ChE 216

Chemical Engineering
Plant Design

COST ESTIMATION
(Total Capital Investment)
Course Notes by Evelyn R. Laurito
With Modifications by A.A. Laurito
UST Ch.E. Department 2010

Engineering Economics
The choices a practicing engineer makes are
heavily influenced by the economics of the
project.
A project must produce products that are safe and
environmentally benign.
However, a safe and environmentally friendly
project will not be pursued if it is not economically
attractive.

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ChE 216 Course Notes by ERLaurito

Taxes
Income
VAT

Cash Flow

Total Income
PhP from Sales
Sales Revenue

Net Profits
after taxes

Gross Profits
including depreciation

Operations
for Complete
Project

Total Product
Cost

W
Working
Capital
Investment

TCI = FCI + WCI

WCI

Ax
Non-manufacturing
Fixed Capital
Investment

Profits = Income - TPC

Repayment
Of Borrowed Capital

Other Investments

FCI

V
Manufacturing
Fixed Capital
Investment
Total
capital
(w/o land)

Stockholders Dividends

Capital
Source
And Sink

Other Capital
Input
Bonds

Loans
Common
Stock

Preferred
Stocks

Cost Estimation
A chemical engineer must be able to
estimate all costs associated with a
given process.

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Equipment costs
Capital costs (Total Capital Investment)
Manufacturing costs
General expenses
Total Product Cost
Taxes

ChE 216 Course Notes by ERLaurito

Types of Capital Estimates

order-of-magnitude estimate:

error > 30%

ratioed

study estimate:

error 20% to 30%

based on cost of major equipment

factored

preliminary estimate:

error 20%

budget authorization

definitive estimate:

error 10%

project control estimate

based on complete data but before
completion of drawings and specifications

detailed estimate:

error 5%

contractors estimate
based on complete engineering drawings, specs, and site
surveys
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Estimating Purchased Equipment

Costs
Scaling Based on Capacity
Cost-capacity ratio
6-10ths rule

Cost Indexing Based on past

purchase orders
Firm vendor quotes

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Cost Estimation
of Major Items of Equipment
1st stage in the preparation of a cost
estimate
SCALING using Cost Correlation Data
Log of Capital Cost of an Item is plotted
vs Log of capacity Parameter
Ex of Capacity Parameter: Volume, area,
power rating

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Cost Estimation
Major Items of Equipment

Log Cost

log C
m=1

Slope increases from 0.2

to >1
m=0
Even at zero capacity,
cost of equipment exists
due to overhead and
administrative costs
At m=1
multiple units are
preferred

m=0
Log Capacity,
log Q

Cost Estimation
Major Items of Equipment
Between m=0 and m=1,
there exists a range
where m is fairly
constant
m is called the Cost

Correlation Index

Log Cost

log C
m = constant

m=1

m=0
Log Capacity,
log Q

Cost Estimation
Major Items of Equipment
m

log C1 log C0
log Q1 log Q0

C1
C0
m
Q
log 1
Q0

Log Cost

log

log C
log C1

m = constant

log C0

C1 Q1

C0 Q0

log Q0 log Q1

Log Capacity, log Q

Cost Estimation
Major Items of Equipment

C1 Q1

C0 Q0

M = cost correlation
index
Table 6-4/243 PTW
Table 9-50/9-69 Perry
In the absence of cost
correlation data, m is
approximated at 0.6
provided that
Q1/Q0 10
Equipment are similar

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ChE 216 Course Notes by ERLaurito

Sample Table 6-4PTW/242

Equipment

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Size Range

Exponent
(m)

Evaporator (installed)
horizontal Tank

10 -1000 m2

0.54

Fan, centrifugal

10 35 m3/s

1.1.7

Motor, squirrel cage

4 15 kW

0.69

Tray, bubble cap

13m

1.20

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Typical Exponents for Equipment Cost versus capacity

(Cost data based on 1999) Perrys HB/p.9-69

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Cost Indexing of Past Purchase

Orders
Most cost data available for estimation are based upon
the past
These data must be updated using cost indexes

index value at present time

Cn Co

index value at time of original purchase

Cn=cost of equipment to be estimated (new cost)
Co=known cost of existing equipment (old cost)
Fairly accurate estimates can be obtained if the original costs
are less than 10 years old

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Cost Indexes
Marshall and Swift Equipment Cost Index(MS)
published monthly in Chemical Engineering
base value= 100 in 1926.

Chemical Engineering Plant Cost Index (CEPCI)

published monthly in Chemical Engineering
base value= 100 in 1957-59

CEPCI and MS are most widely accepted in chemical

process industries..
Other cost indices
Nelson-Farrar Refinery Construction Cost Index
Engineering News Record Construction Index

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ChE 216 Course Notes by ERLaurito

Table 6-2 PTW/238: Marshall and Swift Installed Equipment Index 1926 =100

Year

All Industries

Process Industry

1987

814

830

1988

852

859.3

1989

895

905.6

1990

915.1

929.3

1991

930.6

949.9

1992

943.1

957.9

1993

964.2

971.4

1994

993.4

992.8

1995

1027.5

1029.0

1996

1039.1

1048.5

1997

1056.8

1063.7

1998

1061.9

1077.1

1999

1068.3

1081.9

2000

1089.0

1097.7

2001

1093.9

1106.9

2002

1104.2

1116.9

2003

1123.6

2004

1178.5

2005

1244.5

2006

1302.3

Table 6-2 PTW/238: Marshall and Swift Installed Equipment Index 1926 =100
Year
Industry

All Industries

1987

814

Process

830

2003

1988

852

859.3

2004

1178.5

1989

895

905.6

2005

1244.5

1990

915.1

929.3

2006

1302.3

1991

930.6

949.9

2007

1373.3

1992

943.1

957.9

2008

1449.3

1993

964.2

971.4

2009

1468.6

1994

993.4

992.8

2010

1490.2

1995

1027.5

1029.0

2011

1534.4

1996

1039.1

1048.5

1997

1056.8

1063.7

1998

1061.9

1077.1

1999

1068.3

1081.9

2000

1089.0

1097.7

2001

1093.9

1106.9

2002

1104.2

1116.9

1123.6

Chemical Engineering Index

Published in the Journal Chemical Engineering

CE Index is composed of four major parts - Equipment, Construction &
Labor, Buildings, and Engineering and Supervision. If we sum up the
fractional contribution of each component of the cost index, we obtain the
plant cost index.

