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Copyright 1977
THE INSTITUTION OF CHEMICAL ENGINEERS
All ri g hts rese rved
Reprinted 1980
Reprinted 1982
Reprinted 1984
Reprinted 1985
ISBN 085295 088 a
Published by I ChernE Services for
The I nstitution of Chemical Engineers
George 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 and
The Association of Cost Engineers
THE INSTITUTION OF CHEMICAL ENGINEERS
GEORGE 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 Notes
on Project Evaluation the economic climate affecting particularly the western
world has changed considerably: rapid increase in the 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. Investment
decisions have become much more difficult to take in view of the greater
uncertainty of markets and costs. To meet these circumstances more sensitive
techniques 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 and
environmental 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 engineering
aspects should be further developed, and the Institution of Chemical Engineers
accordingly invited the Association of Cost Engineers to collaborate in this
revision.
This book is therefore a major revision whilst retaining the 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 can
vary greatly within any equipment type with very great changes in cost, the
graphs do not necessarily correlate with each other. This guide is not intended
to 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 Balance
2.2 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 Estimate
3.3 Study Estimate
3.4 Budget Estimate
3.5 Project Control Estimate
3.6 Detail ed Est i mate
3.7 The Cost of Cost Estimates
3.8 Reliability of Estimates
ESTIMATING METHODS (A.W. Putnam)
4.1 Introduction
4.2 Exponential Cost E,stimating Method
4.3 Factorial Cost Estimating Method
4.4 Typical Distribution of Costs
4.5 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 Metals
7.3 Costs of Vessels, Tanks and Plant Items
7.4 Materials Supply and Construction Costs
PROJECT EVALUATION (G.L. Wells)
8.1 I ntrod uction
8.2 Review of Existing Knowledge
8.3 Study of Past Achievement
8.4 Size and Complexity of the Plant
8.5 Operating Costs
8.6 Assessment of Project Profitability
8.7 Sensitivity of Process Economics to Various Parameters
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3
4
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16
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26
30
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34
35
44
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55
55
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56
60
61
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
70
70
71
74
The membership of the working party established by the Institution of Chemical Engineers and
the 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. Putnam
V. Thompson
G.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 knowl edged.
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 and
the Association: however, responsibility for the contents remains with the authors and the
editor.
Finally, several companies provided cost data which has been most helpful in the preparation
of this new guide and their interest and contribution is happily acknowledged.
APV-Mitchell Ltd
Chemineer Ltd
T. Giusti and Son Ltd
Humphreys and Glasgow Ltd
Imperial Chemical Industries Ltd
Johnson-Hunt Ltd
John Laing Construction Ltd
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 minor
amendments by way of correction and clarification suggested by users of the guide; the Editor
happily 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 Table 7.1 Basic Metal Costs, and Table 8.1, Typical
Energy and Utility Costs, have been extended 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 energy
costs but have also indicated the vulnerability of the continuity of oil products supply. On a
national scale this will result in the search for the provision of alternative sources of energy
coupled with a steadily enlarged program for achieving improved efficiency of energy usage.
At the plant scale this will be reflected in considerable attention being directed to maximis-
ing 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 cost
estimating 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 the period 1948
to 1973 except for relatively minor pauses. In the four succeeding years a general
levelling-off and then down-turn in world trade has inevitably been reflected in the
chemical industry: in this period the index of output for the chemical and allied
industries fell approximately 10%. However, when the 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 the 1960's.
Forecasting the UK chemical industry growth pattern over the next five to ten
years is complicated by several new factors. Of considerable influence will be the
World competition for energy supplies. Although the UK will obtain a steadily
increasing proportion of basic energy supplies from the 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, the 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 the European scene. Further, major production
facilities are often nowadays much larger than the average size unit built in the
1960's with the result that, whilst the extra benefits of increased scale of operation
are the target, the penalty for error when planning and implementing such
investments is also magnified. The impact of factors such as these on the planning
of new chemical industry investments will be to require even greater attention to
be paid to capital cost estimates and the scheduling of decisions and actions
necessary to achieve profitable production from new facilities.
I n common with a number of other major industries, the chemical industry
employs large expensive plant which must be planned several years in advance.
Typically the procedure from the in itial concept of a project, moving through the
stages of board consideration, board approval, detailed design, procurement,
construction, commissioning and the 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 two or three years.
Proceeding beyond this point, plans might be vague, but nevertheless planning
must be projected in order to provide a secure basis for 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 ight of current techno-
logical and economic trends. These economic forecasts will be built up from
analysis in the 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. The efficient use of the investment.
From among these many items to be considered in the development and
evaluation of a project, the main purpose of this booklet is to provide a guide to
the methods used to estimate the capital cost of process plant and the key factors
affecting such estimates. A commentary on the overall evaluation of a project and
an example of the economic assessment of a chemical process are included in
Chapters 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 the young engineer to appreciate his role in a new venture
and to enable him to make the 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 the 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 the
project. The balance of these factors is a matter of experienced judgement. It
should be understood that the same overall considerations apply whether the
project involves the production of a new product by a manufacturing concern, or
by a contractor working' for the manufacturing industry, although there are
considerable differences between the approaches of these interests.
2.1.2 In recent years not only has the rate of technological innovation increased
rapidly but 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 the increasing
to make quantified predictions with any confidence for more than a very limited
period ahead of any decision point in time. The 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 the delay in reaching
this design stage lead in most instances to higher capital costs, but the increasing
imprecision caused by this delay on other relevant factors make any close decision
of questionable validity. Time-consuming and costly effort by the design team to
achieve "elegance" or "perfection" of design must be guarded against.
2.1.3 Feasibility studies must often be carried out before development work is
complete and, with increasing frequency, investment decisions are taken at this
stage and funds released. As illustrated by the 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 the engineer to ensure that the
time estimates submitted are as realistic as possible.
2.2 Feasibility Studies and Reports
2.2.1 All new capital facilities projects involve the following phases:
Design
Procurement
Construction
Commissioning
Most companies appoint a project manager to ensure the effective coordination of
these activities and of the 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 the engineer preparing the 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 the effects of h is decisions on the 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 the engineer to submit a feasibility
report where alternatives have been properly studied in respect of efficiency,
cost, time and safety. The report is intended to demonstrate the technical and
commercial viability of the proposed venture. The report should state on what
assumptions the estimates of time are made and what the margins of error are
likely to be, as these considerations may influence a decision. Time estimates for
design and development and the parameters on which they are based must be
agreed with the 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 the time to approval of funds, as time lost in this interval cannot be
recove red later.
The amount of detail incorporated is usually a matter of company philosophy
but it should always include a process flowsheet identifying main equipment
items, and sizes, type and extent of control instrumentation and materials of
construction. The scale of manufacture and expansion potential must be stated,
as well as the demands on company resources.of space (including storage),
services and personnel. Operating costs must include not 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 the control of the project is usually vested in a project manager
(or project engineer) who must coordinate the many different activities, and
often conflicting priorities, to ensure that an efficient and safe plant is handed
over for production, on time and within the funds allocated. The framework for
detail design, cost contr,ol and plann ing will be established at th is time.
For process plants it is usual for 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
the project.
2.3.2 One of the 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 the work on a competitive basis for
completion by a specified date. The contract price includes not 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 the
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 the best defined
programme and lowest direct cost. However, the time required for this approach
is often unacceptable, particularly for major capital projects, and in uncertain
economic cond itions such as 1975/76 few contractors are prepared to accept
business 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 the work
cannot be established with any accuracy. With contracts of this type it is usual
for part of the cost to be on a fixed fee or percentage-of-works basis, with all the
remaining costs incurred by the contractor directly reimbursed by the client.
When negotiating a contract of this type the main elements to be considered are
any or all of the following:
Profit and overheads Site supervision

