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PLANT DESIGN AND ECONOMICS

Zahra Maghsoud(3)

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Capital sourceارصندوق پول سرمایه گذ

Repayment of borrowed capital

بازپرداخت وام

Other investments

هزینه هاي دیگر

Bonds and other capital inputجمع آوري سرمایه از طریق عقد قرارداد و پیش فروش محصولات

LoansStockوام

فروش سهام

Stockholders' dividends

سود سهامداران

Fixed capitalسرمایه ثابت

Working capitalسرمایه در گردش

Process operationتولید محصول

Total capitalسرمایه کلی

Revenuesدرآمد حاصل از فروش

Total product costهزینه تولید محصول

Gross profitسود ناخالص

Net profit after taxes, insuranceسود خالص پس از کسر مالیات و بیمه

Depreciationاستهلاك

Gross profit after depreciationسود ناخالص پس از کسر استهلاك

Net cash flowجریان پول نقد

Cash flow for industrial operations

جریان پول در سرمایه گذاري صنعتی

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FACTORS AFFECTING INVESTMENT ANDPRODUCTION COSTS

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Sources of Equipment In many cases, standard types of tanks, reactors, or other

equipment are used, and a substantial reduction in cost can be made by employing idle equipment or by purchasing second-hand equipment.

If new equipment must be bought, several independent quotations should be obtained from different manufacturers.

When the specifications are given to the manufacturers, the chances for a low cost estimate are increased if the engineer does not place overly strict limitations on the design.


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2. Price Fluctuations In our modern economic society, prices may vary widely from one

period to another, and this factor must be considered when thecosts for an industrial process are determined.

It would obviously be ridiculous to assume that plant operators orsupervisors could be hired today at the same wage rate as in 1995.

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3. Company Policies Policies of individual companies have a direct effect on costs. For

example, some concerns have particularly strict safety regulations and these must be met in every detail.

Accounting procedures and methods for determining depreciation costs vary among different companies.

The company policies with reference to labor unions should be considered, because these will affect overtime labor charges and the type of work the operators or other employees can do.


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4. Operating Time and Rate of Production The fixed costs remain constant and the

total product cost increases as the rate of production increases.

The point where the total product cost equals the total income is known as the break-even point.

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An ideal production rate for this chemical processing plant would be approximately 450,000 kg/month, because this represents the point of maximum net earnings.

By considering sales demand along with the capacity and operating characteristics of the equipment, the engineer can recommend the production rate and operating schedules that will give the best economic results.


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5. Governmental Policies the chemical engineer should understand the effects of

governmental regulations on costs.

Each company has its own methods for meeting these regulations, but changes in the laws and alterations in the national and company economic situation require constant surveillance if optimum cost conditions are to be maintained.

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Project cost & influence of design decisions ٩

As a project proceeds from initial concept through detailed design to start up: costs begin to be accumulated, particularly once procurement and

construction get underway the ability of the design engineer to influence project cost decreases

Accuracy of cost estimation

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The accuracy of an estimate depends on: The amount of design detail available. The accuracy of the cost data available. The time spent on preparing the estimate.

In the early stages of a project, only an approximate estimate will be required, and justified, by the amount of information available.

The Association for the Advancement of Cost Estimating International (AACE International) is the professional association representing the cost engineering profession in the United States.

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AACE International classifies capital cost estimates into five types according to their accuracy and purpose:

1. Order of magnitude±30-50 %

2. Preliminary±30 %

3. Definitive±10-15 %

4. Detailed±5-10 %

5. Check estimates±5-10 %


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1.Order of magnitude estimates (‘‘ballpark estimate,’’ ‘‘guesstimate,’’ ‘‘Class 5 estimate’’), accuracy typically ± 30–50%, usually based on the costs of similar processes and requiring essentially no design information. These are used in initial feasibility studies and for screening purposes.

2.Preliminary (‘‘approximate,’’ ‘‘study,’’ ‘‘feasibility,’’ ‘‘Class 4’’) estimates, accuracy typically ± 30%, which are used to make coarse choices between design alternatives. They are based on limited cost data and design detail.

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3.Definitive (‘‘authorization,’’ ‘‘budgeting,’’ ‘‘control,’’ ‘‘Class 3’’) estimates, accuracy typically ± 10–15%. These are used for the authorization of funds to proceed with the design to the point where an accurate and more detailed estimate can be made.

In a contracting organization this type of estimate could be used with a large contingency factor to obtain a price for tendering especially with experience, and where a company has cost data available from similar projects. Normally, however, an accuracy of about ± 5% would be needed and a more detailed estimate would be made, if time permitted.


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4.Detailed estimates (‘‘quotation,’’ ‘‘tender,’’ ‘‘firm estimate,’’ ‘‘contractor’s estimate,’’ ‘‘Class 2 estimate’’), accuracy ± 5–10%, 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 quotes for equipment, and a detailed breakdown and estimation of the construction cost. By this stage the contractor can usually present a list of all the items that must be purchased and can make a firm commitment to the client.

5.Check estimates (‘‘tender,’’ ‘‘as-bid,’’ ‘‘Class 1 estimate’’), accuracy ± 5–10%. This is based on a completed design and concluded negotiations on procurement of specialized items and long lead-time items.