Exercise: Estimating Purchased

Equipment Costs
What was the cost of a cone crusher of
capacity 90 kW in 2002?
Conveyor belt 250 ft2 in 2006

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Vendor Quotes

http://www.matche.com/

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Vendor Quotes

http://www.matche.com/
Click here for
preview

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Estimation of Capital Investment

I.Direct Costs (material and labor involved in actual installation of complete facility)
A. Equipment
1. Purchased equipment
2. Installation, including insulation and painting (25-55% of purchased equipment cost)
3. Instrumentation and Controls, installed (6-30% of purchased equipment cost)
4. Piping, installed (10-80% of purchased equipment cost)
5. Electrical, installed (10-40% of purchased equipment cost)
B. Buildings,process and auxiliary, (10-70% of purchased equipment cost)
C.Service Facilities and Yard Improvements (40-100% of purchased equipment cost)
D. Land (4-8% of purchased equipment cost)
II. Indirect Costs (expenses not directly involved with actual installation)
A. Engineering and Supervision (5-30% of direct costs)
B. Construction expense and contractor's fee (6-30% of direct cost)
C. Contingency (5-15% of fixed capital investment)
III. Fixed Capital Investment (direct costs+indirect costs)
IV. Working Capital (10-20% of total capital investment)
V. Total Capital Investment (fixed capital investment+working capital)

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Estimating Equipment Installation

Costs
percentage of purchased equipment
cost
varies from 20-90%

firm contractor quotes

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Costs of Instrumentation, Controls and Insulation

Instrumentation and Control
major component of chemical processing plant
estimated as fraction of purchased equipment cost
(preliminary) or from P&IDs and instrument index
(detailed and definitive)

Insulation
major component for very high or very low temperature
service
estimate from fraction of purchased equipment cost
(preliminary) or material take-offs (detailed and
definitive)
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Estimating Piping Costs

fraction of purchased equipment cost (preliminary)
Type of Process Plant
solid (e.g. coal briquetting plant)
solid-fluid (e.g. shale oil plant with crushing
and extraction)
fluid (e.g.distillation)

% of purchased equipment cost

material
labor
total
9
7
16
17
36

14
30

% of FCI
total
4

31
66

7
13

material take-off from piping isometrics

(detailed and definitive)

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ChE 216 Course Notes by ERLaurito

Estimating Electrical Installations

Component cost as a percentage of total electrical cost
Power wiring
Lighting
Transformers and Service
Instrument control wiring

Range, % Typical value, %

25-50
40
7-25
12
9-65
40
3-8
5

material take-off from one-line diagrams and P&IDs

(detailed and definitive)

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Buildings and Yard Improvements

control rooms, maintenance shops, warehouses, etc.
includes plumbing, heating, lighting, ventilations
fencing, grading, roads, sidewalks, railroad sidings, and
landscaping
estimate as a percentage of purchased equipment cost

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Service Facilities and Land

utilities
steam, water,power, compressed air and fuel
waste disposal, fire protection, shop, first aid, cafeteria
estimate as a percentage of purchased equipment cost
necessary at a new plant site
at existing plant site, new facilities may not be needed, but
project may have to pay for future expansions.
Land
purchase may be needed for grass-roots plant
not depreciable
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Engineering and Services

percentage of fixed capital investment

Component
range, % typical value, %
Engineering
1.5-6
2.2
Drafting
2.0-12
4.8
Purchasing
0.2-0.5
0.3
Accounting, construction and cost
0.2-1
0.3
Travel and living
0.1-1
0.3
Reproduction and communication 0.2-0.5
0.2
Total engineering and supervision
4.0-21
8.1

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Construction Expense and Contractors Fee

percentage of fixed capital investment

Component
range, % typical value, %
temporary construction and operations1.0-3
1.7
tools and rental
1.0-3
1.5
home office people in field
0.2-2
0.4
field payroll
0.4-4
1
travel and living
0.1-0.8
0.3
taxes and insurance
1.0-2
1.2
startup materials and labor
0.2-1
0.4
Overhead
0.3-0.8
0.5
Total construction expense
4.2-16.6
8.1

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Contingencies and Startup

Expense

contingency allows for unpredictable events

such as storms, floods, strikes, price
changes, small design changes, estimating
variances
startup expense pays to bring plant into
operation after construction complete
materials, labor and equipment
loss of income while plant is down or operating at
partial capacity
not included in capital investment because of tax
reasons
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Total Capital Investment

Fixed Capital Investment (FCI) 80-85%
manufacturing capital investment
equipment, installation, instrumentation, piping,
insulation, site preparation etc directly related
to process operation

non-manufacturing capital investment

land, offices, warehouses, utility generation,
waste disposal etc.

all except land are depreciable

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Total Capital Investment

Working Capital Investment (W) 15-20%

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raw materials and supplies

finished and semi-finished products
accounts receivable
cash for expenses/accounts payable
taxes payable
non-depreciable

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