ENGINEERING ECONOMICS

KUK2142

Chapter 3
Plant Capital Cost Estimation
 Plant Capital Cost Estimation
 Capital Cost

 Classification of Capital Cost Estimates

 Estimating Purchased Equipment Costs

 Estimating the Total Capital Cost of a Plant

 Capital Cost
 The cost associated with construction of a new
plant or modifications to existing plant.
 Also known as capital expenditure (CapEx).
 Capital expenditures is the funds that company
uses to purchase major physical goods or services
that the company will use for more than one year.
 The capital costs are depreciated over the life of
the asset. Depreciation represents the degree
of wear and tear on a fixed asset.
Capital expenditures include:
 Plant and equipment purchases
 Building expansion and improvements
 Hardware purchases, such as computers
 Vehicles to transport goods
 Why Cost Estimate?
 Describe the forecast of present and future cost
consequences of engineering designs.
 Provide information for quoting, bidding, or
evaluating contracts.
 Determine whether a proposed product can be
made at a profit.
 Evaluate how much capital can be justified for
changes or improvement.
 Establish benchmarks for productivity improvement.
 Classification of Capital Cost Estimates
CLASS 1
CLASS 2
Detailed
CLASS 3 estimate
Definitive
CLASS 4 estimate
CLASS 5
 Classification of Capital Cost Estimates
Order-of-magnitude Study estimate Preliminary Design
estimate Estimate
Relies on cost information for Utilizes a list of major equipment Requires more accurate sizing of
a complete process taken found in the process (e.g. pumps, equipment than used in study
from previously built plants compressors and turbines, reactors, estimate together with layout of
columns and vessels, fire heaters equipment (piping, instrumentation,
and exchangers) electrical requirements) and also
utilities.
Cost is adjusted using Each of equipment is roughly size
appropriate scaling factors and appropriate cost determined
Diagram: Block flow diagram Diagram: Process flow diagram Diagram: Process flow diagram
(BFD) (PFD) (PFD), sketches of major
equipment, preliminary plot plan,
elevation diagram.
Accuracy: +40% to -20% Accuracy: +30% to -20% Accuracy: +25% to -15%
 Classification of Capital Cost Estimates
Definitive estimate
Requires preliminary specifications for all
the equipment, utilities, instrumentation,
electrical and off-sites.
Diagram: Final PFD, sketches, plot plan,
elevation diagram, preliminary piping and
instrumentation diagram (P&ID)
Accuracy: +15% to -7%
Detailed estimate
Requires complete engineering of the process
and all related off-sites utilities.
Obtained vendor quotes for all expensive items.
End of detailed estimate: The plant is ready for
construction stage.
Diagram: Final PFD and P&IDsketches, plot
plan, elevation diagram, piping isometrics.
Accuracy: +6% to -4%
Cost Estimate Classifications
 Example: Estimation of capital cost based of classification of estimates

The estimated capital cost for a chemical plant using Class 4 estimate (Study Estimate) was
$2 million. Provide ranges for detailed capital estimate (Class 1) if the plant were to be built.

•For a Class 4 estimate, the Expected Accuracy Range is between 3 and 12 times that of a Class 1
estimate. Meanwhile, the accuracy of a Class 1 estimate can be expected to vary from +6% to –4%.

•Range for actual capital estimate:

Lowest Expected Cost Range

High value for actual plant cost ($2.0 × 10 6)[1 + (0.06)(3)] = $ 2.36 × 10 6
Low value for actual plant cost ($2.0 × 10 6)[1 – (0.04) (3)] = $ 1.76 × 10 5
Highest Expected Cost Range
High value for actual plant cost ($2.0 × 10 6)[1 + (0.06)(12)] = $ 3.44 × 106
Low value for actual plant cost ($2.0 × 10 6)[1 – (0.04)(12)] = $ 1.04 × 105
 Estimating Purchased Equipment Costs
 To obtain an estimate of the capital cost of a chemical plant, costs associated
with major plant equipment must be known.

