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Suitable Method for Capital Cost Estimation in Chemical Processes Industries

Research · September 2015

DOI: 10.13140/RG.2.1.1545.7762

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 T ECHNICAL A RTICLE
estimation method. With this method, the
design activity is progressed between 0-2
Suitable Method for Capital percent. This is the simplest method of
estimation and only needs data on plant

Cost Estimation in Chemical capacity and cost in a specified capacity. It is

a useful method during the concept
screening stages.
Processes Industries
This relationship can be shown as:
Mohammed Reza Shabani and Reza Behradi Yekta

ABSTRACT: Selection of a cost estimation method is generally dependant upon the level of
progress in engineering and design in each project. The main capital cost estimation methods
for chemical processes, together with capital cost items, are introduced in this article. The main (equation 1)
capital cost estimation methods include capacity factored, equipment factored, parametric
model, semi-detailed and detailed cost estimation. This article will show how to use cost esti- The plant cost ($B) in new capacity
mation methods in different design stages of a project. (Cap B) is simply calculated by having the
cost of plant ($A) in another capacity (Cap
KEY WORDS: Cost estimation, capital cost, and chemical industries A). It is recommend [2] that the ratio of (Cap
B) to (Cap A) must be equal or smaller than
technical and economical feasibility main items of capital cost or fixed investment 2. (e) or the exponent generally is equal to

A study is a very important item in

determining the cost of building a
chemical plant. The results of such a study
include the following [5].

• Direct Project Expenses include

0.6 but it will be greater in higher capacities
(see figure1).
As an example of using equation 1, use a
can be used by management to decide equipment f.o.b. cost (Cp), Material plant cost with a capacity of 150000 ton/yr of
whether to continue or stop a project. Study (CM) required for installation, and labor 50 million $, then according to equation 1,
results can also be used for allocating budget (CL) to install that equipment and the plant cost for the capacity of 100000
resources. material. ton/yr is:
As design progresses, the accuracy of cost • Indirect Project Expenses include
estimation increases. freight, insurance, and taxes (CFIT),
construction overhead (CO) and
At the final design stages of a project, all
items of the proposed plant are specified in contractor engineering expenses (CE).
detail. It is possible to begin taking cost • Contingency and Fee includes When the plant size is very large and the
quotations from manufactures of the needed contractor fee (CFEE) and overall exponent (e) reaches the unit level, it is
equipment. contingency (CCont.). recommended that two small plants be used
However, back at the preliminary design • Auxiliary Facilities includes site for calculations in place of one big plant.
stages, only general specifications are development (CSITE), auxiliary The two plants (A and B) must be similar
specified, and the capital cost has to be buildings (CAux.) and off sites and in process (both batch or continues), and the
estimated by using other methods. utilities (COff). product must have a relative similarity with
There are several methods to estimate each other in order to use this method.
capital cost. One method is to use factors on The cost estimated by this method is the
To create an accurate estimate of the
main equipments cost. It is very important to cost of battery-limit.
capital cost of a plant, one needs a large
know how to use these methods in different The six tenth method does not account
amount of detailed data. However, this isn’t
stages of a project design. for differences in escalation at different points
defined until the detailed design stages.
An accurate cost estimation at the in time. For this method to be useful, the two
When one is at the starting point
beginning stages of a project can provide the equipment costs or plant size data must both
(preliminary design stage) one only has
details one needs to know in deciding be from the same time period.
approximate information on things like the
whether to continue a project or reject the size of equipment.
project as being unfeasible. This can prevent Equipment Factored Estimation and
There are some cost estimation methods
an uneconomical project from being Parametric Models
that are suitable for these stages. According
continued. Class 4 in table 1 relates to the
to AACE International, there are five classes
At the end stages of a project, accurate equipment factored estimation and
for cost estimation [2]. These are dependent
cost information can be used for cost control parametric models method where the design
on the level of engineering design progress as
and bid evaluation. Different cost estimation activity is progressed between 1-15 percent.
shown in table.1.
methods will be considered in this article. This method is suitable for use during the
feasibility study stages. The accuracy ranges
Six-Tenth Power Method or Capacity
Capital Cost between -30 percent (lower limit) and +50
Factored Estimation
Capital cost includes all the capital percent (upper limit). The project is
Class 5 in table 1 relates to the six-tenth
needed to ready a plant for start up. The power method, or capacity factored authorized to continue for completion in