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Plant Design and Economics for Chemical Engineers, M. S. Peters and K. D. Timmerhaus, Ch 6, page 161

ESTIMATING INFORMATION GUIDE

The cost of making a cost estimate

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Improving a cost estimate is itself a cost!

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Cost Index

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Cost indices relate present costs to past costs, and are based on data for labor, material, and energy costs.

A cost index is merely an index value for a given point in time showing the cost at that time relative to a certain base time.

Cost Index

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Cost indexes can be used to give a general estimate, but no index can take into account all factors, such as special technological advancements or local conditions.

The common indexes permit fairly accurate estimates if the time period involved is less than 10 years.

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Cost Index

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To get the best estimate, each job should be broken down into its components, and separate indices should be used for labor and materials.

It is often more convenient to use the composite indices published for various industries in the trade journals. These are weighted average indices combining the various components of costs.

Different types of cost indices

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Journal of Chemical Engineering “The Chemical Engineering Plant Cost Index (CEPCI)” or “CE” “Marshall and Swift index” or “(M&S equipment cost index)”

Oil and Gas Journal “Nelson-Farrer Refinery Construction Index” or “NF index”

Journal of Engineering News Record Construction cost index

Journal of Process Engineering Monthly cost indices

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The Chemical Engineering Plant Cost Index (CEPCI or CE)

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The four major components of this index are weighted by percentage in the following manner: equipment, machinery, and supports: 61 erection and installation labor: 22 buildings, materials, and labor: 7 engineering and supervision: 10

The major component, equipment: fabricated equipment: 37 process machinery: 14 pipe, valves, and fittings; 20 process instrument and controls; 7 Pumps and compressors: 7 electrical equipment an materials: 5 Structural supports, insulation, and paint: 10

All are based on 100=1959-1957

The Chemical Engineering Plant Cost Index (CEPCI)

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http://www.che.com

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Example 1: A centrifuge cost $95,000 in 1998. What is the cost of the same centrifuge in third quarter of 2004? Use the CE index.

Marshall and Swift cost index

The Marshall and Swift (formerly known as Marshall and Stevens) equipment index is found in each issue of the magazine Chemical Engineering and is normally divided into two categories:

The all-industry equipment index The process-industry equipment index

The Marshall and Swift indexes are based on an index value of 100 for the year 1926. These indexes take into consideration the cost of machinery and major equipment plus costs for installation, fixtures, tools, office furniture, and other minor equipment.

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Nelson-Farrer Refinery Construction Index

For oil refinery and petrochemicals projects, the Oil and Gas Journal publishes the Nelson-FarrerRefinery Construction Index (NF index). http://www.ogj.com

The Nelson-Farrer index is on a U.S. Gulf Coast basis rather than U.S. average and is more reliable than the CE index for the types of equipment used in hydrocarbon processing.

base year 1946 =100

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The discovery of oil and gas deposits along the coast and offshore, combined with easy access to shipping, have made the Gulf Coast the heart of the U.S. petrochemical industry. The coast contains nearly 4,000 oil platforms.

U.S. Gulf Coast

Construction cost index

The journal of Engineering News Record publishes a monthly construction cost index.

This is based on civil engineering projects. This index has been published since 1904 and is the oldest of all the indices.

For international projects, the journal of Process Engineering publishes monthly cost indices for several countries, including the United States, United Kingdom, Japan, Australia, and many of the EU countries.

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Use of cost indices

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The Chemical Engineering Plant Cost Index is based on four major components, which are weighted as follows:

equipment, machinery, and supports: 61 erection and installation labor: 22 buildings, materials, and labor: 7 engineering and supervision: 10

Anyone who feels this index does not best represent his situation can make up his own index by weighing the components and/or subcomponents differently.

Example 2 In June, 1969, the indexes for the major components in the Chemical

Engineering Plant Design Index were: equipment, machinery, and supports: 115.9 erection and installation labor: 127.0 buildings, materials, and labor: 121.5 engineering and supervision: 109.8

Suppose the proposed plant costs consisted mainly of warehouses and construction labor. Assume the ratios are as follows equipment, machinery, and supports: 35 erection and installation labor: 35 buildings, materials, and labor: 20 engineering and supervision: 10

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CE cost index (C.I.)equipment, machinery, and supports: 61 erection and installation labor: 22 buildings, materials, and labor: 7 engineering and supervision: 10

C.I.=120.3 C.I.=118.2

Use of cost indices

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Use of cost indices

All cost indices should be used with caution and judgment. The longer the period over which the correlation is made, the more unreliable the estimate.

Between 1970 and 1990, prices rose dramatically. Prices then grew at a more or less steady 2 to 3% per year until 2003, when high demand for fuels projects and high energy prices caused another period of steeper price inflation.

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Use of cost indices

The same are data plotted relative to the 1990 value of each index.

The NF index starts to accelerate ahead of the M&S and CE indices as fuels sector activity led price inflation from 2000 onward.

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For use with chemical-plant investment estimates, the Marshall and Swift equipment cost indexes and the Chemical Engineering plant cost indexes are recommended.

The Nelson-Farrar refinery construction index has shown a very large increase with time and should be used with caution and only for refinery construction.

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