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2/4/2009

Project Costing & Economics


AND... LIFE

Dave Mody

Engineering Design

2/4/2009

Example

Citric Acid Extraction Plant

Citric Acid Extraction Plant

http://www.lemonadegame.com/

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Just A Lemonade Stand

WHO WHEN WHY

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The Time Accuracy of Estimates


% Time vs Estimate Accuracy & % Completion

100 90 80 70 60 50 40 30 20 10 0 0

Capacity Factored

Work Completed Semi Detailed

100 90 80 60 50 40
% Work Completed
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Estimate Accuracy

70

Equipment Factored

Detailed

Construction Begins

30 20 10 0

20

40

60

80

100

Time (% of total schedule)

Capacity Factor

1000 lb/hr $10 Million


5000 lb/hr $ ? Million = $10 Million 1000 lb/hr

5000 lb/hr ? Million


0.7

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Capacity Factor
The exponent (0.7)
Product Ethylene Acetaldehyde Ammonia Phosphoric Acid Formaldehyde Process Route Refinery Gases Ethylene Steam Reforming Calcium Phosphate/H2SO4 Methanol Exponent 0.85 0.70 0.70 0.60 0.55

Perrrys

TIME!
HEY ! What Changed?

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Capacity Factor - Cost Indices


Chemical Engineering Magazine

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Lang Factor Estimate


Plant Cost = Lang Factor x Equipment Costs

Plant Type Fluid Processing Plant Solid-Fluid Processing Plant Solid Processing Plant

Lang Factor 4.74, usually rounded to 5.0 3.63 3.10

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Big Box Shopping For Chemical Plants

Equipment Cost
Garage Cost

# Cars

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Equipment Factored Estimates

EQUIPMENT FACTOR

PURCHASE COST

INSTALLED COST
36-37

Equipment Factored Estimates


DIRECT FIELD COSTS (50%)
Equipment (20%) Field Labour & Material to install equip. (30%)

INDIRECT FIELD COSTS (32 %) CONTINGENCY AND FEES (15% + 3%)

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Equipment Factored Estimates

Tanks and Vessels Columns and Trays Pumps and Compressors Exchangers Heaters

x Direct Field = Cost Factor

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Equipment Factors
Shop Fab. Vessels Compressors Exchangers Fired Heaters Pumps Material Handling Equipment 2.0 - 2.5 1.5 - 2.5 1.7 - 2.5 1.7 - 2.5 2.5 - 3.5 1.5 - 3.0

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Factored Estimate Engineering Requirements


Heat & Material Balance (simulation) Preliminary Equipment Sizing Materials Selection Equipment List 1st Draft P&IDs - recommended Process Hazards Analysis - recommended Preliminary Layout - recommended

Detailed Estimates

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Detailed Estimate
% Time vs Estimate Accuracy & % Completion

100 90 80 70 60 50 40 30 20 10 0 0

Capacity Factored

Work Completed Semi Detailed

100 90 80 60 50 40
% Work Completed
32

Estimate Accuracy

70

Equipment Factored

Detailed

Construction Begins

30 20 10 0

20

40

60

80

100

Time (% of total schedule)

Whats Economics?

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2/4/2009

Angkor Wat Built by a series of kings at huge cost Bankrupt the Khmers

Lucky For Us, No Project Economic Evaluation Was Used

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BEFORE YOU BUY!

DECISION MAKING $$

Economics & Project Decision Making


Compound Interest Discounted

$ $
Today The Future

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Economics & Project Decision Making


Discounted

PV = FV / (1+i)n

$
Today

$
The Future

PV = FV / (1+i)n

?
Today

$
2 YEARS

$
3YEARS

$
4 YEARS

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PV = FV / (1+i)n Time Matters!


Net Present Value

$ $
Today 2 YEARS

$
3YEARS

$
4 YEARS

$ $
Our Initial Cost

$
Revenue

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PV = FV / (1+i)n

$ $
Our Initial Cost

$
Revenue

$ $ $

Net Present Value

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PV = FV / (1+i)n Discount Rate Matters !

$ $
Our Initial Cost

$
Revenue

PV = FV / (1+i)n

$ $ $

=
Our Initial Cost Net Present Value

With Larger Discount Interest Rate

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Discount Rate
Large Discount Rate Values = LOWER NPVS
Typical MARR or Hurdle Rates in Industry

Industry Industrial Chemicals Petroleum Pulp and Paper Pharmaceuticals Metals Paints Fermentation Products

Low-Risk Projects 11 16 18 24 8 21 10

Average Projects 25 25 28 40 15 30 30

High Risk Projects 44 39 40 56 24 44 49

Adapted from Aries and Newton (1995)

PV = FV / (1+i)n

$ $

=
Internal Rate of Return (IRR)

i when NPV = 0

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Net Present Value A $ amount exceeding the hurdle interest rate Internal Rate of Return Equivalent Interest Rate of Your Initial Cost

Investment Comparison
You have $200, how do you make the most money in 6 years? A. Put in Bank B. Lemonade C. Soap Box Car
B. Lemonade Stand (i=10%) A. Put Money in Bank (i=10%)
400 300 Dollars ($) 200 100 0 -100 -200 Years 0 Dollars ($) 250 200 150 100 50 0 -50 -100 0 1

354.3122

100 50
2

100 50
3 4

120

130

0 1

0 2

0 3

0 4

0 5

-150 -200

-200
Years

-200

C. Build Soap Box Car (i=10%)


250 200 150 100 50 0 -50 -100 -150 -200

220 120 70 -50


0

250

Dollars ($)

-50
1 2 -100 3 4 5 6

Years

Slide by Dean Latham

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Investment Comparison: Net Present Value (NPV)

Risk Analysis
Understand the risk and effects to the project

30

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Risk Analysis
Test one value (Tornado Plots)

Develop 3 scenarios

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Risk Analysis
Monte Carlo

Probability

-50%

-10%

+10%

+50%
30

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2/4/2009

So This is Engineering Economics Conversion of British Columbia Mountain Pine Beetle Wood to Natural Gas via Syngas Utilize a Turbine to reduce pressure and produce electricity The design of a Water For Injection Utility for a bio/pharma plant

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