lecture # 5 cost estimation i
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economic for engineerTRANSCRIPT
Lecture # 5
Cost estimation
Capital and Total Product Cost – part 1
1
Dr. A. Alim
ANALYSIS OF COST ESTIMATION
• Capital and Products costs estimation • Depreciation / Depletion • Taxes and EVA • Disposal of assets/capital gain
2
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th
ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
ANALYSIS OF COST ESTIMATION
Capital Costs
• Fixed capital
•Manufacturing (direct)
•Nonmanufacturing (indirect)
• Working capital
Product Costs
• Manufacturing costs
•Variable costs
• Fixed costs
•Overhead costs
• General expenses
•Administrative expenses
•Distribution & Marketing costs
•R&D
3
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th ed.
McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
ANALYSIS OF COST ESTIMATION
Analysis of Capital costs
Manufacturing fixed capital ( direct): Investment needed for the installed process equipment with all components needed for complete process operation Nonmanufacturing fixed capital (indirect): Investment needed for components not directly related to the process operation. Working capital: One month raw material and supplies, finished product in stock, cash for payment of startup expenses Typically, working capital is 10-20 % of total capital.
4
Material used in this lecture is sourced from "Plant Design and Economics for Chem.
Engineers", 5th ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering
Economics 4N04 class notes, McMaster University © 2001-2007.
ANALYSIS OF COST ESTIMATION
Breakdown of fixed capital investment items for a chemical process Table 6-1, page 234, Peters, Timmerhaus, and West
5
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th
ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
6 Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th
ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
7
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th
ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
8
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th ed.
McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
9
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers",
5th ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class
notes, McMaster University © 2001-2007.
10
Material used in this lecture is sourced from "Plant Design and Economics
for Chem. Engineers", 5th ed. McGraw Hill, © 2003 , by Peters, et al., and
also from Engineering Economics 4N04 class notes, McMaster University
© 2001-2007.
Major
Item
11
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th ed.
McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes, McMaster
University © 2001-2007.
COST ESTIMATION
Cost Components in Capital Investment
It is most common, and most important to develop as accurate as possible an estimate of purchased equipment cost. All other items can usually be estimated as a ratio of purchased equipment Cost. Often, we can use existing or old data for similar equipment, using the following two factors. Two important factors are: 1) Capacity factor (or scaling factor)…size effect 2) Inflation factor (or cost indexes)…time effect
12
Material used in this lecture is sourced from "Plant Design and Economics for
Chem. Engineers", 5th ed. McGraw Hill, © 2003 , by Peters, et al., and also
from Engineering Economics 4N04 class notes, McMaster University © 2001-
2007.
COST ESTIMATION
CAPACITY FACTOR - Converting the historical capital cost data to the current equipment using the power law.
n
B
A
B
A
FACTOR
FACTOR
COST
COST
The “factor” is selected to be a feature of the design that correlates best with the capital cost.
B = known and A = new design
13
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers",
5th ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class
notes, McMaster University © 2001-2007.
COST ESTIMATION
CAPACITY FACTOR
n
B
A
B
A
FACTOR
FACTOR
COST
COST
What is the correct factor for a shell and tube heat exchanger?
• Heat duty
• area
• number of tubes
• flow rate
n = ??
14
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th
ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
COST ESTIMATION
n
B
A
B
A
FACTOR
FACTOR
COST
COST
What is the correct factor for a shell and tube heat exchanger?
• Heat duty
• area
• number of tubes
• flow rate
n = ??
Area has the dominant effect on manufacturing cost.
Pumps -- m3/s or power
agitators -- power
distillation -- height*diameter
15 Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th ed.
McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
Rough guideline, n = 0.6
COST ESTIMATION
CAPACITY FACTOR - The power n < 1.0 (usually) !
n
B
A
B
A
FACTOR
FACTOR
COST
COST
16
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th
ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
COST ESTIMATION
17 Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th
ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
COST ESTIMATION
Purchased Equipment Costs
Extensive graphs of various equipment cost/capacity charts Are found in Peters, Timmerhaus, and West book: Material handling equipment Chapter 12 Reactor equipment Chapter 13 Heat transfer equipment Chapter 14 Separation equipment Chapter 15 Auxiliary, utility, and instrumentation Appendix B
18
Material used in this lecture is sourced from "Plant Design and Economics for
Chem. Engineers", 5th ed. McGraw Hill, © 2003 , by Peters, et al., and also from
Engineering Economics 4N04 class notes, McMaster University © 2001-2007.
