CHT-302:

Plant Engineering and Process Economics

Cost Estimation
Dr. Rohidas Bhoi
Assistant Professor
Department of Chemical Engineering
MNIT Jaipur
 Cost Estimation
• The aim of successful plant is to earn profit.
• Net profit is defined as total income my all expenses.
• A chemical engineer must be aware of types of cost
involved in manufacturing process.
• The investment required for chemical plant may be
decided based on new plant on new site, new plant on
existing site, addition/ modification in the existing plant
• An estimate of investment plays an important role in
taking the final decision.
• A chemical engineer plays an important role in
preparing the estimate.
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Cash Flow for Industrial Operations
• Capital investment :source
and sink
• The cost shown is without
land
• Net cash flow = income –
expenses
• Gross profit
• Profit before depreciation
• Profit before tax
• Net profit
Aj=(sj - coj- dj)(1-Φ) + dj
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Cumulative Cash Position

Time value of money is neglected4

Factors Affecting Investment and Production
Cost
• Source of equipment
• Price fluctuations
• Company policies
• Operating time and rate of production
• Governmental policies

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Break Even Chart for Chemical Processing Plant
• Fixed cost remain constant
• Total product cost as
production increases
• There is steady income
through sale of product
• The point at which sales
cost is equal to production
cost is called break-even
point (BEP)
• It is desirable to operate
the plant above BEP

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 Total Capital Investments (TCI)

Fixed Capital Working Capital

Investment (FCI) Investment (WCI)
Raw material and
Manufacturing FCI supply in stock

•Equipments Finished product in

• Auxiliaries stock
•Piping
•Instrumentation
Account receivables
Non- manufacturing
FCI Cash at hand

•Land Account payable

• Buildings-Admin, Labs, Processing etc
•Warehouses
•Waste disposal etc Tax payable 7
Check List for Estimation FCI (Refer Table 1)

Direct Indirect cost

• Purchased equipment • Engineering and supervision
• Purchased equipment • Construction expenses
installation • Contractors fee
• Instrumentation and controls • Contingency
• Piping
• Electrical equipment and
materials
• Buildings and yard
improvements
• Service facilities
• Land

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Types of Capital Cost Estimate
• Order of magnitude estimate (ratio estimate)
– Based on previous cost data; accuracy level ±30%
• Study estimate (factored estimate)
– Based on the knowledge of major items of equipment; accuracy level
±30%
• Preliminary estimate (scope estimate)
– Based on sufficient data good enough to be budgeted; accuracy level
±20%
• Definitive estimate (project control estimate)
– Based on almost complete data but before finishing drawings and
specifications; accuracy level ±10%
• Detailed estimate
– Based on complete engg drawing and specifications; accuracy level
±5% 9
Types of Capital Cost Estimate
• Detailed estimate is
based on complete data
whereas order-of-
magnitude is based on
little information
• This represents two
extremes
• Based on detailed
estimate an approval
can be sought from
management
• Refer to figure 6.4
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 Cost Indexes
• A substantial time is required to prepare the estimates.
Some time it take years
• The price of items may change over this period
• To account for change in price, various cost indexes are
used to get present cost
Present cost = original cost (present index value/index value at time
original cost was obtained)

• Cost indexes can be used to give general estimate, but

can not take all the factors into account such as
technological inventions, local conditions etc.
• Indexes can be accurate if the period involved is less
than 10 years. 11
 Cost Indexes- common indexes
• Marshall and Swift all industry and process industry
– All type of process equipment cost index
– All cost reported in this text are considering Marshall and Swift
all industry index
• Engineering News-Record construction index
– Shows variation in labor rate and material cost for industrial
construction
Refer table 3
– Can be used to estimate the construction cost
• Nelson Ferrar Refinery Construction index
– Use specifically for refinery applications
• Chemical Engineering plant cost index
– it is based on many components such as equipment, labor etc.
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Cost Factors in Capital Investment(Refer Table 4)
Proportional cost of each major component of fixed capital investment

Direct Cost Indirect cost

• Purchased equipment (15-40%) • Engineering and supervision
• Purchased equipment (4-20%)
installation (6-14%) • Construction expenses
• Instrumentation and controls- (4-17%)
installed (2-12%) • Legal expenses (1-3%)
• Piping-installed (4-17%) • Contractors fee (2-6%)
• Electrical systems (2-10%) • Contingency (5-15)
• Buildings (2-18%)
• Yard improvements (2-5%)
• Service facilities-installed
(8-30%)
• Land (1-2%)
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Example 1. Estimation of fixed capital investment using
ranges of process plant component costs
Make study estimate of the fixed capital investment for a process plant if
purchased equipment cost is $100,000. Used range of process plant
component in table 4 for process plant handling both solid and fluid with a
high degree of automatic control and essentially outdoor operation

