Estimating project costs

Certain cost estimating techniques are relevant to pre-feasibility studies only, and will therefore be addressed first. There are various techniques for making rough or preliminary estimates of plant cost which are particularly useful for pre-feasibility studies. The most elementary of 

The more developed techniques for preliminary estimates are based on factorization. The basis for factorization is the observation that the costs of component parts of process plants bear similar ratios to each other in different plants. 

Consider for instance the breakdown of the plant capital cost into the following (all components include the associated site construction and painting costs)  

This breakdown includes all elements of the plant, that is to say that possible other elements of breakdown (such as platework and valves) are included in the above headings (for example mechanical equipment and piping respectively). 

Now the largest of these components is invariably the mechanical equipment, and it is also the most fundamental component, being arrived at directly from the process flowsheets and process requirements. The other plant items follow from the mechanical equipment needs. So in the simplest factorization technique, the plant cost is factorized from the mechanical equipment cost, which is generally in the range of 30-45 per cent of the direct field cost, or 25-40 per cent of total cost, including indirects. 

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Furthermore, some assessment of a project s feasibility and associated risks needs to be undertaken, and RE plays a crucial role in making such an assessment. It is often possible to estimate project costs, schedules, and technical feasibility from precise specifications of requirements. It is also important that conflicts between high-level goals of an envisioned system surface early, in order to establish a system s concept of operation and boundaries. Of course, risk should be re-evaluated regularly throughout the development lifetime of a system, since changes in the environment can change the associated development risks. 

Across organizations, different methods exist to estimate project costs. The... 

The planning details will also allow the engineer to estimate the costs, which in combination with other data will allow an evaluation of the profitability of the project. 

In the feasibility phase the project is tested as a concept. Is it technically feasible and is it economically viable There may be a number of ways to perform a particular task (such as develop an oil field) and these have to be judged against economic criteria, availability of resources, and risk. At this stage estimates of cost and income (production) profiles will carry a considerable uncertainty range, but are used to filter out unrealistic options. Several options may remain under consideration at the end of a feasibility study. 

At each phase of a project cost information is required to enable decisions to be taken. In the conceptual phase these estimates may be very approximate (e.g. + 35% accuracy), reflecting the degree of uncertainty regarding both reservoir development and surface options. As the project becomes better defined the accuracy of estimates should improve. 

Produced from Co l. Estimates of the cost of producing methanol from coal have been made by the U.S. Department of Energy (DOE) (12,17) and they are more uncertain than those using natural gas. Experience in coal-to-methanol faciUties of the type and size that would offer the most competitive product is limited. The projected costs of coal-derived methanol are considerably higher than those of methanol produced from natural gas. The cost of the production faciUty accounts for most of the increase (11). Coal-derived methanol is not expected to compete with gasoline unless oil prices exceed 0.31/L ( 50/bbl). Successful development of lower cost entrained gasification technologies could reduce the cost so as to make coal-derived methanol competitive at oil prices as low as 0.25/L ( 40/bbl) (17) (see Coal conversion processes). 

Cost—benefit analyses for adult immunizations have also been performed. Influenza immunization during the period from 1971 to 1977 resulted in over 13 million more years of life at a cost of only 63 per year of life gained. Productivity gains were estimated to have a value of 250 x 10 (148). Projected costs of pneumonia have been calculated at 3.6 times the cost of vaccination, or a savings of 141 per person is achieved among those at risk for developing pneumonia or over the age of 50 years (149). 

Capital Investment Cost. The capital investment involved in a proposed project is important because it represents the money that must be raised to get the project started, is used in profitabiUty forecasts, and is reflected in the estimated manufacturing cost of a product. The capital investment is classified herein as fixed capital, working capital, and land cost. Sample capital investment estimate forms provide for separate materials (M) and labor (L) categories, or just combined M L figures. 

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. 

Estimates which are lower than actual project costs are often the result of sizable omissions of equipment, services, or auxihaiy facilities... 

Review Scheduling A review scheduhng procedure should be estabhshed that documents who is responsible for initiating the review and when the review(s) should occur during the project. The scheduling needs to balance availability of process information, review technique used, and the impact of potential review action items on project costs (i.e., early enough to minimize the cost of any potential changes to the process). The aclual amount of time needed for the review should also be stated in the procedure. On the basis of the number of project reviews required and the estimated time needed for each review, the project cost estimate should include the cost for project reviews as part of the total cost for the project. 

This means the engineer should strive to do the best job he can on each estimate, and apply adequate factors to keep the cost conservative. All project costs seem to grow as the project matures. Few projects reduce in scope or cost as more information is developed. A Rand Corporation study documents these cost increases as plans mature (Reference 1). 

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. 

As an example of this technique, the estimated equipment costs for a large coal gasification project have been correlated and programmed for a computer. Thus, it is vei7 easy to get the cost of any one piece, or of many pieces of equipment, for a coal gasification or hydrocarbon processing project once the specification sheets are completed. 

The cost of utilities is one of the most significant, yet difficult chores encountered in estimating operating costs. As discussed earlier, the amount of utilities required for both the process and the offsite areas must be estimated as accurately as possible. If utilities are generated in the project, the utilities required to operate the utility area must be included. Any increase in the project requires re-estiraating the utilities consumed in the utility area. This can result in a trial and error calculation to get the total cost of utilities. 

Environmental Cost Accounting Project cost estimating principles Return on investment calculations Project cost estimating principles... 

Take advantage of corporate experience with other Quality Management projects when preparing your cost estimate. This will provide actual costs to use as a basis for estimating the costs for developing management systems and programs. 

Once the detailed project plan has been developed, your estimates of costs and schedule in a number of areas will have firmed up ... 

The team should also measure the success of the pilot project itself— compared with the plan how long did each activity take, or how many new processes were developed, or how many programs and elements needed to be developed or upgraded compared with your plan This will allow you to reconsider the overall project cost estimate and revise it if necessary. 

Figure 1-41. Account diagram for accumulation of project costs. Cost estimates must be made to conform to same scope basis.

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. 

The cost of preparing an estimate increases from about 0.1 per cent of the total project cost for 30 per cent accuracy, to about 2 per cent for a detailed estimate with an accuracy of 5 per cent. 

Table 24.5 summarizes the cost information reported for 127 MTBE remediation technology applications. Only costs reported as total project costs are summarized in this table. Note that these include both completed and ongoing projects. Because of the wide variation in the components that were included in the reported total project costs, these data should only be used as a general reference about costs and should not be used as a sole basis to estimate costs for future MTBE remediation projects or to compare the cost of technologies. In addition, U.S. EPA prepared a more detailed... 

Project cost data were reported for 28 of the 73 bioremediation projects in the dataset these include data for both ongoing and completed projects. In most cases, the components that make up the project costs were not reported. However, it is likely that the reported costs incorporate different components, such as treatment, monitoring, design, oversight, and health and safety. Most (21 projects) of the reported costs were for ongoing projects and represent either a partial actual cost or an estimated total project cost. 

Because the area, volume, or mass treated was not consistently available for the 28 bioremediation projects, no unit costs were estimated. The cost per volume of subsurface treated was reported in one literature source33 as ranging from approximately USD222 to USD432/m3 (USD170-USD330/yd3) for in situ bioremediation in general. This source also reported unit costs for ex situ... 

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