Project management Construction and erection
Procurement and inspection Commissioning
2.3.5 A negotiated contract of the cost-reimbursible type is often adopted for
process plants to obtain the greater flexibility (e.g. to accept design 0 r specification
changes) offered by it and yet achieve the shortest overall time to commissioning
of the new facilities. At a time of rapidly changing costs, this type of contract has
the further advantage that the tenderer does not need to guess at the I ikely 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 the 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 the course of the project.
2.3.6 The choice of contract route and negotiation with and final selection of a
contractor require the appl ication of considerable experience and judgement, the
discussion of which is outside the scope of this book: but useful information will
be found in the Institution of Chemical Engineers' publication The Organisation
of Chemical Engineering Projects [Out of print. Copy for reference in I ChemE
Library].
2.3.7 In the 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 the
site establishment costs (supervision, clerical, hutting etc.) are a significant
proportion of the total cost of the work and are incurred 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 the 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 the cost of these activities to achieve the overall benefit of shorter
project time. The 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 the features listed above is essential
to 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 out
within the contractor's organisation but the client must still exercise effective
management control of the time taken in making decisions, the authorisation
of changes and the detailed design and progress of work.
2.3.9 When developing the construction programme the possibility of achieving
earlier completion by accelerating certain activities (at increased total project
cost - e.g. by overtime working) may need to be evaluated against the 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 slippage
of later work.
2.3.10 Delays at the commissioning stage are not only amongst the most
frequently encountered but are also the most expensive as by this time most of
the funds have been expended, operating personnel engaged and process materials
employed. Considerable effort to minimise these delays is therefore justified and
includes the following (in addition, of course, to adequate development, design
work and operability studies):
40t Provision of additional instrumentation, sampling points and means of
withdrawing or recycling streams in the event of failure of certain items
to 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 the plant as designed. Although increasing the apparent project
cost they enable modifications to be carried out 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 the project implementation period.
Consultation must include safety reviews to identify, for instance, necessary
additional 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 the safety of operating procedures. Reviews
with maintenance engineers may indicate design changes desirable to reduce down-
time and cost during the service life of the plant. Where appropriate, consultation
with Trade Union and Safety and Welfare Committee representatives must also
be given timely consideration.
6
Training programmes should ensure that operators, safety crews and main-
tenance personnel are familiar with operating procedures, special process and
plant features and control systems, as well as with the layout of the plant and its
operating points, before commissioning begins.
The 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 the project
implementation stage, significant delays and additional expenditure are likely
to be incurred during commissioning and start-up of the plant.
7
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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 new or
extended production facility is contemplated the experienced engineer will
prepare a quick appraisal of costs. If the project goes beyond this early stage
then the 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.
The purpose of this Chapter is to set out a typical scheme describing and
defining stages of development of a cost estimate by consideration of:
The stage of project development and data available when the estimate
is prepared.
A summary of the techniques used in preparing the cost estimate.
The approximate cost of preparing the estimate.
The probable order of error in the estimate.
The purpose for which the estimate is generally suitable.
Commonly used synonyms applied to each estimate stage have also been listed
but great caution must be exercised before accepting the equivalence of any
terminology until the basis on which a particular estimate was prepared and its
purpose has been established.
Only rarely will all the 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 the market. It may
then be decided to accept a more hurried estimate having wider tolerance and
to enter into the engineering phase, includ ing ordering of long delivery items and
site preparation works. I n such cases it is usual for 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 the 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 Estimate
Also 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 the 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 can
reasonably be applied to such estimates.
"Confidence Level" is a measure of the probability that the range of values
with 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 the final cost is outside these limits. With the type of information
available as described for subsequent estimate stages and with competent
estimating based on a sound bank of cost data, a confidence level of 90 - 95%
is usually achievable.
3.3 Study Esti mate
Also known as: Evaluation estimate, Predesign estimate, or Preliminary estimate.
When a scheme has been developed to the stage of preliminary flowsheets,
and the duty rating of principal items of equipment and a geographical location
are specified for the construction of the facility, then it is feasible to prepare
a cost estimate based upon estimates for 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 out in subsection 4.2.2. The cost of getting this estimate is likely to
be between 0.1 and 0.2% of the total project cost and for this expenditure the
probable order of error will be within 30%.
It will be usual for the degree of interest in the 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 the 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 one of its results, a much more detailed and
accurate estimate upon which the important decision to sanction funds will
depend.
3.4 Budget Esti mate
Also known as: Sanction estimate, Funding estimate, or Scope estimate.
Following acceptance of a study estimate the further work then
authorised will aim at obtaining and presenting the following information:
Preliminary mass and energy balances, P & I diagrams, equipment list
and material specifications, duty rating and sizing of equipment,
instrumentation and control equipment.
A basic site layout of main plant blocks, roads, railways';Jsupport
buildings and a site survey.
Preliminary general arrangement of plant.
9



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Buildings approximately sized and form of construqtion stated including
outline architectural sketches and main structural frame diagrams.
Piping and insulation standards based on preliminary flowsheets.
Preliminary utilities diagrams.
Preliminary 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 the project.
With such data available a cost estimate having a probable error of less than
20% may be prepared. If the data is too "preliminary" and incomplete then
even a 20% estimate will not be achieved: effort must be made to get the
project defined and if this is successful then estimates in the range 15% to
10% may be ach ieved at th is 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 the appropriate factor for piping cost. the electric
motor 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 the estimate will be able to be determined by considering
the 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. The factorial estimating method is discussed further under
Section 4.3.
The cost of the 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 out the project will'be available. This cost estimate will
form part of a report to management on all aspects of the intended project
including the benefits which are anticipated to arise from the investment and,
most importantly, the premises on which the JEPort is founded. It is on the basis
of this type of report that approval from management to proceed should be
sought 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 the original intentions.
3.5 Project Control Estimate
Also known as: Definitive estimate.
Following authorisation to proceed and allocation of project funds based upon
the 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 but with the 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 the project
manager to monitor all future expenditure against autho.rised funds. By the 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 Estimate
Also 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 any desired level of accuracy) tends to
decrease as a pementage of project total cost the greater the size of project
under consideration. Analysis of a number of projects, none of which were
closely repetitive of one another, and ranging in value up to 10M, yielded
the 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 not 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 the upper curve shown in
Fig. 3.1. But repetitive project work (of the nature illustrated by the example
set out in Table 4.1) will enable estimates to be prepared at costs substantially
less than the lower boundary of the "cost of estimate" envelope.
1000 ?
...., h Envelope of typical cost
500 estimate preparation costs,
u for process plant projects
.... costing up to .10M
200 ,

100 Data reported by
" Park 35
:::
010
0'051 I I I I
o 10 20 30 40 50
Accuracy of estimate ("to plus or minus)
Fig. 3. 1 - Estimating the cost of cost estimate preparation
11
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3.8 Reliability of Estimates
The 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 the 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 the work. (see also
Chapter 5 and the Appendix).
The estimate should be related to prices at a fixed time and an escalation
formula should be agreed with the 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 the project. Normally the 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 the estimate;
contingency should always be shown as a separate item. The 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 two 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 the overall responsibility of the 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 the
course of the project, monies will pass from the contingency to definite
items of plant; the project manager must plan his commitments to prevent
his contingency sum from disappearing too rapidly and unknowingly.
At the stage when the detailed estimate is produced, the design wi II have
been 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 the course of the project, critical analysis
will continue in order to control expenditure.
Finally, the end objective of the 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 the
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 the
profitability of a project, and to help establish the best design route to take or guide
the 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 the 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 new facilities are
generally in the 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 an
electrolytic cell hall complete with its auxiliaries the exponent might be 0.8.
In the 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
CO2 removal; ICI NH3 synthesis and recovery (single train compressors);
boiler feedwater and steam raising: but excluding offsites, storage and
auxiliary services.
Known costs 1000 tid ammonia plant on the same basis in February 1975
was 28 M.
Power Factor Equai,0n \ 0.66
X = x CF
Where
Say
X
C1
C2
CF
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
the engineer using such data as given in Table 4.4 for
trend forecasting.
Actual cost of plant C1
28 x 10
6
(1500) 0.66 x 1.22
1000
36590 400 x 1.22
44640200
44500000
13