22 Cost Engineering Vol. 48/No. 5 MAY 2006

Table 1— Cost Estimation Classes

class 3, if good results were achieved in class determined by inserting factors on equipment Process type EF
4. cost. Use of the Lang Factor [2] is the simplest Solid 3.1
In this class, the cost of equipment is method as shown in equation 2. Solid + Fluid 3.63
multiplied by factors to estimate the total
Fluid 4.74
plant cost. The cost of equipment can be TPC = (TEC) X (E.F)
attained by direct quoting from (equation 2) Table 2— EF Values vs. Process Type
manufacturers or by estimating methods. for its installation is 2860$. The DFC factor
Equation 1 can also be used to estimate Where TPC is total plant cost, TEC is total ranges 2.4 - 4.3 (with instrument) and 2 - 3.5
the cost of equipment. The (e) value is given equipment cost and EF is a factor that relates (without instrument) for different equipment.
for some equipment as well as chemical to the process type, the EF values are given in The total direct field cost of the plant is the
processes by W.D. Bassel [1]. For equipment, table 2. sum of the DFC for each equipment and the
a key parameter such as surface area for heat total plant cost can be calculated as shown in
exchangers or flow rate for pumps is used In figure 2, a comparison of TPC costs Table 3-B on page 24.
instead of capacity as in equation 1. for different processes type is shown, the TEC
is equal to 100 in this figure. For example for a DFC equal to 100, the
The Hand method [2] is another EFE total project cost is 185.56, according to
Equipment Factored Estimation (EFE) method in which specific factors are specified equation 3 as shown in table 3-B. Referring to
Method in each discipline for equipment. An example table 4 gives one the other cost items of
In the equipment factored estimation is shown for a heat exchanger in table 3. equation 3.
(EFE) method, having the cost of main If we have a heat exchanger with 1000$ The factors in table 3 and equation 3 are
equipment, the total plant cost can be cost (f.o.b), the total direct field cost (DFC) given for illustrative purpose only. The real
values differ depending on the regional
conditions for installation. It is possible to
calculate the cost of each discipline and
compare it in different projects by this
method.

Module Costing Method

The module costing method is a very
important method of EFE that was
introduced by M.K. Guthrie [3]. It later
improved and earned many applications.
The main relation in this method is as
shown in equation 4. For other items the
related relations are given in table 5.

Figure 1— Capacity vs. Cost in the 0.6 Method

Cost Engineering Vol. 48/No. 5 MAY 2006 23

 Heat exchanger cost 1
Labor for installation 0.05
Steel structure 0.11
Piping 1.18
Electrical 0.05
Instrument 0.24
Paint 0.01
Concrete 0.11
Insulation 0.11
Total 2.86
Table 3 — Hand Factors for a Hear
Exchanger

CBM = Cp* FBM Figure 2 — TPC for Different Processes According to Lang Factor Method (TEC = 100)
(equation 4) 7 = material factor; 8 = labor factor; 9 = Which FBM0 is the module factor for
in which, freight and insurance factor; 10 = overhead non-base case, Fp is the correction factor for
CBM = Bare module cost of equipment factor; and 11 = engineering factor. pressure and Fm is the correction factor for
(direct plus indirect costs)
material. B1 and B2 are calculated on the
Cp = Equipment cost in base case (carbon The bare module cost includes the
basis of fixed investment components
steel material at atmospheric pressure) direct and indirect cost only and doesn't
(equation 6) which obtained for different
FBM = Module factor (a factor that includes include contingency and auxiliary services
equipments in specified ranges [6]. Usually
all direct and indirect costs) each component costs.
the equipment cost (CP) is obtained by
of fixed capital investment can be considered For example, if one has the cost of a heat
as a factor of equipment cost. For example exchanger in a base case (with carbon steel parametric models with a cost relation as
the required material cost (CM) is calculated material and operating at ambient pressure) shown in figure 8.
as shown in equation 5. equal to 10000 $ then for (αM = 0.7, αL =
log10 CP = K1 + K2 log10 A + K3 (log10A)2
0.37, αFIT =0.08, α0 = 0.7, αE = 0.15) the
(equation 8)
CM = αMCP bare module cost can be calculated from
(equation 5) equation 4 to equal to 31800 $. in which A is a key parameter of
equipment and the pressure correction factor
And then the FBM can be written as shown in To obtain the equipment cost in a non-
(FP)can be calculated by a relation as shown
equation 6. base case, using the following as shown in
equation 7. in equation 9.

