Estimation of Operating Cost

• Simple to estimate
• Once we know the flows of the raw materials
streams and utility flows (fuel, steam, cooling
water, power)
• We simply multiply the flow by the rupee value of
that stream
• One way to keep utility costs uniform is to relate
all utility prices (electricity, various steam levels,
and cooling water costs) to an equivalent fuel
value

1 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus

Estimation of Capital Cost

• We use equipment cost correlations

• Capital cost of a Heat Exchanger (HE) = f (HE
Area)
– It is not necessary to specify
• Number of tubes
• Number of baffles
• Baffle spacing
• or any other details of the design
• Cost of furnace = f (heat duty required)
• Cost of Distillation column = f (column height &
diameter)
2 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus
Purchased Equipment Cost

• Extensive data is available in ‘Plant design and

economics for chemical engineers’ by Peters and
Timmerhaus
• Other correlations
– Chilton (1949), Chem. Engg. 56 (6), p 67
– Happel and Jordan (1975), Chem. Process Economics
– Guthrie (1969), Chem. Engg. 76 (6), p 114
• Update by Project ASPEN, MIT, USA

3 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus

Installed Equipment Costs

• Lang, H.J. (1948), “Simplified approach to

Preliminary Cost Estimates”. Chem. Engg. 55 (6),
p 112.
• For more accurate estimates:
– Hand (1958) used different factors for different kinds of processing
equipment
Installed Equipment cost for
Distillation columns = 4 (Purchased cost)
Heat exchangers = 3.5 (Purchased cost)
Compressors = 2.5 (Purchased cost)
Fired heaters = 2 (Purchased cost)
Miscellaneous equipment = 2.5 (Purchased cost)

4 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus

Guthrie’s Correlations

Purchased cost = (Base cost) (Index) (Fc)

Installed cost = (Base cost) (Index) (IF + Fc – 1)

Base cost for carbon steel
IF = installation factor
Index = correction factor for inflation
Fc = correction factor for material of construction

• Data is mostly in the form of graphs

5 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus

ASPEN Correlations

• Developed by Project ASPEN at MIT, USA

• These correlations are part of a large
– Computer-aided design programs

ASPEN expression of HX is:

CE = CB FD FMC FP
Where, CE = HX cost in the 1979
CB = base cost for a carbon steel, floating head
exchanger with a 100 psig pressure
between 150-12000 ft2 of surface area
FD = design-type correlation (tube & shell passes)
FMC = material-of-construction correction factor
FP = pressure correction factor
6 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus
Contd..

• The expression for base cost (CB):

– ln CB = 8.202 + 0.01506 (ln A) + 0.06811 (ln A)2
Where, A is the area of heat exchanger
• Equations for correction factors FD, FMC, and FP
are available
• Similarly, cost expressions for a variety of other
pieces of equipment are available

7 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus

Updation of cost correlations

• Chilton’s correlations were published in 1949

• Guthries’ correlations were published in 1968
• ASPEN correlations are more recent
• However it takes about 3 years to build a chemical
plant and so we must be able to predict future
costs

Base cost in present year  Base cost in certain year i.e. base year 
 cost index for present year 
 
 cost index for base year 
8 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus
Cost Models: Total Capital
Investment
Total Capital Investment  Fixed Capital  Working Capital  Start - up

WorkingCap ital  0.15Tot. Inv. 

Start - up  0.1Fixed Cap.

Fixed Capital  Direct Cost  Indirect Cost

DirectCost  Onsite  Offsite

Onsite  Installed Equipment Cost Offsite  0.45(Onsite )

9 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus

Cost Models: Total Capital
Investment
Indirect Cost  Owner' s cost  Conting.
Owner' s cost  0.05Onsite  Offsite 
Conting.  0.20Onsite  Offsite 
Fixed Cap.  Onsite  Offsite  Owner' s Cost  Conting.
 1.25Onsite  Offsite 

Tot. Cap. Inv.  Fixed Capital  Working Capital  Start - up

 Fixed Capital  0.15Tot. Cap. Inv.   0.1Fixed Cap.

Tot. Cap. Inv.  2.36Onsite 

10 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus
Cost Models: Total Product
Cost

Total Product Cost  1.03Raw Matl.  Util.   2.13Labor 

 0.103Fixed Cap.  0.025Revenue 

Fixed Cap.  1.81Onsite  Labor  105 Operators

For small process, 24hr/day, 7 days/wk

Total Product Cost  1.03Raw Matl.  Util.   0.186Onsite 

 2.13 105 Operators
 0.025Revenue 
11 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus
Depreciation

•Physical assets decrease in value with age

•May be due to
Physical deterioration
Technological advances
Economic changes (government policies)
Or other factors which ultimately cause retirement of property
•The reduction in value due to any of these causes is a
measure of DEPRECIATION

12 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus

 Meaning of Value

• From the view point of design engineer:

The total cost due  The original or new  Value of the same Property at 
   
 to depreciati on   value of a property   the end of depreciati on period 

• The original value is

– the total cost of property at the time it is ready for initial
use
• Total depreciation period is
– assumed to be the length of property useful life
• The value at the end of useful life is
– assumed to be the probable scrap or salvage value

13 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus

Terminology in Depreciation

• Service Life
• Salvage Value
• Scrap or Junk Value
• Present Value
– Book Value
– Market Value
– Replacement Value

14 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus

Service Life

• The period during which the use of a

property is economically feasible is known as
service life of the property

• Synonymous with economic or useful life

• Both physical and functional depreciation are

taken into consideration in determining
service life
15 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus
Salvage Value

• The net amount of money obtainable from the sale

of used property over and above any charges
involved in removal and sale

• Asset can give some type of further service and is

worth more than merely its scrap or junk value

16 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus

Scrap or Junk Value

• If the property cannot be disposed-off as an useful

unit
– It can often be dismantled and sold as junk
– To be used again as a manufacturing raw material
– The profit obtainable from this type of disposal is known
as the Scrap, or Junk value
– “Write-off” & “dispose-off” as scrap

17 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus

 Present Value

• The value of an asset in its condition at the time of

valuation
• Three different types:
1. Book Value (or) Unamortized cost (or) Asset Value
• Worth of property shown on owner’s accounting records
• (Original cost of property – Depreciation charges made to date)
2. Market Value
• Asset in good condition
• The price that could be obtained for an asset if it were placed on sale in
the open market
3. Replacement Value
• The cost necessary to replace an existing property at any given time
with one at least equally capable of rendering the same service

18 Dr. Pradipta Chattopadhyay | BITS Pilani, Pilani Campus

 Important References

• M.S. Peters & K.D. Timmerhaus, Plant Design and Economics for
Chemical Engineers, McGraw- Hill, 4th Edition, 1991.

• James M. Douglas, Conceptual Design of Chemical Processes,

McGraw-Hill International Edition, 1988.

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