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4.2.2 This method, widely known as the "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 the 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 0.75
turboblowers 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 out 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 are
being made. Due to the 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, the 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 not 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 the 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 the previous historical data are broken
down into sections and a suitable exponent is applied to each. For example, one
might decide that the services items listed in the previous paragraph might only need
to be increased by, say 15% for a new plant of double the 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 the 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. 1975
Power Cost
Feb. 1975
Code Descri ption 1000 tid
Factor 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 3.52
K Compressors & Fans 1.50 0.75 1.355 2.03
P Pumps 0.50 0.8 1.384 0.70
Q
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 COST - FEB 1975 28.00 0.66 1.3 36.48
PLANT COSTS FOR 1500 tId AMMONIA
Total Costs February 1975 36480000
Correction Factor 1.22
Total 44500000
TOTAL COSTS JANUARY 1976 44.5M
Capacity factor is the capacity ratio between the two plants under consideration
which is 1.5 in this example.
Power factor is the 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 of estimate it is necessary to make an assessment of the value of
the direct equipment. Having established the equipment costs, it is expanded by the
costs of the 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 the 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 0.15
Civil 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 the 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 out 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 carbon
steel; 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. The mean could be around 4.0 for a UK construction project, but it
is not unusual for large overseas complexes to see the factor approaching 10.0.
Used by experienced engineers the 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 Costs
By 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 the preparation of the information
16
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TABLE 4.2(B) TYPICAL MULTIPLYING FACTORS FOR CONVERTING ALLOY
AND OTHER FABRICATING COSTS TO A CARBON STEEL
EQUIVALENT COST.
Material
All carbon steel
Stainless steel type 410
304
316
310
Rubber lined steel
Bronze
Monel
Carbon steel shell and tubes
AI tubes
Monel tubes
304 stainless steel tubes
304 stainless steel shell and tubes
Pumps
etc.'
1.0
0.7
0.55
0.5
0.5
0.7
0.65
0.3
Heat Exchangers
1.0
0.8
0.48
0.6
0.35
Other
Equipment
1.0
0.5
0.4
0.35
0.3
0.8
(December 1976)
required. Fully developed flow sheets have to be made, process and mechanical data
sheets have to be prepared and vendor quotations for selected items of equipment
should be obtained so that competitive prices, compatible with the delivery required,
are available for the estimate.
A reasonable plant layout must be developed to enable material take-offs to be
carried out for electrics, piping and instrumentation etc. For civil works and build ings,
bills of quantities can be prepared and sent to potential sub-contractors. Constrl"lction
in the field always represents a significant proportion of the total installed cost and,
Plant Item Numbers relating to Table 4.3
18
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TABLE 4.3 EXAMPLE OF THE USE OF TABLES 4.2(A) & (B)
Item No. ,1 2 3 4 5
Description Storage Still Feed Refining Reboiler Dephleg-
Tank Pump Column mator
No. off 1 Wkg 1 Wkg 1 Wkg 1 Wkg 1 Wkg
Dimensions 2m dia. 75m
2
75m
2
30 plates
MatI. of Construction CS CS/13Cr CS CS with CS Shell
316 tubes Alumbro
Tubes
Rate or Capacity 3000m
3
60m
3
/h 48 t/h 12.5 MJ/h 12.5MJ/h
max.
Working Temperature Atmos. Atmos. 75C 75C 65C
Working Pressure Atmos. 415kN/m2 125kN/m2 350kN/m
2
125kN/m2
Steam 6 t/h 3 bar
Power 10 kW
Cooling Water 100m
3
/h
Main Plant Item Est.Cost 39000 1800 32600 6700 9150
Main Plant Vessels 39000 - 32600 4900 7300
Item Cost,
*Machines - 1500 - - -
Carbon
*Handling
Steel Basis
- - - - -
Ref. 1 2 4
Erection of
Factor .03 .12 .36
M.P.I.
Cost 1170 180
Ref. 7 7 8
Piping Factor .32 1.12 .39
Cost 12480 1680
Ref. 11 11 13
Instruments Factor .05 .34 .26
Cost 1950 510
Ref. 15 17 15
Electrical
Factor .03 .41 .03
(ex. motors)
Cost 1170 615
Ref. 19 & 21 19 19 & 21
Civil Factor .14 .22 .14
Cost 5460 330
Ref. 22 22 2
Structures
Factor .02 .05 .25
& bu ildings
Cost 780 75
Ref. - - 28
!
Lagging
Factor - - .06
~
Cost - - -
C.S. Basis Total Factor 1.59 3.26 2.49
Exp'd Cost 62010 4890 81170
Est. I nstalled Cost 62010 5190 811170
i -
*Machines & Material Handling Equipment Costs include Motor Costs (December 1976)
19
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 the larger scale by computer techniques.
At the most elementary level, the 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 require
a smaller number of theoretical plates and lower reflux ratio. Against this, the
cross sectional area of the plates will be larger. The computer may be programmed
with the physical data as well as the design equations and the unit costs for
packing and shells. Output may be in the 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 pressurised
catalytic 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 the minimum overall
cost.
Great care should be exercised to avoid improper optimisation. Sometimes a
local 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 the flowsheeting and
evaluation of chemical processes. I n such programs the process input is in the
form of an information flow diagram detailing the type of units and inter-
connecting streams. Data on the components, input flows, unit parameters and
utility costs are provided. The program then evaluates the system to derive the
capital and operating costs. By observing key costs the user can then modify
unit parameters or even eliminate items altogether. In this way, an overall
attempt is made to move closer to an optimum solution.
20
4.6.4 Computer programs are finding increasing use for planning pipe and
cable routes, including the preparation of orthographic print-outs, schedules of
pipe or cable sizes, bends, fittings, supports, etc. The outputs from these
programs may be presented in suitable form for input to corresponding costing
programs.
4.6.5 One effect of computer use for cost estimation is that the functions of
process design and costing are no longer separated. I mmediate 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 a
way as to facilitate feed-in as a sub-routine in design programs.
4.7 Updating of Cost Information
Historical 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 various
cost categories of materials and labour. Each category can then be adjusted by
the use of the appropriate indices. Published indices by sources such as HMSO from
the UK Department of Trade and I ndustry and the 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 basis
for checking the 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 the
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 the data are a l m o ~ t
wholly based on practice in the 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 the value of sterling relative to other currencies. Moreover, the weighting
of the various commodities used in the make-up of an index may not be fully
representative 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
N
N
N
w
100
t Home Office Costs
90
80 Mechanical
Erection
..... 'v Civils
~ Miscellaneous
u 60 Structural Steel
o PIping
-0 50 Instrumenta tion
+-' Electrical
......
o 40
-;!!
30
20L
Equipment
10
0
Plant A
Cost 32M
B
20M
Fig. 4.1 - Typical distribution of costs
C
6'OM
D
65M
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.
TABLE 4.4 UK INDEX NUMBERS OF WHOLESALE PRICES - INPUT
Price Indices of Materials & Fuels Purchased by the Following Industries
Mechanical Electrical Electrical Manufacturing
1975 Steel Engineering Engineering Machinery Industry except
= 100 Industries Industries Industries Industry Food and Drink
1971 48.8 51.9 56.1 54.1 41.2
1972 50.6 54.3 58.3 56.3 42.8
1973 55.2 61.4 70.7 65.3 56.1
1974 77.4 84.1 93.3 88.3 91.6
1975 100 100 100 100 100
1976 123.9 121.0 122.6 119.8 126.8
1977 140.3 140.2 140.3 138.6 141.8
145.6 153.9 149.5 150.8 139.0
1
1978
1979
1980
1981
1982
1979
March 148.4 164.4 167.3 164.0 148.4
June
September
December
1980
March
June
September
December
Source: Department of Industry
285
eII.::t:."
275 r Composite index -month by month (Jonuary 1970=100)
I cu C

1= 0'371
M
+0 08I
E
+010I
e
+01915+02610
Ctlt:c
2.g ..
265
..... c"C
255 0- g
g'u. 0
245
(J .- .... g
:::I :; C. CtI LOml'-I'- mom

"C .... cu.c
c.Oo)..too c.Oooo 235
o (J (J 0
..-
l-

LOLO(OOOO..-MLO (0
:::::> 225
c.. ell
l-
cu
:::::>
co 215
(I)
0
cu
en
205
E
C
(I)
0
195
N
W
:::t:
S 1;; '<::1''<::1'0'<::1' 001'-0 0 J
1976
F M A M J J A S 0 N
u
00

(J'- :::I
NLrio)NO
M cu en "C
a:
.... _cc (O(O(OOOO"-M'<::I' LO 320
ell WW_ co
c.. :::I s::
Component indices -month by month (January 1970=100)
W
"C
300
-I
..:
<C
.....
'>
e--e--.--e--e-.--e 10
0
(I) 0 _en
c:
280
W ell CtI C
/.. --=' ___ 1M
-I
0
(J'-
'c t
- -----
0
!:
260
..... Ie
....
Ctlcu ....
/---- .. -- . I
:::t:
(J
..c:.= ;
MO..-N (01'-00 (0
cu """'- _ ".. 5
s:
(I) (J en "C c.Oo..tooo r'c.ON ..t
240 ---=:!----....... ...___ .---- IE
"C

LO(o(oI'-O..-MLO (0
U.
CtI

0 0
220 I-
.---
(I) al
------.-.--
a: .....
W 0 en
200
al ....
.]
N 0 J
1976
F M M N
2
:::I A J J A S 0
c.
cu--
:::::> .... ali =
:2
:::I C <C 1;; N..-MO ooom LO 320
Values of the indices
0
.- :::I
c.Oo)Mr'O r'c.ON ..t
X
en "C "C
Historical index for November 1976
cu
C C C LOLO(oI'-O..-MLO (0
290
W
..c:
WCtI_
(January 1970 =100)
c
....
260 1M (mechanical engineering )=268'0
:2
.....
0

