Factorial method capital cost

The factorial method of cost estimation is often attributed to Lang (1948). The fixed capital cost of the project is given as a function of the total purchase equipment cost by the equation ... 

The economic evaluation is an important and integral part of the overall feasibility study of the project. First, a capital cost estimate is obtained using two estimation techniques. The ratio method and factorial cost estimation techniques are used to determine separate capital cost estimates for the proposed 280 tonne/day plant. Finally an investigation into the expected return on investment from this project is performed. 

The factorial method therefore yields a capital cost estimate of Capital Cost = Fixed Costs + Working Capital = AS1 1 million + As2.45 million = AS1 3.5 million... 

The purchased cost of an item of equipment, free on board (FOB) is quoted by a supplier, and may be multiplied by a factor of 1.1 to give the approximate delivered cost. The factorial methods for estimating the total installed cost of a process plant are based on a combination of materials, labor, and overhead cost components. The fixed capital cost, C(-p, of a plant based on design can be estimated using the Lang Factor method [14] given by the equation... 

This method of calculating costs gets companies into trouble in implementing supply chain improvements. Like Acme, they base the feasibility of a labor-saving project in the factory or warehouse on 2.80, not 1.00, of savings. This could be in error by a factor of almost three In High Tech and Process, the situation is more extreme. Process is capital intensive High Tech is information intensive. There, each 1 of direct labor could absorb up to 5 of overhead. In these companies, direct labor costs 6 with the cost allocations we described for Old Line in place. And this is not an unusual situation. 

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