Cost estimation, accuracy

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. 

W. R. Park investigated the cost and accuracy of estimates for a projec t with a total cost of 1 million as shown in Fig. 9-41 Co.st Engi-... 

FIG. 9-41 Relationship between cost and accuracy of cost estimations. 

From a survey of early 1982, prices of a number of widely used types of process filter were collated by Hall and coworkers [Chem. Eng., 89(7), 80 (1982)]. These data are drawn together in Fig. 18-137, updated to 1995 prices. They have a claimed accuracy of 10 percent, but they should be used confidently only with study-level cost estimations ( 25 percent) at best. Cost of deliveiy to the plant can be approximated as 3 percent of the FOB price [Pikulik anciDiaz, Chem. Eng., 84(21), 106(1977)]. 

All cost estimates are based on historical costs accumulated from previous projects. This history can be in-house, from vendors, or from the literature. The accuracy of an estimate depends on how completely the project is defined, and on how well the costs from previous projects have been analyzed and correlated. If your company does not have good (or any) past project records, the literature abounds with correlations of cost data, as discussed later. However, this data must be used very carefully. 

A key aspect in most cost estimation studies is the evalutUion of the cost of individual pieces of equipment. In addition to quotations from equipment manufacturers, there are several methods for developing cost estimates. For a typical conceptual design, it is normally acceptable to develop an order of magnitude or preliminary estimate whose accuracy is within -h/— 25 to 50%. The following methods may be employed to develop order of magnitude estimates ... 

These indices are used to up-date costs when values at some date are know n. The new costs are of estimating accuracy and should be verified w henever possible, just as the results of using the 0.6 power for correlating cost and capacity. 

The format of the cost estimate is just as important as the content The format can make a difference when proving whether or not the content is accurate. Therefore, the refiner should require that the cont tor present cost estimates in a format that is easy to understand and analyze. In addition, the refiner s cost engineer should independently review the cost estimate to ensure its accuracy and applicability, and also to determine the conting y amounts that the owner should maintain in his funding plans. 

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

Preliminary (approximate) estimates, accuracy typically 30 per cent, which are used in initial feasibility studies and to make coarse choices between design alternatives. They are based on limited cost data and design detail. 

Detailed (Quotation) estimates, accuracy 5-10 per cent, which are used for project cost control and estimates for fixed price contracts. These are based on the completed (or near complete) process design, firm quotations for equipment, and a detailed breakdown and estimation of the construction cost. 

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. 

The accuracy and reliability of an estimate can be improved by dividing the process into sub-units and using factors that depend on the function of the sub-units see Guthrie (1969). In Guthrie s detailed method of cost estimation the installation, piping and... 

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 represents typically 20 to 40% of the total installed cost. The bulk costs (civil engineering, labor, etc.) are factored costs that lack definition. At best, this type of estimate can be expected to be accurate to 30%. To obtain greater accuracy requires detailed examination of all aspects of the investment. Thus, for example, to estimate the erection cost... 

The task to be solved is mainly accomplished by analysing the literature and archive documents available. At the same time the reconnaissance of the geotechnical surveys are essential. This allows for accurate selection of the most appropriate area for a pipeline. At this stage the accuracy of the total cost estimate for the pipeline construction is within 30-50%. 

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

The range of accuracy generally accepted for preliminary, pre-conceptual categories of cost estimates (estimates based on less than 10% design progress) is +40%. Given that additional factor, one cannot conclude a cost advantage for any one production cycle. 

ASPEN 1s intended to provide cost estimates of the preliminary study grade with accuracies in the range of +/- 30<. 

Finding 5-1. Hydrogen from central station plant natural gas or coal, used in fuel cell vehicles, can be roughly cost-equivalent to gasoline in a hybrid electric vehicle, on a gasoline-efficiency-adjusted (GEA) basis. For natural gas and coal, the differences between current and possible future technologies are relatively small, in comparison to the committee s estimation accuracy. 

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