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

:::::>
(J
:s
ell ....
200
l Ie (civil engineering )=265-8
cu VI
LO
C
.;:: ::J
-t::i
-
.... "0
cu 'Q);
"-I'-LOM 0'<::1'1'-
CX! .E 170 IS (site engineering )=2583
W
(J
cu"C
oooLrir'O ..-
-I
''::: .... C '<::I'LOLOI'-O N'<::I'LO (0
.....
140 10 (overheads)=280' 6 c.. (1)-
0
al ....
<C c
110 I (composite index) =267-1 l-
cu
E
....
80 I-
1968 1970 1972 1974
CtI
1976
0.
a:; a:; a:; a:;
cu
Fig. 4.2 - Composite cost index for UK process plant (November 1976) 0
m .c.c .c.c (Based on Process Engineering, by kind permission of the Editor)
1.00
I'-..c:: EE 00..c:: EE Qj
,,0
..-NM'<::I'LO (OI'-OOmO..-N mucu.$cu mUQ).$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-

mmmmm mmmmmmm
::J ponent indices. All these indices have the same base of 100 atCJanuary 1970. The
II ..-..-..- ........ ..- ........ ..-..-.......... -,CfJ -,CfJO 0
CfJ composite index applies to a 'typical' process plant comprising 37% mechanical
engineering, 8% electrical engineering, 10% civil engineering, 19% site engineering and
26% overheads. The derivation of the indices is explained in an article in Process
Engineering, January 1973, page 18.
24
25
5. COMPOSITION OF ESTIMATES
5.1 Projects may vary in character from a new research development to a duplication
of an existing plant; from a green field project to a major modification of an operating
plant; from improving utilities to upgrading a main production line; from a simple to a
highly 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 true
realisation of the various ancillary services which are almost certainly required. These
omissions produce the classic cases of projects whose costs increase dramatically during
development. Equally important is the need to avoid high estimates, wh ich may arise
from 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 be
incurred and must be added to the engineering and home office costs. Such items
include inter alia, salaries, wages, payroll burden, company corporate overheads, and
expenses 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 pro-
cedures. 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 be
related to the type of plant and the company code of accounts. A typical estimating
check list is given in the Appendix.
5.5 Contingency
The checklist given in the Appendix is extensive and its systematic application
should 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 out
the end result is an estimate, not a cost. The magnitude of the error depends on a
number of factors and the most significant should be considered quite separately,
namely:
Process uncertainty, the quality and reliability of 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, and
such problems as unexpected foundation difficulties.
Adverse weather during construction, labour shortages and disputes and
subcontractors' 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 a
contingency is based on the probability distribution by the use of the normal curve
and standard deviation.
5.6 Forward Escalation
From the methods outlined above an assessment of the cost involved for carrying out
the contract work can be calculated. These costs will have been assessed asing prices
ruling 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 forward
escalation throughout the life of the 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 Capital
This item may be influenced by company policy in its extent of provision. It can be
generally 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 capital
as 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 bunkers half full of raw materials,
materials in process, stock of finished product equal to one half of storage capacity
and fuel for a period of one to three months.
Working capital in terms of percentage of annual sales may vary widely depending
on 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 Costs
These should be estimated in as much detail as possible and 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 raw
materials (assuming a low efficiency in the early months of the plant) and services
such as water, steam, compressed air and power. I n the earfy period, materials and
services may be used on trials or attempts to make product without actually achieving
any 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 time
scale is shown on this chart as times can vary widely from a few days to several
months, 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
Plant
section s
A
B
c
o
Fixed
Fixed and variable !
plan,ned costs plotted I
against value of
good product made
I
plus
iAddi!ional pr
Imaintenance personnel
of good product
Start of '
I I
Plant handed over to works having .. ; .J
completed 30 days at 2/3 flowsheet ,
, ,I I
I
I,
Break even point '
I
Mechanical -.;
completion date I
i I Plant at steady I
I I flowsheet
, I
Production date ---J I
I I '
Hand over date n I
Fig. 5.1- Plant commissioning and project cash flow
28
commissioning costs should be estimated from a breakdown of the records of costs
for previous plants of similar nature, preferably referring to the 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 typical
weekly 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 licensor
to provide training facilities for the Purchaser's operating and maintenance personnel
especially if the Purchaser is inexperienced in the use of highly technological
processing plants. Limited numbers of the 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 the aim to establish definitive
basic data before starting design of the process plant. This aim is not always achieved
in practice so that it is wise to make a contingency allowance to cover for changes
in scope during the project life. Major changes in the basic data will usually involve
major rethinking of the whole plant. This should be avoided as this can never be
handled by the normal contingency allowance in an estimate, and would rather call
for a complete reappraisal and amended authorisation.
Changes in scope fall into two basic categories - additions or deletions to the
project, and variations in the project consequent on design development. Changes in
programme follow upon delay in delivery schedules of materials related to the late
development or finalisation of design. Both the purchaser's and plant builder's
project teams should endeavour to restrict variations and changes of scope to a
minimum but inevitably they will arise and usually result in an increase in costs.
The Project Manager should be responsible for the continuing surveillance and
cost control to keep these changes of scope to an absolute minimum. It cannot be
emphasised 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 and
scrutiny of the progress of the work are necessary to enable effective control to be
carried out 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 discovered
management 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 of a
particular project: but generally it will be unsatisfactory if a change in cost of this
extent is not foreseen in a timely and accurate manner.
29
6. SELECTION OF COMPONENTS AND MATERIALS
6.1 Economic design is achieved more readily if the design engineer and the
estimating engineer collaborate from an early stage in the process of evaluation. This
will assist in the 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 additional
cost. 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 rest
with the purchaser to confirm whether or not the size requested is standard.
Frequently the next larger standard component will be cheaper than the specially
made item.
6.3 Performance margins should also be considered when taking standard sizes.
The designer may, quite arbitrarily specify a 10% margin on 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. The
stress 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 may
eliminate 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 international
specifications (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 conforming to these specifications
should 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 particular
risk. Each case should be examined critically. A company may have developed
special practices for flame-proofing electrical gear at a time when their sole product
involved a particular fire hazard. It would be unreasonable to carry similar specifi-
cations into a new separate factory manufacturing a different product where no such
hazard existed. Similarly, exceptional standards may be specified for a component
30
whose failure would cause the shut-down of a major plant, but these same standards
should not automatically be carried forward into other places, where similar com-
ponents are used yet the situation is much less critical.
6.8 Choice of Material 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 be
employed 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
(500C). On creep consideration 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 during 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 in carbon steel, low alloy steel
and 18/8 may be 1 : 3 : 6. An economic and safe solution therefore, might be to use
carbon steel, with greater wall thickness to reduce stress, and to replace it completely
every one or two years.
6.9 Ammonia Plant- Case Study
An examination of costs may lead to conclusions which suggest ways of improving
process economics (see also Chapter 8). The development of the ammonia synthesis
process 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 a
much better use of process waste heat to generate steam for driving these compressors.
Consequently, expensive electric motor driven reciprocating compressors, generally
provided with installed spares to cope with the known operational problems of these
units, gave way to single centrifugal machines with no installed spares. Since centri-
fugal compressors work better with large throughputs this also led to a rapid increase
in plant size. Before 1963 most plants were in the capacity range 300 - 400 tid; a
few were being supplted up to 600 tid using reciprocating compressors. It was at
600 tid output that the first ammonia plants with centrifugal compressors were
supplied. 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 loop
which is still being supplied today in spite of higher pressure compressors being
available. Other drive systems like gas turbines are considered for various ammonia
plant 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 increasing
the 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 in
Table 6.3. I n this Table the feedstock and utility figures are expressed as a unit
consumption per tonne of ammonia produced.}
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 (heat
recovery) 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 APPROXIMATE FIRST COST OF COMPRESSORS AND DRIVERS
Installed 1963 1976
kW $/kW $/kW
Centrifugal Compressors 7457 40.3 159.0
Steam Turbine (including condensers) 7457 27.0 99.0
Gas Turbines 2983 80.6 196.0
Motor Driven Reciprocating
Compressors 1491 94.0 246.0
TABLE 6.3 CHANGES IN AMMONIA PLANT OPERATING AND CAPITAL
COSTS 1965 to 1976
Year of Order
Capacity (t/d)
Natural Gas (GJ/t N H 3 )
Electricity (MJ/t NH 3)
Cooling Water (t/t NH
3
)
Erected Cost USA ($M)
1965
300
34.5
2650
221
6
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 tid the conventional 0.66 power factor rule gives a reasonably
accurate 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 the plant
cost per tonne of product. However, present day efficiency gains are almost always
obtained 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 the
theoretical minimum energy requirement of the modern catalytic system is closely
approached by modern plants, it is obvious that the next major step forward will
require 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 equip-
ment, and constructional work wh ich often arise in the construction of process
plants. These cost data are included to give an indication of the orders of magnitude
and serve to indicate a way of building up a cost data file. If used for the preparation
of study estimates (and this cost information is unsuitable for the preparation of
more detailed estimates) this data should be updated by cost indices as discussed
in Section 4.7.
The cost information provided in this chapter is grouped under three headings:
Basic metal costs (7.2), Vessel, tank and plant item costs (7.3), Materials supply
and construction costs (7.4). These cover the items listed below and constitute a
COST DATA FILE
BtMic constructional materials
Vessels and tanks
Jacketed reactors
Rubber lining
Refractory lining
Tubular heat exchangers
Standard compressors
Package boilers
Ribbon blenders
Turbine agitators
Centrifugal pumps
Civil and building work
Structural steelwork
Site built storage tanks and spheres
Plant item installation
Pipe work
Electrical cabling
Insulation (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 in
the cost of basic metals over the period concerned. Table 7.1 sets out a selection
of such data.
TABLE 7.1 BASIC METAL COSTS
April 1976 July 1979
Approximate Cost Factor Approximate Cost Factor
Prices ex Mill Relative to Prices ex Mill Relative to
METAL per tonne Carbon Steel per tonne Carbon Steel
Carbon s.teel
Rolled Plates
BSS 1 501-1 51 /1 54 140
Fully killed carbon steel
1.0 200 1.0
(low temperature)
Series L T50 151 1.08 220 1.1
Series L T1 00 168 1.2 240 1.2
Low Alloy Steels
Series Cr-Mo 280
9% nickel
2.0 400 2.0
(low temperature) 560 4.0 800 4.0
Austenitic steels
304 S15 835 5.96 1345 6.72
321 S12 950 6.78 1475 7.37
316 S16 1138 8.13 1870 9.35
Copper 802 5.72 900 4.5
Aluminium 1136 8.11 730 3.65
Monel 400 3470 24.78 5500 27.5
Titanium 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 are
subject 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 size
and complexity.
Whenever possible, for all subsequent stages of estimate preparation (see Chapter 3)
competitive quotations for vessels should be sought because of the many factors
which can significantly affect the item cost. I mportant 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, approximate
costs, inclusive of delivery, are shown in Table 7.2. In making preliminary assessments
of 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. This
approach would not be appropriate for complex distillation trays or extensive internal
pipe coils.
TABLE 7.2 APPROXIMATE COST OF VESSELS, INCLUDING DELIVERY
Non Pressure Vessels Pressure Vessels
Nominal
to BSS 1500 Pt. 1
Material Capacity
(m
3
)
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 JACKETED
AGITATED STAINLESS STEEL (316 S 16) LOW PRESSURE DUTY VESSELS
Nominal Capacity
m
3
0.250 0.500 0.750 1.000 1.500 2.000
Brim Full Capacity
m
3
0.310 0.565 0.860 1.240 1.665 2.480
Overall Dimensions - Diameter
mm 800 990 1140 1220 1300 1370
- Depth
mm 760 900 1030 1270 1560 1900
Diameter of Bottom Outlet
mm 50 75 75 75 75 100
Power of Agitator Drive (single speecH MJ 4 4 5 5.5 8 8
Power of Contra-Rotating Agitator MJ 4 8 8 13.5 13.5 20
Power 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; for full vacuum or 170 kNm -2 with
275 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, 1 m
3
and above with bottom steady
bearing)
Variable Speed Drive
(For either single rotational or contra-rotating
gear boxes, giving infinitely variable speeds in
range 5 - 25 rev/min.)
Stainless Steel Jacket
(321, dull polished finish & legs or brackets)
Insulation
(38mm of fibreglass with 321 SS sheath, dull
polished)
I nstrument Panel
(Two starters with ammeters and wired to motors.
Pressure and temperature gauges. 380/440/3/50
only)
Two 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
79 105 105 105 105 105
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 indication 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
: 15 000
If)
0
u
10 000
8000
6000
5000
1 2 3
Carbon steel, glass lined
304 SS Shell with CS jacket
All carbon steel I
5 7 10
Capacity (m
3
)
Fig. 7.1 - Approximate cost of jacketed 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 out either in a rubber liner's workshop,
if the vessel or equipment is transportable, or at site. Naturally, these factors affect
the 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, material
specification, accessibility, complexity and size of the contract to be let. As a first
approximation of cost 120 per tonne oflining material should be allowed (July
1976).
7.3.6 Tubular Heat Exchangers
Figure 7.2 shows the variation of cost with change in surface area for three material
specifications. An indication of overall cost increase with pressure is also provided.
100 I I LJ