What are the main requirement for estimating

purchased equipment costs?
Process flow diagram (PFD)
Material and energy balances of every major equipment
Materials of construction
Size/capacity of equipment (equipment attribute)
Process flow diagram (PFD)
Material Balance
Energy Balance
Materials of construction & Size/capacity of equipment
 Estimating Purchased Equipment Costs
What are the alternatives for estimating purchased equipment
costs?
Use current price quoted from suitable vendor (most accurate)
Use cost data on previously purchased equipment (same type)
Use equations/figures/graphs available for various types of common equipment
 Estimating Purchased Equipment Costs
What are the factors employed to estimate
purchased equipment costs?
Capacity
Time

 Effect of Capacity on Purchased Equipment Cost

 Effect of Time on Purchased Equipment Cost
 Effect of Capacity on Purchased Equipment Cost

 To determine the purchased cost based on equipment attribute (size/capacity):

n
C a  Aa 
  
C b  Ab 
where;
Aa/Ab = Ratio of equipment capacity
Ca/Cb = Ratio of purchased costs
n = Cost exponent
A: Equipment’s capacity/size
C: Purchase cost
a: required equipment
b: base equipment
Example: Calculate the equipment purchase cost based previous given
capacity
Your company is planning to scale up with triple the power (kW) employed for the
compressor in your plant. The original purchase cost of the compressor is $500,000.
Estimate the new compressor’s purchase cost.
n
C a  Aa 
  
C b  Ab 
 Effect of Capacity on Purchased Equipment Cost: Six-tenth-rule

 The value of the cost exponent, n, varies depending on the class of equipment being
represented.
 The value of n for different items of equipment is often around 0.6.
 Replacing n by 0.6 provides the relationship referred to as the six-tenths rule.

0.6
Ca  Aa 
  
Cb  Ab 
Example: Calculate the equipment purchase cost based previous given
capacity using six-tenths rule.
Your company is planning to scale up with triple the power (kW) employed for the
compressor in your plant. The original purchase cost of the compressor is $500,000.
Estimate the new compressor’s purchase cost.
0.6
Ca  Aa 
  
Cb  Ab 
 Effect of Time on Purchased Equipment Cost
 When one depends on past records for price information, we have to update these costs
to take changing economic conditions (inflation) into account.
 How to convert this cost into one that is accurate for the present time?
 Use Plant Cost Index:

Most accepted Plant Cost Index in chemical

industry
Marshall and Swift Equipment Cost Index
Chemical Engineering Plant Cost Index (CEPCI)
Plant Cost Index (1996– 2011)
Chemical Engineering Plant Cost Index (CEPCI) (2010 – 2019)
 Effect of Time on Purchased Equipment Cost

 To determine the purchased cost based on time:

 I2 
C 2  C1  
 I1 
where C= Purchase Cost
I = Cost Index
Subscripts – 1:- the base time when cost is known
2:- the current time when cost is desired
 Exercise 1
Determine the purchased cost of a heat exchanger of 500 m 2 area in 2011
was $25,000. Estimate the cost of the same heat exchanger in 2019.
 Estimating Purchased Equipment Costs (Cp0)
• Using figures available for various types of common equipment
Exercise 2
Determine the purchased cost of a floating-
head heat exchanger of 100 m2 area in at
the end of 2001. Also, estimate the cost of
the same heat exchanger in 2019.
 Estimating Purchased Equipment Costs (Cp0)
• Using equations for various types of common equipment

log10 C p0  K 1  K 2 log10  A  K 3 log10 ( A)

2
 Estimating the Total Capital Cost of a Plant (Lang Factor Method)
 If an access to a previous cost estimate for a similar plant with a different capacity is
NOT available, Lang Factor Method is used. n
CTM  FLang  C p ,i
i 1
Where CTM = the capital cost of the plant
Cp,i = the purchased cost for the major equipment units
n = the total number of individual units
FLang = the Lang Factor
 Example 3
Determine the capital cost for a major expansion to a fluid processing plant that
has a total purchased equipment cost of $6,800,000?
 Estimating the Total Capital Cost of a Plant
 The capital cost for a chemical plant must take into consideration many costs other than
the purchased cost of the equipment.
Total capital cost of a chemical plant includes
Direct Project Expenses
 Equipment cost (Equipment)
 Material required for installation (Material)
CP
 Labor to install equipment and material (Labor) CM
CL Bare
Module Total
Indirect Project Expenses Cost, CBM Module
 Freight, insurance and taxes (Freight)
CFIT Cost, CTM Grass
 Construction overhead (Overhead)
 Contractor engineering expenses (Engineering) CO Root Cost,
CE CGR