Selected % of FCI Estimated Normalised % of FCI

Components Assumed % of total Cost ($) % of total

Purchase equipment 25 100000 22.9

Purchased-equipment installation 9 36000 8.3
Instrumentation-installed 7 28000 6.4
Piping-installed 8 32000 7.3
Electrical-installed 5 20000 4.6
Buildings (including services) 5 20000 4.6
Yard improvements 2 8000 1.8
Service facilities-installed 15 60000 13.8
Land 1 4000 0.9
Engineering and supervision 10 40000 9.2
Construction expenses 12 48000 11.0
Contractor's fee 2 8000 1.8
Contingency 8 32000 7.3
109 436000 100
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Cost Factors- Purchased equipment
• Cost of equipment is basis for various pre-design
methods for estimation of cost estimates
• Various sources of equipment price
• Method of adjusting equipment price for capacity
• Methods of estimating auxiliary process equipment
• Various type of equipments
- Processing equipment
- Raw material handling and processing equipment
- Finished product handling and storage equipments

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Cost Factors- Equipment cost by scaling

6/10th rule

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Cost Factors- Equipment cost by scaling

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Cost Factors- Equipment cost by scaling

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Cost Factors- Equipment cost by scaling
• Purchased-equipment costs for vessels, tanks, and
process- and material handling equipment can often be
estimated on the basis of weight.
• The fact that a wide variety of types of equipment have
about the same cost per unit weight is quite useful,
particularly when other cost data are not available.
• Generally, the cost data generated by this method are
sufficiently reliable to permit order-of-magnitude
estimates.

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Purchased-Equipment Delivery
• Purchased equipment prices are usually quoted as FOB
(free on board) meaning that the purchaser pays the
freight
• Freight cost depends on factors like weight and size of
the equipment, distance from the source to plant and
method of transport (Air, Water, Road)
• A delivery allowance of 10% of purchased equipment
cost is recommended

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Purchased equipment installation
Installation cost for process equipment as a % of purchased
equipment cost (Table-6)
• The installation of Type of equipment Installation cost (%)

equipment involves Centrifugal separators 20-60

Compressors 30-60
–Costs for labor,
Dryers 25-60
–Foundations,
Evaporators 25-90
–Supports and platforms
Filters 65-80
– Construction expenses Heat exchangers 30-60
– Other factors directly Mechanical crystallizers 30-60
related to the erection of Metal tanks 30-60
purchased equipment
Mixers 20-40
• Installation cost account Pumps 25-60
for 20-90 % of purchased Towers 60-90
equipment cost Vacuum crystallizers 40-70
Wood tanks 30-60 21
Insulation cost
• Insulation is required, when very high or very low
temperatures are involved
• Expenses for equipment insulation and piping insulation
are often included under the respective headings of
equipment-installation costs and piping costs.
• The total cost for the labor and materials required for
insulating equipment and piping in ordinary chemical
plants is approximately 8-9% of the purchased-equipment
cost.
• This is equivalent to approximately 2 % of the total capital
investment.

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Instrumentation and controls
• Major portion of instrumentation and control cost
includes
– Instrument costs
– installation-labor costs
– expenses for auxiliary equipment
• Total depends on the amount of control required and
may amount to 6-30 % of the purchased cost for all
equipment investment
• For the normal solid-fluid chemical processing plant, a
13 % of the purchased equipment cost is normally used
to estimate the total instrumentation cost.
• This is approximately 3% of the total capital investment
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 Piping
• Pipes are basically used for steam, water, air, sewer, raw
material and products
• The cost for piping includes
– Labor - Valves
– Fittings - Pipe
– Supports and other items involved in the complete erection of
all piping used directly in the process
• The cost of piping can be as high as 80 % of equipment
cost
Estimated cost of piping
Type of process plant % of fixed capital investment
Solid (Coal briquetting plant) 4
Solid fluid (Oil exploration plant) 7
Fluid (Distillation unit) 13 24
Electrical installations
• The electrical installation consists of four major
components, namely,
– Power wiring
– Lighting
– Transformation & service and instrument & control wiring
• In ordinary chemical plants, this cost amounts to 10-
15 % of the value of all purchased equipment
• It may range to as high as 40 % of purchased-
equipment cost for a specific process plant
• The electrical installation cost is generally estimated
between 3-10 % of the fixed capital investment