80000
60000
50000
40000
30000
20000
1 All carbon steel, 1 MN m
2
rating
2 Tubes in stainless steel
3 5hellside - C5 clad with 55
Tubeside - C5 lined with epoxy resin
Tubes and tubeplates, 55
I'" .., - ..,
V; ,
o
u 8000
6000
50001
Pressure
MNm
2
1
2
4
6
2000
8
12
16
32
I I I I I
! ! I I I
1000' __ I I
Cost factors
for pressure
1 0
1'2
1 5
2'0
23
-i 25
3'5
38
I
I
10 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) is
provided in Fig 7.3.
2500
1000

B
(Y); 500
I c

H
Ql
250
Ql
-0
L- 150
0
Ql

LL
100
50
25
J
I A E M p
10, I I II II II I
000
L() 0 1.0
o 0
o 0
N (V)
kN m-
2
o 1.0

o 000, .,:...
1.0 C-COO)

N (T)

1.0 0 1.0
N N
MN m':"'
2
Fig 7.3 - Prices for 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 5.1
H Two stage double acting vee 52.8 4.8
J Two stage vertical 37.5 7.7
L Three stage horizontal 40 8.8
M Three stage horizontal 54 12
N 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 the typical variation of unit cost with steam generation capacity
for two ranges of generating pressure.
5
ro
u
c:
o
.;:;
ro
o 4
0-
ro

"f-
o
....
i: 3
C1


Q)
0-
<+.I
45 to 60 MN m-
2
,. 5 to 45 MN m-
2
- 2' I
20 25 30 35 40 45 50 55 60
u
Maximum evaporation rate (kg h -1 x 10
3
)
Fig 7.4 - Basic prices ofpackage 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 obtained
from Fig 7.5.
10000
8000
6000
5000
4000
3000
-

t; 2000
0
u
7'
800
All carbon steel construction
2 55 contact surfaces
600

oz 0-3 05 1 2 3
Blender capacity (m
3
)
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 open
or closed vessels, may be estimated.
10000,"""" =l
8000
6000 _
5000
1 / // 7
4000
3000
2000
E
1000
Q)
:::J
cr
I-
0

800
600
500
400
300
200
100' , ,
o .--- ----
10uu 2000
Carbon steel; for open top vessels
2 Stainless steel; for open top vessels
3 Carbon steel plus mechanical seal
for 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 (April
1976)
Note: The break point in the curves arises from a change in the construction of the
gearbox 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.

- 100
I-
QI

80
0
0.
0. 60
E
50
:::J
0.
.....
40
0

30 .:y
I-
Q)
0.
'-Ii 20
......
1fI
0
u
10
10 20 30 40 50 60 80 100 200 300
Pump power requirement at maximum efficiency point
Fig 7. 7 - Approximate costs of single stage end suction centrifugal pumps, excluding
drive (October 1976)
(Specification: Generally to API 610 for continuous service at fluid temperatures up
to 698K (425 C) steel casing, cast iron overhung impeller; coupling; soft packed
gland shaft seal; baseplate; two pole drivers)
Multiplying Factors:
CS casing/CI impeller
All steel
CS and 13Cr internals
Silicon iron
Rubber I ined steel
1.0
1.15
1.2
1.25
1.4
43
All 13Cr
All 316S 16
Monel
Nickel
Hastelloy
1.7
2.0
3.3
4.5
6.0
7.4 Materials Supply and Construction Costs
7.4.1 In addition to the procurement of various vessels, tanks and other plant
items, for which some examples of cost data have been given in the preceding
Section, the construction of a process plant involves a variety of site construction
work. This work is usually carried out under a number of separate construction
contracts arranged through a main or managing contractor, or directly under the
control of the plant owner's construction department or his consultant. The main
construction contracts which may be used are:
Site clearance
Piling and soil stabilisation
Civil and building work (including specialist sub-contract trades and supplies)
Structural steelwork
Plant item installation (machinery, vessels and package items)
Site erected tankage
Pipework (metallic and non-metallic)
Electrical
Instrumentation and control
Insulation
Surface coating (galvanising, metal spraying, painting).
Often elements from the above list may be combined into a single contract, for
example the second and th ird items, depending on the nature and extent of the
work, the time available and the experience of the contractor. I n addition to the
main construction contracts several specialist contracts may arise, such as:
Hoists and lifts Flare stacks
Fire warning and protection systems Effluent treatment plant
Communication systems Dust and fume extraction
Cooling towers
Because of the wide variation in specification for these specialist items it is not
practical to provide cost data in this publication.
Cost data for several items from the main contract list are presented in this section
and it should be noted that the following factors have been allowed for in the data;
Preliminaries and site establishment, waste (normal trade allowance), scaffolding,
contractors overheads and profit.
7.4.2 Civil and Building Work
Costs of buildings will vary considerably depending upon the height, plan area and
class of finish. The state of activity in the construction industry will considerably
affect price levels: and the location of the site will also affect costs. Further, the
interpretation of National Building Regulations in each particular case may signi-
ficantly affect the cost of construction in such matters as the extent of fire pro-
tection of structural steel, means of escape etc. I n some cases the proposed con-
struction may require considerable modification to meet the building regulations;
the interpretation of these regulations is often in doubt until substantial scheme
design work has been carried out. Because of factors such as these, the effects of
inflation and the variable work load of contractors it is only possible to give broad
indication of cost against a simple outline building specification. Some basic
measured work costs for commonly encountered items of civil and building con-
struction are presented in Table 7.4.
44
t
TABLE 7.4 CIVIL AND BUILDING BASIC MEASlIRED WORK COSTS
DESCRIPTION UNIT COST () COST ()
April 1976 July 1979
Excavate foundations including disposal
and back fill ing m
3
4.75 10.00
Concrete m
3
24.00 38.00
Formwork m
3
8.00 13.00
Reinforcement - high tensile tonne 340.00 550.00
- mild steel tonne 330.00 550.00
- fabric kg 0.38 0.60
275mm cavity wall in common bricks
with fair face one side m
2
15.00 23.00
100mm solid concrete block wall m
2
7.20 11.00
Carlite plaster to walls m
2
1.70 3.00
4 mm clear glass to metal frame m
2
7.20 11.00
6 mm Georgian wired glass m
2
10.50 16.00
3 coats emulsion paint to wall and ceiling m
2
0.75 1.20
AMENITIES BUILDINGS (for example offices, canteens, first aid rooms, gate-
houses, control rooms).
Typical Specification: 3.5 m high, 275 mm cavity wall in common bricks with
fair-face one side, concrete floor and roof (asphalt covered); walls and ceiling
plastered and floors tiled; including windows, doors, drainage and rainwater goods;
but excluding lighting, and power, heating and ventilating or special equipment
or furnishin,gs of any description.
Typical costs
[nternal Area (m
2
) 15 30
April 76 Cost (/m
2
) 225 - 315 200 - 235
July 79 Cost (/m
2
) 320 - 445 280 - 330
45
170-210
240 - 300
60
130 - 200
185 - 285
100
120 - 190
170 - 270
For laboratories, the provision of lighting and power, heating and ventilating,
benches, sink units and fume cupboards would add about 160 per m
2
(1975) and
250 per m
2
(1979) to the above costs, but the actual specification may considerably
alter this figure.
SERVICES BUILDINGS (for example sub-stations, switchrooms, pump or com-
pressor houses)
Typical specification: generally similar to amenities buildings for the main shell but
with omission of plastering, tiled floors and similar 'finishes'; but included covered
trenches in floor for cables, and foundations and plinths for equipment. However,
heavy foundations for special plant, acoustical treatment, anti;Jcorrosive floor
finishes etc. are not included.
Typical costs (April 1976) will be about 25 per m
2
less than for amenities units.
(July 1979) "35" " II II II II "
45
II
,II
1
"1
1
",,,
1:1
I:'
ill
iii
I
I
"I,
I
I:
iii
II
iill
Ii!
l,il:1
,'I
7.4.3 Structural Steelwork
The schedule of unit costs for structural steelwork is an average cost for projects
which require approximately 1000tonnes of steel for main frame, subsidiary steel-
work and vessel and plant item supports.
TABLE 7.5 COST OF STRUCTURAL STEELWORK
Including supply, fabrication, erection and surface preparation.
ITEM
Main frame
Subsidiary 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)
425
513
550
Lump sum
425
650
5
8.5
April 1976
7.4.4 Site Built Storage Tanks and Spheres
Some typical costs for 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 set out in
Fig 7.9. The costs allow for the basic tank or sphere construction only. The complete
installation cost may be obtained by mUltiplying by a factor varying between 1.8
and 2.2 depending on the extent and complexity of the work.


