12/2/2016

Capital Cost Estimate Types

1. Order of Magnitude Estimate (Feasibility)
+ 40%, - 20%
BFD , Process Modification
2. Study Estimate / Major Equipment
+ 30%, - 20%
PFD , Cost Chart

Capital Cost Estimates Types (contd)

3. Preliminary Design (Scope) Estimate
+ 25%, - 15%
PFD , vessel sketches , equip. diagrams
4. Definitive (Project Control) Estimate
+ 15%, - 7%
PFD , P&ID, all vessel sketches, equip. diagrams,
preliminary isometrics

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Capital Cost Estimates Types (contd)

5. Detailed (Firm or Contractors) Estimate
+ 6%, - 4%
Everything included ready to go to construction
phase

Estimate low so actual cost will be high (+)

Estimate high so actual cost will be low (-)
Why is + # > - #.?

Cost of Estimate
If we want high accuracy then
Accuracy it takes a lot of man/woman
1 hours (engineering work).
2
3
4
5

Cost of Estimate (Time)

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The first three types serve as a cost indicator at a

very early stage of the project design stage.
They are developed with a minimum amount of
detailed engineering
Meant only as advise to the client or to management
as a first look at project cost.

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Cost Estimation - cont

Other types of estimates include:
Cost curve estimates
Major equipment factor estimates
Cost Indices

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Cost Curve Estimates

The cost curve method of estimating corrects
for the major deficiency illustrated above by
reecting the significant effect of size or
capacity on cost.
These curves indicate that costs of similar
process units or plants are related to capacity
by an equation of the following form:

Plant A cost
Plant B cost (
=
Plant B capacity )
Plant A capacity x

This relationship was reported by Lang, who

suggested an average value of 0.6 for the
exponent (X).
Cost curves of this type have been presented
for petroleum refinery costs in the past.

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Major Equipment Factor Estimates

Major equipment factor estimates are made
by applying multipliers to the costs of all
major equipment required for the plant or
process facility.
Different factors are applicable to different
types of equipment, such as pumps, heat
exchangers, pressure vessels, etc.
Equipment size also has an effect on the
factors.

It is obvious that prices of major equipment

must first be developed to use this method.
This requires that heat and material balances
be completed in order to develop the size and
basic specifications for the major equipment.

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This method of estimating, if carefully

followed, can predict actual costs within 10 to
20%.
A shortcut modification of this method uses a
single factor for all equipment.
A commonly used factor for petroleum
refining facilities is 4.5.
The accuracy of this shortcut is of course less
than when using individual factors.

Estimating the cost of oil and gas

facilities
Regardless of accuracy, capital cost estimates are
typically made-up of direct and indirect costs.
Indirect costs consist of project services, such as
overhead and profit, and engineering and
administrative fees.
Direct costs are construction items for the project
and include property, equipment, and materials.

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Using historical costs

As mentioned previously capital cost
estimates of industrial process plants can be
made using previously obtained equipment
costs of similar size and then can be scaled
to reflect current costs using cost curves and
Adjusting for different sizes
Adjusting for different time periods

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The preparation of a preliminary estimate is based on

assessment of the design,
past cost estimates,
in-house estimating information,
and previous contracts and purchase orders.
It is not normal to obtain formal quotations from equipment
manufactures in support of a preliminary estimate.
Informal telephone budget quotations on identified major
equipment such as vessels, filters, etc. are acceptable.

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However, even these types of expedient

quotations are time consuming.
Sophisticated estimating software are
available.

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Definitive and detailed cost estimates are full-blown

exercises that are undertaken to produce a
competitive bid submission or otherwise produce an
accurate (plus or minus 10% or better) cost estimate,
for appropriation of funds.

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1. Rule Of Thumb Estimates

Produce only an approximation of the order of
magnitude of cost.
These are simply a fixed cost per unit of feed or
product.
Some examples are:
Complete coal fired electric power plant: $2,500/kW
Complete synthetic ammonia plant: $200,000/TPD
Complete petroleum refinery: $25,000/BPD

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These rule of thumb factors are useful for

quick ballpark costs.
Many assumptions are implicit in these values
and the average deviation from actual practice
can often be more than 50%.

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The Rule of Six-tenths

Approximate costs can be obtained if the cost
of a similar item of different size or capacity is
known.
A rule of thumb developed over the years
known as the rule of six-tenths gives very
satisfactory results when only an approximate
cost within plus or minus 20% is required.

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The Rule of Six-tenths

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The N exponent
An analysis of the cost of individual pieces of
equipment shows that the size factors
exponent will vary from 0.3 to unity, but the
average is very near to 0.6, thus the name for
the rule of thumb.
If a higher degree of sophistication is sought,
Table 1 below can be used.