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Building including services
The cost consists of expenses for
– Labor
– Materials and supplies involved in the erection of all
buildings connected with the plant
– Costs for plumbing, heating, lighting, ventilation, and similar
building services
New plant at new site New plant at existing Expansion at existing
(grass root) site (Battery limit) site
Type of plant
% PEC %FCI % PEC %FCI % PEC %FCI
Solid 68 18 25 1 15 4
Solid-Fluid 47 12 29 7 7 2
Fluid 45 10 5-18* 2-4* 6 2
* Applicable to petroleum refining 26
Refer table 10 & 11
Yard improvements
• It includes costs for fencing, grading, roads, sidewalks,
railroad sidings, landscaping, and similar items
• Its cost for chemical plants approximates 10-20% of
the purchased-equipment cost
• This is equivalent to approximately 2-5 % of the fixed-
capital investment % of fixed capital investment
Components
Range Typical values
Site clearing 0.4-1.2 0.8
Road and walks 0.2-1.2 0.6
Railroads 0.3-0.9 0.6
Fences 0.1-0.3 0.2
Lighting 0.1-0.3 0.2
Parking areas 0.1 -0.3 0.2
Landscaping 0.1-0.2 0.1
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Others 0.2-0.6 0.3
Service facilities
% of fixed capital investment
Service facilities
Range Typical values

Steam generation 2.6-6.0 3.0

Steam distribution 0.2-2.0 1.0
Water supply, cooling and pumping 0.7-3.7 1.8
Water treatment 0.5-2.1 1.3
Water distribution 0.1-2.0 1.0
Electric substation 0.9-2.6 1.3
Electric distribution 0.4-2.1 1.0
Gas supply and distribution 0.2-0.4 0.3
Air compression and distribution 0.2-3.0 1.0
Process waste disposal 0.6-2.4 1.5
Fire protection system 0.3-1.0 0.5
Safety installations 0.2-0.6 0.4 28
Land
• The cost for land, accompanying surveys and fees
depends on the location of the property
• It may vary by a cost factor per acre as high as 30-50 a
rural district and a highly industrialized area.
• As an average, land costs amount to 4-8 % of the
purchased-equipment cost or
• 1-2 % of the total capital investment
• Because the value of land usually does not decrease
with time, this cost should not be included in the fixed-
capital investment when estimating certain annual
operating cost such as depreciation
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Engineering and Supervision
% of fixed capital
• This is indirect cost investment
Components
• It is approx. 30% of Range
Typical
values
the purchased- Engineering 1.5-6.0 2.2
equipment cost or Drafting 2.0-12.0 4.8
• 8% of the total direct Purchasing 0.2-0.5 0.3
costs of the process Accounting,
plant. construction 0.2-1.0 0.3

Travel and living 0.1-1.0 0.3

Reproduction &
communications 0.2-0.5 0.2

Total 4.0-21.0 8.1

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Construction expenses (Table-15)
% of fixed capital investment • This is
Components Typical
Range
values
indirect cost
Temp construction & operations 1.0-3.0 1.7 • 10 % of the
Tool and rentals 1.0-3.0 1.5 total direct
Personnel in field 0.2-2.0 0.4 costs of the
Field payroll 0.4-4.0 1.0
process plant.
Travel and living 0.1-0.8 0.3
Tax & Insurance 1.0-2.0 1.2
Start up material & Labor 0.2-1.0 0.4
Overhead 0.3-0.8 0.5
Total 4.2-16.6 7.0

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Contractors fee
• The contractor’s fee varies for different situations, but
it can be estimated to be about 2 to 8 percent of the
direct plant cost or 1.5 to 6 percent of the fixed capital
investment

Contingency
•A factor to compensate for unpredictable events, such
as storms, floods, strikes, price changes, small design
changes, errors in estimation, and other unforeseen
expenses
•Contingency factors ranging from 5-15 % of the direct
and indirect plant costs are commonly used,
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Start up expenses
• Expenses required to start and operate the plant at
maximum design capacity.
• Expenses are made for raw material and equipments.
• Expenses may be as high as 12 % of the fixed-capital
investment
• In general an allowance of 8-10 % of the fixed-capital
investment

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Thank you

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