d

d
u

c
d
;::: 10
o
E 8
'-
6

5' I I I I I I I I I I I I
1 2 3 r- en')" 1:" en on 1n .....
lfl
o
U
Fig 7.8 - Cost of floating roof storage tanks (June 1976)
46
..
500
400
300
0 200
0
;:?
x

100
0
u
80
60
50
40
30
1 2
3 4 5 6 7 8 10 20
30 40 50 60 80
Capacity (m
3
x 100)
Fig. 7.9 - Cost of spheres suitable for 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 the figures
obtained from the charts which relate to major tank farm contracts.
7.4.5 Plant Item Installation
The costs for installation of plant items may be broken down into two distinct ele-
ments: Moving and lifting items into position, Installation and fitting work. The
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
7.4.6 Pipe work
The rates given in Table 7.7 cover the supply, fabrication, erection and testing to
achieve a complete installation. The 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 etc which would be made "free issue"
to the 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 m
2
capacity complete with agitator,
drive unit etc.
14.75 1850
CS Vessel 35 m
3
capacity
7.00 800
CS Vessel 2.1 m
3
capacity
2.5 500 I
Weigh Scale
0.60 200
Discharge Chute
1.5 160
Autoclave 18 m
3
capacity complete with agitator
drive unit etc.
29.10 3150
PVC Water Tank 18.4 m
3
capacity 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 Plastic
mm 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
150 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 for 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 Cabling
Electric cable installation contracts are of two main types, "fix only" or "supply and
fix". In the first type the plant owner (or main contractor) purchases the cable and
makes it "free issue" to the electrical contractor to install. I n the second case the
electrical contractor provides the necessary cable as well as all accessories and carries
out the installation and testing.
The 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 run
of about 50 m;
The cable being continuously supported over its entire length by cable tray,
brackets and fabricated steelwork; and
Cable being supplied in lengths of 150 m minimum.
"Fix only" Rates (see Table 7.8) in addition to the points above these rates
allow for:
Running out 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 above
and the supply o'f the cable.
For cables up to 16 mm
2
cable manufacturers purchase, in bulk, sufficient copper
to 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 presented
in two sections.
In the case of smaller size cables (up to 16 mm
2
) 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 the largest cables (and those of special construction) these
may only be available "to 0 rder" and special quotation.
7.4.8 Surface Coatings
The 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 surface
coating costs amount to about 1% of the capital cost of the project. A guide to unit
costs for 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 out 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
(J'1
h
"C

-.....;
TABLE 7.8 "FIX ONLY" RATES FOR ELECTRIC CABLE
Cable Description: 600/1000 Volt grade multicore cable, plain annealed copper conductors, insulated with general purpose
PVC 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 mm
2
to 300 mm
2
conductors to be shaped.)
No. of Cores
2
3
4
No. of Cores
2
3
4
2
(1)-0
c-
'""I 0)
-h:i
0) ,-+
(") _.
CD ,-+
0) CD
'""I 3
CD (I)
0)-
...,
-
:...
0'1
-3
N
a
Ci
-3
N
CD
(I)
(I)
,-+
:::r
0)
:i
o
:i
CD
CI)
.0
C

CD
3

Cti

CD 10
:i ,(")
CD Cb
'""I CI)

(I) 0)
C (I)

(") '""I
"9.
...,
-u,
o
3
N
a

-3
N
"C
CD

o

()
0)
'""I
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o
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1.5
1.00
1.02
1.07
1.5
1.40
1.53
1.65
Nominal Area mm
2
Nominal Area mm
2
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 for Table 7.8
Nominal Area mm
2
Nomi nal Area mm
2
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 based
on 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
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3
CD
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Cti
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0000,-+,-+
,-+,-+,-+,-+00
0000--,,(J'1
(,.)1\.)1\.)--"00
0(J'10010
3 0000
33
3 3 3 3 3
3 3 3 3

W: ..
00000 ...... <0
------ 333333
aaaaaa
WWN:...a:...aO
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------ 333333
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CD
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:i

