Capital cost estimation

Thus, if film transfer coefficients vary significantly, then Eq. (7.6) does not predict the true minimum network area. The true minimum area must be predicted using linear programming. However, Eq. (7.6) is still a useful basis to calculate the network area for the purposes of capital cost estimation for the following reasons ... 

It should be emphasized that capital cost estimates using installation factors are at best crude and at worst highly misleading. When preparing such an estimate, the designer spends most of the time on the equipment costs, which represent typically 20 to 40 percent of the total installed cost. The bulk costs (civil engineering, labor, etc.) are factored costs which lack definition. At best, this type of estimate can be expected to be accurate to 30 percent. 

Guthrie, K. M., Data and Techniques for Preliminary Capital Cost Estimating, Chem. Engg., 76 114, 1969. 

The capital cost estimates are generated by the Engineering function, often based on 50/50 estimates (equal probability of cost overrun and underrun). It is recommended that the operating expenditure is estimated based on the specific activities estimated during the field lifetime (e.g. number of workovers, number of replacement items, cost of forecast manpower requirements). In the absence of this detail it is common, though often inaccurate, to assume that the opex will be composed of two elements fixed opex and variable opex. 

Types and Accuracy of Estimates Capital-cost estimates may be required for a variety of reasons, among others to enable feasibility studies to be carried out, to enable a manufacturing company to select from alternative investments, to assist in selection from alternative designs, to provide information for planning the appropriation of capital, and to enable a contractor to bid on a new project. It is therefore essential to achieve the greatest accuracy of estimation with a minimum expenditure of time and money. 

The first stage toward producing an accurate estimate is to use a standard cost code for all construction projects. Table 9-45 shows a suitable numerical cost code, and Table 9-46 shows a typical alphabetical-numerical code. The cost-code system can be used throughout the estimating and construction stages for the collection of cost data by manual or computer methods. There are numerous types of fixed-capital-cost estimates, but in 1958 the American Association of Cost Engineers defined five types as follows ... 

TABLE 9-44 Checklist of Items for Fixed-Capital-Cost Estimates... 

Exponential Methods Rapid capital-cost estimates can be made by using capacity-ratio exponents based on existing cost data of a company or drawn from pubhshed correlations. 

Usually, the evaluation is done by in-house company personnel, a contractor, or a combination. For capital cost estimation it is difficult to beat a contractor. Fie will, of necessity, have an excellent cost-estimation group that is familiar with a wide range of processes and is on a first-... 

Additional checklists of items to include in capital cost estimates can be found in References 3 and 7. 

Prepare rough cost economics, including preliminary sizing and important details of equipment, factor to an order of magnitude capital cost estimate [34] (see also [19]), prepare a production cost estimate, and work with economic evaluation representatives to establish a payout and the financial economics of the proposed process. 

Gerrard, M. (2000) A Guide to Capital Cost Estimating, 4th edn, Institute of Chemical Engineers, Rugby. 

IChemE (1988) A New Guide to Capital Cost Estimation 3rd edn (Institution of Chemical Engineers, London). JACOBS, J. K. (1965) Hydrocarbon Proc. 44 (June) 122. How to select and specify process pumps. 

Capital cost estimates can be broadly classified into three types according to their accuracy and purpose ... 

Capital cost estimates for chemical process plants are often based on an estimate of the purchase cost of the major equipment items required for the process, the other costs being estimated as factors of the equipment cost. The accuracy of this type of estimate will depend on what stage the design has reached at the time the estimate is made, and on the reliability of the data available on equipment costs. In the later stages of the project design, when detailed equipment specifications are available and firm quotations have been obtained, an accurate estimation of the capital cost of the project can be made. 

Contingency allowance, this is an allowance built into the capital cost estimate to cover for unforeseen circumstances (labour disputes, design errors, adverse weather). Typically 5 per cent to 10 per cent of the direct costs. 

An estimate of the operating costs, the cost of producing the product, is needed to judge the viability of a project, and to make choices between possible alternative processing schemes. These costs can be estimated from the flow-sheet, which gives the raw material and service requirements, and the capital cost estimate. 

ESTRUP, C. (1972) Brit. Chem. Eng. Proc. Tech. 17, 213. The history of the six-tenths rule in capital cost estimation. 

GUTHRIE, K. M. (1969) Chem. Eng., NY 76 (March 24th) 114. Capital cost estimating. 

IChemE (2000) Guide to Capital Cost Estimation, 4th edn (Institution of Chemical Engineers, London). 

The shortcomings of capital cost estimates using installation factors are less serious in preliminary process design if used to compare options on a common basis. If used to compare options, the errors will tend to be less serious as the errors will tend to be consistent across the options. 

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