Contingency and Fee CCont

 Contingency
 Contractor fee (Fee)
CFee

Auxiliary Facilities Csite

 Site development (Site)
 Auxiliary Buildings (Aux)
CAux
Estimating the Total Capital Cost of a Plant
 Estimating Bare Module Cost for base case
 The equipment module costing technique is a common technique to estimate
0
the cost of a new chemical plant. Bare module cost for base case, C BM :
1. Equipment fabricated from most common material, carbon steel (CS)
2. Equipment operated at near-ambient pressure
0
C BM  C P0 FBM
0

0
C BM = Bare module equipment cost: direct+ indirect cost for each equipment

C P0 = Purchased cost for base conditions:

with carbon steel material, and operating at near-ambient pressures
0
FBM = Bare module equipment factor
 Estimating Bare Module Cost for base case
 Values for the bare module cost multiplying factors vary between equipment modules.
 Bare module cost for various equipment may be calculated using:
C BM  C P0 ( B1  B2 FP FM )
where the values of B1 and B2 for various equipment is given in Table A.4

and FP and FM are factors to account for different pressures and materials of construction.
0
Bare module cost for base case, C BM FP and FM = 1
0
C BM  C P0 ( B1  B2 )
 Example 4
Find the bare module cost of a floating-head shell-and-tube heat exchanger with a
heat transfer area of 100 m2 with the equipment purchase of $ 25,000 at the end
of 2001. The operating pressure of the equipment is at atmospheric pressure and
constructed of carbon steel.
 Estimating Bare Module Cost for Non-base case

 Bare Module Cost for Non-Base Conditions, C BM

1. Equipment made form other material of construction
2. Equipment operated at non-ambient temperature

C BM  C P0 ( B1  B2 FP FM )
 For equipment made from other materials of construction and operating at non-ambient
pressure, the values of FP and FM are greater than 1.0.
 Estimating Bare Module Cost for Non-base case-
Effect of pressure, Fp
 The effect of pressure for process vessel

( P  1) D
 0.00315
2[850  0.6( P  1)
F p ,vessel 
0.0063

 The effect of pressure for other equipment

log10 FP  C1  C2 log10 P  C3 (log10 P) 2

where the values of C1, C2 and C3 for various equipment and pressure are given in Table A.2.
 Estimating Bare Module Cost for Non-base case-
Effect of material, Fm
 The effect of material of construction for heat exchangers, vessels, pumps.
Estimating Bare Module Cost for Non-base case-
Effect of material, Fm
 Example 5

Find the bare module cost of a floating-head shell-and-tube heat exchanger with a
heat transfer area of 100 m2 with the equipment purchase of $ 25,000 at the end
of 2001. The operating pressure of the equipment is at 100 barg and constructed
of stainless steel.
 Estimating Bare Module Cost for Non-base case-
Effect of material, Fm
• The effect of material of construction for other process equipment
 Estimating the Total Capital Cost of a Plant
 Adding the contingency cost Ccont and fee cost, Cfee to bare module cost (total
direct and indirect costs) will give the total module cost, CTM
Total Module Cost (CTM)
Cost of making small-to-moderaten
expansions nor alterations to an existing
facility. C 
TM 
i 1
CTM ,i  1.18 C 
i 1
BM ,i

 Adding the auxiliary facilities costs to bare module cost and total module cost will
give the grass root cost, CGR
Grass Roots (CGR)
n
Cost of a new facility in which start the construction on undeveloped land
CGR  CTM  0.50 CBM ,i o

i 1
 Example 6
A small expansion to an existing chemical facility is analyzed and the list of
equipment, sizes, materials of construction, and operating pressure is given in
table below. Calculate the total module cost for this expansion in 2011?