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TABLE 7.11 COST OF PIPEWORK INSULATION
Description and Thickness of Insulation
N ilflam Rigid Moulded Sections finished
spirally wrapped with PVC tape.
Nilflam rigid moulded sections finished
with Glass Scrim Cloth embedded in
Aluminium mastic and the whole
covered in a further coat of mastic
Nilflam rigid moulded sections finished
with BD6 cement
Asbestos free Magnesia sections
finished with Glass Scrim Cloth/
Aluminium Mastic (as before
described)
Asbestos Free Magnesia sections
finished with BD6 cement
Calcium Silicate sections finished
with Glass Scrim Cloth/Aluminium
Mastic (as before described)
Calcium sections finished with
BD6 cement
Description and Thickness of Insulation
Mineral Wool sections finished with
Glass Scrim Cloth/Aluminium Mastic
(as before described)
Mineral wool sections finished with
BD6 cement
Nilflam rigid moulded sections finished
with Aluminium- cladding
Asbestos free Magnesia sections finished
with aluminium cladding
Calcium Silicate sections finished with
Aluminium cladding
Mineral Wool sections finished with
Aluminium cladding
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 7.11 (Continued)
Nominal Size of Pipe (mm)
mm 15 20 25 40 50 80 100 150 200 250 300
Cost ( per metre)
38 8.178.71 9.20 9.52 9.9312.6814.8417.1818.4220.2921.86
38 6.83 7.23 7.527.81 7.9310.2011.7713.5214.3415.8016.96
25 8.02 8.56 9.03 9.35 9.98 12.47 14.78 17.09 19.0320.9622.90
38 8.49 9.05 9.57 9.89 10.44 12.75 14.92 17.31 19.3021.2923.33
38 9.76 10.41 11.00 11.32 12.00 14.65 17.16 19.6621.0723.20 24.99
38 8.78 9.36 9.89 10.25 10.67 13.63 15.95 18.47 19.8021.81 23.50
ADD for each additional 12.5 mm thickness of insulation: 25%
For insula,t:.ion to traced pipes use rates appropriate to combined nominal sizes (e.g. 50 parent with 15 tracer; 65 use 80
size rate)
Rates include for supply and application to pipes complete with valves, flanged joints, tees, bends etc. and for cutting
and fitting around hangers, brackets, supports and the like.
April 1976
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-
bedded in Aluminium
12.19 9.40 16.44 12.69
Mastic and the whole
covered in a further coat
of Mastic
Nilflam slabs finished
with Aluminium 13.89 11.11 18.75 15.00
cladding
Calcium Silicate slabs
with Glass Scrim Cloth/
11.69 8.91 15.78 12.03
Mastic (as before
described)
Calcium Silicate slabs
finished with BD6 10.19 8.15 13.76 11.00
cement
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 Introduction
Whilst the main purpose of this booklet has been to describe good practice in capital
cost estimation, some mention must be made of project evaluation. The chemical
engineer initiating a new project must consider the overall profitability of the
proposal as well as capital cost.
8.2 Review of Existing Knowledge
Chemical process technology is advancing rapidly with the result that a new
project will not normally be the most economic if it is a replica of an existing plant.
Before the start ofa project evaluation, new scientific and technical information
should be gleaned from both inside and outside the company and the profitability
of major technical innovation assessed: the 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 the 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 the 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 Achievement
A feature of investment criteria is that once the investment is made and the plant
installed, they no longer apply. Once capital is spent, providing the plant makes a
profit 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 the future and may help
to avoid expensive mistakes of installing processes or components which, despite
initial promise have given disappointing performance.
The 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 the best form for 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 The 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\ the 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 but may prove sub-
stantially more profitable subsequently. It may also permit the company to increase
or develop its share of the market readily. Although, because of the higher capital
investment, the larger plant carries the greater risk capital, the 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 the plant will operate. These and other factors will be relevant to
the decision determining plant size. This decision will consider not only the profit-
ability of the venture but the availability of resources and the effort which the
company is prepared to invest in exploitation and expansion of the market and its
gross potential.
8.4.2 Throughput on a plant may be reduced by operating problems. The
planned 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
the early stages of plant operation process availability may be reduced to values as
low 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 avail-
ability 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 relia-
bility is often inherent in certain processes which are still economic to operate.
Increasingly, reliability data is being recorded for use in assessing overall process
availability.
8.5 Operating Costs
Operating cost under varying operating conditions must be evaluated at the same
time as the capital cost and the designer must study the interaction of capital and
operating costs to determine the optimum process. Among the items to be included,
detailed in the 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 exceptional
standard required?
Quantity. Discounts may be available for 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 the modi-
fication 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 the 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 under
capacity.
The raw material requirements for a process are determined from a realistic
estimate 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 arise
through vented materials, spillage, carry-over, reprocessing of material produced off-
specification, 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 can
usually provide suitable information to determine net yield and the plant capacity
may 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 are
available. Generally, industrial tariffs have a two part structure; the maximum
demand component reflects the capital cost of generation and distribution equip-
ment 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 for reactive load and the installation
of power factor correction equipment should always be evaluated. Some Area Boards
offer lower industrial unit charges for 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 related
largely to viscosity.
Gas is frequently available to industrial users under terms negotiated by the local
Gas Boards. These terms generally include guaranteed minimum consumption, an
agreed maximum with a premium for exceeding this amount, and also usually a
clause 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 for a new project will result from negotiations with the supply
and transport undertakings. Table 8.1 sets out 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 less
than the 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 hot 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 an
attempt to be made to ensure continuity of supply.
S.5.3 Other Utilities and Miscellaneous Raw Materials
Other 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 for gas scrubbing.
Steam generation can be based upon the primary fuels cited above, by com-
bustion 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 possible
to 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, the 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 necessary
to establish the cost and quantity of water supplies available for a new industrial
application.
58
TABLE S.1 TYPICAL ENERGY & UTILITY COSTS
Fuel Oil
102p/GJ 148p/GJ
Natural Gas
115p/GJ 190p/GJ
Electricity
433p/GJ 615p/GJ
Mains Water
11 - 16p/m
3
14 - 19p/m
3
Mid 1976 Mid 1979
S.5.4 Manpower
Manpower cost assessments will start by making comparisons with the manpower
used on existing plants, but it is always wise to enquire whether or not improve-
ments 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 iti ons of steady operation.
Attention must be given to the impact of trade union agreements, particularly if
the new project calls for merging of trades, extension of the activities of any trade
or changes in working conditions.
The 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 included
in the total manpower estimate.
S.5.5 Maintenance
In 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 as
1 %, 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 making
of the order of 10000 tonnes per annum of bulk chemicals. In the case of capital
intensive processes, failure to make proper allowance for repair costs could have a
serious 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, materials
and external contract work.
S.5.6 General, 0 verhead and Sales Expenses
General expenses are those directly incurred as a result of the process. They include
rates and insurance, laboratories (process control and direct research), site charges
such as internal transport and rubbish disposal, and some administration. A reason-
able estimate is 3% of capital per annum for 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 due
allowance for these costs.
8.6 Assessment of Project Profitability
8.6.1 There are many different systems in use for measuring the profitability
of a process. No matter which method is used and regardless of the elegance of the
mathematics involved any decision is based on a considerable degree of uncertainty
and depends for its success on the hard commercial judgement of the Board. Usually
the chemical engineer will bebound by company accounting procedures and there-
fore systems best suiting the experience of those involved in decision making should
be used.
8.6.2 Time Value of Money
An appreciation of the variation with time of the 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
for the worth of 1 earned in n years time at the present time is:
(1 + r)n
where r equals the annual percentage rate of interest divided by 100.
The above factor can be used to convert all the futu re earni ngs of the plant to
present value. Then the sum of all these discounted annual returns is used to estimate
the gross revenue return or net present value (NPV) of the process. If the value of r
is selected such that the NPV of future earnings is zero then the rate of return is
significant and is termed the discounted cash flow (DCF) rate of return. This may be
used to assist companies to assess the 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 but have vastly
different cash flow patterns examined over a three year period. Only by incorporating
the cash flow of the project with the 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, now 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 C
n
occurrinq
n years ahead has a real value in current monetary terms of C
n
(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 discounted
FLOW 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 the same rate, the amount at
the present basis, C, would increase to C(1+f)n which when discounted at the
higher rate gives the previous factor value of 1/( 1+r)n. This means that it is approxi-
mately correct to base the analysis upon prices prevailing at the date of the analysis
without allowing for inflation. Alternatively, the inflated values can be used in the
analysis and a higher rate of return sought. This does allow for inflation not affecting
all items at the same rate due to effects of supply and demand. The chemical engineer
is bound by the 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 Taxation
Taxes and capital allowances must be allowed for in economic evaluation. Legislation
changes from year to year and in the Un ited Kingdom information is readily obtained
from the appropriate Government Department.
The overall company tax position determines the taxation on the project. I f the
company is making a loss it will not pay tax; if t a ~ has not been paid then no taxation
rebate will be obtained. However, assuming the company is profitable, taxation will
follow a pattern similar to the following:
Corporation Tax 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 the asset
to be depreciated for tax purposes in the first year.
Various other grants may also be available according to the location of the
plant and current Government policy.
8.7 Sensitivity of Process Economics to Various Parameters
8.7.1 The results of a project economic assessment are used by management as a
basis on which to formulate policies. The chemical engineer should view them as
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 out a sensitivity analysis to examine the relative effect of
changes in items contributing to cash flow on the 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 BY
of factors is indicated for a number of projects. Assuming a project is profitable,
VARIOUS ACTIONS
the best level of capital investment for a manufacturing chemical company for
different cash flow circumstances may be considered: an example of such an analysis
EFFECT OF CHANGE ON PROCESS
is shown in Chapter 9. cu
cu E
o!-'
E i=
TABLE 8.3 SENSITIVITY ANALYSIS OF SOME PROJECTS
en
0
i=
Cl
u
C
i-'
i-'
cu
c
PERCENTAGE CHANGE
>
c en
C) 0
c
> >
i-' cu 0
c '+=i
0
i-' i-' .-
E
C)
'in .- ro C)
in parameter in DCF rate of in cash flow over
:.a
..Q C en C :J
en
REDUCE CAPITAL
:.a co > 0
cu
cu ....
'E
PARAMETER return project life
co
'x
i-' ....
'"0
'+=i i-' i-'
.-
'ro
~
.s: .- C en
E
COST BY THESE cu
cu
>
cu
'+=i
c
u::
co C
>=
co
0 0
Selling 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 10 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 P
Operating costs 10 up to 2 1 to 3 Buy units abroad
? ?
Capital Costs 10 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 values
Purchase standard items G ? G ? G G G
in this column.
Omit non-essential
itemst 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 not providing sufficient spare Reduce installation
parts, 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 P
Clearly capacity of the plant must be correct. Also plant must be reliable and flexible.
Reduce safety standards P P P P G
Reliable, 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 P
be 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 P
materials. Process yield may be increased by improved control. Operating costs can Purchase intermediate
be 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 on
P = 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 but which saves energy.
cost and the possible effect on the process operation are set out in Table 8.4.
62
63
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. The assessment is of interest in that it
must consider not only the optimum size of production unit but 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 the context of this
booklet this is unimportant. Because this example is further detailed in The Economic
Evaluation 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, the
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 the 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
Capital cost estimates have been made for the two plants assuming a design production
capacity of 30000 tonnes/annum. The simple plant would cost 3.5 M and the inte-
grated plant 12 M. Working capital would be respectively 0.5 M and 1.0 M.
9.4 Production Costs
The 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 the integrated
plant. Production costs which are directly related to output, i.e. variable costs, are
shown in Table 9.1.
9.5 Basis of Economic Assessment
The two schemes, simple and integrated may now be assessed using a discounted cash
flow technique. The plants will be assumed to produce only 15 000 tonnes in the first
operating year and this will reach 30000 tonnes in the 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
tit
0.45
0.90
2.00
Minor process materials
Steam and water
Minor services
Power
Maintenance
Packing and freight
Unit
Price
/t
200
100
14
Cost
of
DDT
/t
90.0
90.0
28.0
16.0
TOTAL, (/t of DDT) 224
INTEGRATED PLANT
Unit Unit Cost
Usage Price of
of DDT
DDT
Item tit /t /t
Benzene 0.9 25 22.50
Ethanol 0.35 55 19.25
Salt 3.0 3.5 10.50
Sulphur 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 the following
provisions are made:
All taxation and allowances arise one year in arrear of the 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, the DCF rate of return for the two 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 the
same year. Both show a similar pattern of cash flow return although values are
much higher for the integrated plant.
65
The discounted 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 VI CO<OC")CO I'-encoCOC")co
N
number of other projects open to the company as an active entrepreneur. resent a ue at L!') I'- en co C") <0 co I'- co 0
A large proportion of the cash flow for the simple plant is the cost of raw DCF Return 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 -g
a reductio,n in selling price, The integrated plant is much less sensitive to Cumulative Present N I'- cg I'- [0 R
market prices. V' I'- 0) C") co L!') co I'- co co C") co co o:;t (I)
Th
' d I 'I hi' I 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 . iii 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, '0
0000000000000 Q)
;> 00 0 coco 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. For 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 g
price 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. 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 10 years.. a: Tax allowanc ''B
Other factors include selling price, delay in commissioning, variation in capital 0 Ca ital I t
e
on t 0 0
cost and variable inflation In Table 9.4 some of these cases are considered Tax 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
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 (.) Sales
Monte 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 o:;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 g
parameter, 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 Expenditure 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 0
rewards 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") E
cation 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)
-<
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CD