19
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th
ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
20
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th
ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
COST ESTIMATION
INFLATION FACTOR (COST INDEXES) TABLES
21
Material used in this lecture is sourced from "Plant Design and Economics for Chem.
Engineers", 5th ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering
Economics 4N04 class notes, McMaster University © 2001-2007.
COST ESTIMATION
Values for Selected Indexes
22 Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers",
5th ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class
notes, McMaster University © 2001-2007.
23
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th
ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
24
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th ed.
McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
COST ESTIMATION
Types of Cost Estimates
We must balance the needed accuracy with the cost to perform.
Name Accuracy Application Nature
Order of magnitude estimate -40 to +40% Screen investments Predesign
Study estimate -30 to +30% Finalize major choices Predesign
Preliminary -20 to +20% Budget authorization Predesign
Definitive -10 to +10% Project control Design
Detailed -5 to +5% Contracting Design
As the estimate accuracy is increased, so does the cost of obtaining the estimate
25
Material used in this lecture is sourced from "Plant Design and Economics for Chem.
Engineers", 5th ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering
Economics 4N04 class notes, McMaster University © 2001-2007.
COST ESTIMATION
This useful table is available in Peters,Timmerhaus, and West and in Perry’s Handbook.
It gives a summary of the type of information needed for each level of estimate.
26 Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th ed. McGraw Hill, © 2003 , by Peters, et al., and
also from Engineering Economics 4N04 class notes, McMaster University © 2001-2007.
COST ESTIMATION
CAPITAL COST ESTIMATION
1) Detailed-Item estimate.
2) Unit cost estimate.
3) Percentage of delivered equipment cost estimate.
4) Lang factor method.
5) Power factor estimate.
6) Turnover ratio estimate
27
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers",
5th ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class
notes, McMaster University © 2001-2007.
COST ESTIMATION
CAPITAL COST ESTIMATION
1) Detailed-Item estimate: Most detailed. Often prepared by contractors. Accuracy is +/- 5 %.
2) Unit cost estimate: Relies on existing data, and uses index-corrected records and published data. Acc. +/- 10%.
3) Percentage of delivered equipment cost estimate: Once delivered equipment cost is determined, all other costs are determined as percentages of that. Acc. +/- 20%.
28
Material used in this lecture is sourced from "Plant Design and Economics for Chem.
Engineers", 5th ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering
Economics 4N04 class notes, McMaster University © 2001-2007.
29 Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th
ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
COST ESTIMATION
In the previous table (6-9) costs are expressed as percentage of purchased equipment cost. These costs are average values. If in a given situation costs of certain items are defined differently and/or more explicitly, the defined costs should be used.
30
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers",
5th ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class
notes, McMaster University © 2001-2007.
31 Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th ed.
McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
COST ESTIMATION
CAPITAL COST ESTIMATION
5) Power factor estimate: If C is the fixed capital, then
C (new) = C (old). f. (capacity new/capacity old) x
f is the cost index ratio
x is typically 0.6-0.7
32
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers",
5th ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class
notes, McMaster University © 2001-2007.
33
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers", 5th ed.
McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class notes,
McMaster University © 2001-2007.
Short ton = 2000 pounds = 0.9 metric ton
COST ESTIMATION
CAPITAL COST ESTIMATION
6) Turnover ratio estimate: TR = (gross annual sales)/(fixed capital)
values of 0.2 to 4.0; usually 1.0 to 1.25 in process industries
34
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers",
5th ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class
notes, McMaster University © 2001-2007.
COST ESTIMATION
CAPITAL COST ESTIMATION - Summary
1) Detailed-Item estimate.
2) Unit cost estimate.
3) Percentage of delivered equipment cost estimate.
4) Lang factor method.
5) Power factor estimate.
6) Turnover ratio estimate
35
Material used in this lecture is sourced from "Plant Design and Economics for Chem. Engineers",
5th ed. McGraw Hill, © 2003 , by Peters, et al., and also from Engineering Economics 4N04 class
notes, McMaster University © 2001-2007.