Cost estimation definitive

Source J. R. Polo. 1986. Cost Estimates Definitions, Types, Accuracies," IFDC Fertilizer Process Economics Training Program, June 1986. 

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. 

Since the studies under discussion have cost estimates factored from major material, secondary systems at this stage have relatively smaller impact than later when more definitive cost estimates are done. At this stage, it is well to gain a feel for the completeness of the licensor s design with respect to secondary systems. 

Land. At this point, it should be possible to determine how much land will be required. Do not forget to include things like holding ponds, environmental buffer area, camp facilities, and rights of way or easements. It may be well to allow some contingency in initial cost estimates for land requirement increases, as more definitive design information becomes available. 

Cooling Water System. A list of cooling duties will be available at this point so the cost estimate for this system can be factored or estimated based on a similar operating system. For a more definitive estimate based on initial or detailed layout, it is probably best to use a contractor or consultant skilled in these designs. If a cooling tower is involved, the groundwork will already have been set. This basis can be passed along on specification sheets provided in the Appendix to a vendor for quotes. 

Early in the life of a project, information has not been developed to allow definitive cost estimates based on material takeoff and vendor quotes for equipment. Therefore, it is necessary to estimate the cost of a facility using shortcut methods. The first step is to develop or check flow-sheets, major equipment sizes, and specification sheets as described in earlier chapters. From the equipment specification sheets, the cost of each piece of equipment is estimated, using techniques discussed later. Once the major equipment cost has been estimated, the total battery limit plant cost can he quickly estimated using factors developed on a similar project. 

Even before the optimum plant size was determined, a contractor had been selected and process design work was in progress. The contractor was selected on the basis of competitive cost plus fixed-fee bids. The contract was later converted to a turn-key type, based on the competitive-bid fixed-fee percentage and a definitive cost estimate for completion of the job. This saved about 2 months in over-all job completion time. Through duplication of equipment purchases and construction drawings, it was possible to reduce over-all completion time for three subsequent plants by as much as 8 months from the 17 months required for the first module (Fig. 2). About 29 months were required from Geld discovery to startup of the last Exxon treating facility. 

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 term contingencies covers many loopholes in cost estimation of process plants. The major loopholes include cost data inaccuracies, when applied to specific cases, and lack of complete definition of facilities required. 

As soon as the final process-design stage is completed, it, becomes possible to make accurate cost estimations because detailed equipmept specifications and definite plant-facility information are available. Direct price quotations based"... 

Eront-End Engineering and Design (FEED) focuses on obtaining accurate cost estimates for the major items of process equipment and further definition of the most sensitive parts of the overall project cost. It is denoted Eront-End because this is performed prior to final corporate board and financial approval for the overall project. EEED costs typically 5 to 10% of the overall project cost - thus for a 1,000 million project expenditure of about 100 million will be required. Only after the feasibility and FEED will the cost error be in the vicinity of +1-5%. In many instances, especially for new technology or for a remote location or offshore, the error will still be in the region of +/-10% or more. 

A Phase 1 Design is the starting point of detailed engineering and mechanical design. It is also the basis for the definitive cost estimate required for appropriation and formal project approval. 

Wishful thinking is not compatible with successful projects. Projects driven by greed are usually based on over-optimistic cost estimates, schedules, and marketing projections. They definitely are not the right project and will be doomed from the start. 

Conceptual estimates are typically prepared during the advanced R D and early process design stages. They are normally used to build the preliminary project economics, prepare preliminary execution plans, and develop cost estimates for the preparation of a complete process design (Phase 1) and a definitive cost estimate. The Phase 0 design package, described in Chapter 6, contains all the information required for conceptual estimates. See Table 9.1 for an example of a conceptual estimate. 

No matter the high degree of scope definition or the sophistication of the estimating techniques, a cost estimate is still a forecast of events to come and as such it cannot be perfectly accurate. The contingency is a bottom line addition to the cost estimate to convert it to the most likely final cost. 

Such details are only available when the estimate is based on P ID s and arrangement drawings, in other words, on definitive type-cost estimates. 

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