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It lists the value of a size exponent for various

types of process equipment.
The Table 1 values have been condensed from
a vast, comprehensive tabulation of
estimating cost data

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Using Table 1 size exponents transforms the

previously presented formula into,

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Cost Indices
Cost indices are useful when basing the
approximated cost on other than current prices.
If the known cost of a piece of equipment is
based on, for instance 1998 prices, this cost
must be multiplied by the ratio of the present
day index to the 1998 base index in order to
proportion the value to present day dollars.

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Cost Indices

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The following example illustrates a combined

use of both of these ratio and proportion
methods to produce an approximate cost.
Please note that the costs presented here are
purely hypothetical and should not be used as
a basis for anything other than an illustration.

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Let us assume that a rough estimate is being

prepared for a project in which a 5,000-gallon
capacity stainless steel pressure vessel is
involved.
Let us further assume that our past project
purchasing data shows that a 2,000-gallon
stainless steel pressure vessel, very similar to
that currently required, was purchased in
2001 for $15,000.

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We now have all of the necessary components

to approximate the present day cost (CB ) of a
5,000-gallon vessel.
We have, two dates, past and of course
current; two known capacities (SB and SA ); and
one historical cost (CO ) (that of the 2001
purchased vessel).

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The first step is to determine the cost index for

our two dates.
Consulting a recent issue of Chemical
Engineering magazine, the M & S Equipment
Cost Index for 2001 is found to be 1093.9 (our
base index for this example).
In like fashion, the 2006 4th Quarter index is
found to be 1353.8 (the current index).

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The student may be interested to know that

the M & S Cost Indexs base is 1926 = 100; this
provides an astonishing indication of the
amount of inflation that has taken place.

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This complicated data allows us to substitute,

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Therefore, the 4th Quarter 2006 cost of the

2,000-gallon capacity vessel is estimated to be
$18,565.
Now, having determined the current
estimated cost of the smaller capacity vessel,
we need to adjust this amount to correspond
to the larger volume (5,000 gallons).

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Referring to Table 1, we find a size exponent

corresponding to stainless steel vessels equal
to 0.68.

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Substituting in the equation presented earlier results in,

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The unit, ten, and hundred places in this figure

are irrelevant.
A rough estimate of $34,617 is ridiculous
and implies a degree of accuracy that has no
basis in this case;
$35,000 is more sensible and just as likely to
be correct in the context of a plus or minus
20% estimate.

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Cost Indexes
Estimating Process Costs From Existing
Operations
No costs remain stable due to inflation and
deflation.
As a result, in our estimates we must adjust
any cost relative to some basis or index.

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A number of cost indexes exist

Data for two of the indexes for the period
1973 to 1984 are used for the example.
These years were selected because they
represent a period of rapidly rising inflation
followed by a leveling-off phase

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Cost Indexes

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Data from Two Cost Indexes

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Cost as a function of capacity for centrifuges for

inorganic service. These data are for solid bowl, screen
bowl, and pusher types

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Cost as a function of capacity for centrifuges for

organic service. These data are for solid bowl,
screen bowl, and pusher types.

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4. Definitive Estimates
Definitive cost estimates are the most time consuming and
difficult to prepare but are also the most accurate.
These estimates require preparation of plot plans, detailed
ow sheets and preliminary construction drawings.
Scale models are sometimes used.
All material and equipment are listed and priced.
The number of man hours for each construction activity is
estimated.
Indirect field costs, such as crane rentals, costs of tools,
supervision, etc., are also estimated.
This type of estimate usually results in an accuracy of 5%.

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Summary Form For Cost Estimates

The items to be considered when estimating
investment from cost curves are:
Process units
Storage facilities
Steam systems
Cooling water systems
Subtotal A
Offsites
Subtotal B
Special costs
Subtotal C
Location factor
Subtotal D
Contingency
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Total

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Intratec Plant Construction Cost Index (IC Index) comprises a series of specific and general price
indexes, evaluated by Intratec consultant's as fundamental for the construction of chemical
plants, which are combined to reasonably reflect generic chemical plants capital costs. Most of
the price indexes are obtained from Bureau of Labor Statistics (BLS) website and measures the
behavior of selling prices received by U.S. producers during time

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Lang Exponent
The exponent used in scaling the cost for different plant capacities.
Promoter calculates the cost of the project facilities from the reference
plant by applying the following formula:
C = Cb x [Qa / Qb] pow ( x)
where
Ca = Cost of the Plant,
Cb = Base Case Cost,
Qa = Capacity of the Plant,
Qb = Base Case Capacity, x = the Lang cost capacity exponent.
The Lang exponent is usually between 0.6 and 0.7 and can vary
from one process to another.

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