detailed
unit cost with a forced detailed take off is
used with accuracy ranges between -15
percent (lower limit) and +20 percent
(upper limit) to control or bid the tender.
And finally, in class 1, where the design
completion is up to 100 percent, the
detailed unit cost with detailed takeoff is
used to check the estimate or to bid the
tender with accuracy ranges between - 10

Cost Engineering Vol. 48/No. 5 MAY 2006 25