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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 180
4 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 41 639
13 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.
Relative chance
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s+ <+ 11+ 3'+ OJ (')

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-I="'-
10. SOURCES OF COST INFORMATION
10.1 Survey of Sources
10.1.1 This booklet has been concerned with the 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 for estimating, but 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. The methods adopted to
prepare a cost estimate depend to a large extent on the degree of definition of the
project under consideration and the 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 Quotations
For 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 result
in a wide spread of quoted costs, requi ring detailed technical and economic analysis
before selection can be made.
10.1.3 Suppliers Budget Quotations
The 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 Records
Company 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 the project records,
discouraging any search for cost data on a particular piece of equipment.
1 0 . 1 ~ 5 Trade Literature
Costs 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 their
sales and advertising efforts. The usefulness of these lists is often negated by being
undated. Because of the inflationary climate, the practice of publishing price lists
has declined in recent times.
10.1.6 Unit Pricing Literature
Unit 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
Electrical Services Price Book. Other useful sources of similar cost data are periodicals
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 Textbooks
One of the largest sources of generalised cost data for process plants is the 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 the
end of this chapter, which should provide a starting point for a search of the 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, the specifications of the items are not fully
defined. Another drawback is that much of the data relates to costs in the USA.
However, with judicious use, published cost data can provide a reasonable basis for
cost estimation.
10.1.8 Personal Cost Books
Many 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 Departments
Various Government departments maintain statistics of wages, productivity and
material costs which are of value in compiling general cost indices and cost indices
for specific projects
19
. Similar data for other countries are often available from the
applicable Embassies, Trade Delegations, etc.
10.1.10 Computer Data
The Institution of Chemical Engineers has recently published a report on the state
of the art of the application of computers to capital cost estimation
29
.
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. The 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 sub-
routines 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 these programmes have been made available through bureaux
29
.
10.2 Some Key References
10.2.1 Bibliographies
1 "A ready Reference I ndex of Cost Engineering I nformatiolt)", 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: CJB
Information and Library Service), 1970.
10.2.2 Cost Estimating Methods - Review Papers
4 "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 presented 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 Estimating
8 "The ICI Fac-test Factorial Estimating System", 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., Chem
Eng, Vol 76, No 6,1969.
10.2.4 Equipment, Etc, Costs
13 "Cost Data Files for Chemical Engineers", Brit Chem Eng, May 1966 to
Feb. 1972 (a series).
10.2.5 Cost Indices
14 "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 Estimate 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 - How We 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 Overseas
20 "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
25 "Costs of Chemical Process Plants Abroad"; Bauman, H.C., Ind & Eng Chem,
Vol 54, No 9, Sept 1962.
26 "Comparative I nvestment 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 Plant 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 the Economic Evaluation of Projects", Allen, D.H., (London:
The I nstitution 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 Cost
Engineers) 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: McGraw-
Hill) 1970.
73
Appendix
T ~ P I C A L ESTIMATING CHECK LIST
SITE
Land 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 requirements
Water supply contribution
Sewage disposal works
PROCESS PLANT
All process plant and equipment from detailed schedules
Special erection costs - e.g. clean 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 hot conditions, toxic gases and vapours,
dusts and fire risks
Fire protection equipment
Equipment to meet requirements of Alkali I nspector, Factory I nspector, etc
Effluent treatment plants (includ ing development costs)
I nstrumentation and control
Development of Instrumentation
Pipework and valves
I nsulation and painting
Costs of process development and prototype testing
Allowance for modification after erection
Standby plant
Mechanical handling facilities
74
SERVICE PLANT AND EQUIPMENT
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 and
potable supplies
. W:!ter treatment plant
Internal transport, conveying and storage of raw materials, intermediate, finished
products and fuel
Heating 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 for service plant
Stores, storage buildings, warehousing,
Laboratories, workshops, offices
Medical and first aid centres, fire station
Canteen, change rooms, lavatories
Site 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 Costs
Process 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 Construction
Site 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 materials
Labour camp - canteen
Major construction equipment (purchase or hire)
Direct Construction Costs
Direct 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
Insurance
Financing 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 1 BY
tel: (01) 367 1343
telex: 261507 (ref. 3577)
THE DOLPHIN GROUP
LAING-
THI COMPRIHINSIVI
CONTRACTORS
It does riot matter whether you are contemplating a
small factory or a multi-million pound contract.
John Laing Construction can tackle the job from
the 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 of
management and financial resources that cannot
easily be matched.
Call us in at the beginning on your next project.
John Laing Construction Limited
Page Street, Mill Hill, London NW7 2ER
Telephone: 01-959 3636
LAING
BUILDING TOMORROW, TODAY
Pullman. Kellogg
Engineers of Energy
Punman
me,nt teams
that pay off for ol,lfclienlS.,
Consider, for instance, otIr
abilities in organizing complex
project financing packages utilizing
various world financing organiza-.
tions. Including governmental
agencies for lending and
guaranteeing loans, and commerCial
and investment banks.
A Pullman Kellogg project
managemenrteam has the financial
expertise required to arrange tOOay's
enormous financial packages. And,
at the same time, to optimize the
profitability of your project.
For example,in IndoneSia, the
government awarded us contracts
totaling more than a
dollars.
We worked closely with Indones/an
officials in coordinating the efforts of
all lending institutions involved. In
addition to Bank Bumi Daya and
other leading commerCial banks,
institutions involved in project
financing included the International
Development ASSOCiation of the
World Bank (IDA), the U.S. Agency
for International Development (AID),
the Asian Development Bank (ADB),
and Japan's Overseas Economic
Cooperation Fund (OECF).
Our point is this. Pullman Kellogg
project management is a part of an
experienced multi-national firm, with
proven expertise in planning and
handling today's larger, more
complex prOjects.
So when you have a complex
problem, anywhere in the world,
consider our single-source
capability. Call the pros of
project managernent.
Pullman Kellogg.
Pullman Kellogg DiviSion of Pullman Incorporated, Three Greenway Plaza East, Houston, TX 77046
Kellogg International Corporation, London W1M 2AD; Eff. May 1977, Wembley, Middlesex HA9 OEE, U.K.
Kellogg Continental, De Boelelaan 873, Arnsterdam, The Netherlands
The Canadiari Kellogg Company, Ltd., 20 Eglinton Avenue West, Torontd, OntariO, Canada M4R 1 K8
Other Kellogg offices in: Buenos Aires, Hackensack (New York Area), Hong Kong, Jakarta, Maracaibo,
Moscow, Paris, Tehran, Tokyo .
DESIGN ENGINEERING AND
PROJECT MANAGEMENT OF
PROCESS AND
INDUSTRIAL
'_. ~ ~
- ~ 'dIilr
PROJECTS
~ ~ ~ ,
I"
FEE, RE-IMBURSABLE OR LUMP
SUM CONTRACTS UNDERTAI<EN
PI P S
Mill Hill . North West Ind. Estate
Peterlee . Co. Durham
LIMITED Telephone: Peterlee 5713
A MEMBER OF THE ~ GROUP, MERSEYSIDE