FBM = (1+αM7) (1+ αL8+ αFIT9+ αLα0+ αE11) log10 FP = C1 + C2 log10 P + C3 (log10P)2
FBM0 = (B1 + B2FpFm)
0 0 (equation 9)
(equation 6) CBM = CP * F BM
(equation 7)
The coefficients K1, K2, K3, C1, C2, C3
are given for different equipment [5].
Direct Field Labor Cost (DFL) = 0.25 * DFC By totaling the above module cost for
Indirect Field Cost (IFC) = 1.15 * DFL equipments, the total module cost can be
Total Field Cost (TFC) = DFC + IFC (equation 3) obtained. To calculate the total plant cost one
Home-Office Cost (HOC) = 0.3 * DFC needs to add the auxiliary services and
Other Project Cost (OTC) = 0.03 * DFC + 0.15 * (TFC + HOC) contingency costs, so 15 percent of the
Total Project Cost (TPC) = OTC + TFC + HOC module cost is considered for contingency,

Table 3 B — Calculation of Total Plant Cost

Item Cost
Labor CL = αL (CP + CM) = 1 + αM) αLCP
DFC 100
Direct
Freight CFIT = αFIT (CP + CM) = 1 + αM) αFITCP IFC 28.75
TFC 128.75
Over-Head C0 = α0 CL = (1 + αM) αLα0CP HOC 30
Indirect OTC 26.8
Engineering CE = αE (CP + CM) = 1 + αM) αECP
TPC 185.56
Table 5 — Capital Cost Items as a Factor of Equipment Cost Table 4 — Cost Items of Equation 3

24 Cost Engineering Vol. 48/No. 5 MAY 2006

three percent for contractors, and 35 percent percent (lower limit) and +15 percent 3. Guthrie K.M. Process Plant
for auxiliary services. (upper limit). Estimating Evaluation and Control,
Finally, the cost of a grass root plant can 1974, ISBN.0-910460-5-1.
ifferent methods of capital cost
be calculated as shown in equation 10.

D estimation in chemical industries

were studied and reviewed in this
article. Their importance in helping to
4.

5.
Maples R.E. Petroleum Refinery
Process Economics, Second
Edition,2000, ISBN.0-87814-779-9.
Mulet A., A.B. Corripio, L.B. Evans,
(equation 10) determine if a project should go forward, or Estimate Costs of Pressure Vessels Via
if the project should be rejected, in different Correlations, Chemical Engineering,
The auxiliary services and utilities do stages was emphasized. Oct.5, 1981, page.145.
not depend on the pressure or material of This article can be useful when read as 6. Turton R., R.C. Bailie, W.B. Whiting,
the battery limit. Its cost is 35 percent of the general guidelines for junior staff members, J.A. Shaeiwitz. Analysis, Synthesis and
module cost, at a base case of (CBM , i). In all or as an abstracted collection for senior staff Design of Chemical Processes, 1998,
of the EFE methods, equipment cost is the members in process cost estimation. The ISBM 0-13-064792-6.
basis from which to multiply the factors. parametric models (cost relations) as useful
tools and can be used by companies or ABOUT THE AUTHORS
Parametric Cost Estimation Method consulting engineers in preparing proposal Mohammad Reza Shabani and Reza
A parametric model is the or tender documents. Each company has its Behradi Yekta are with the Feasibility Study
mathematical relationship between own cost data that has been prepared as part Department of the Research Institute of
equipment cost and key parameters. The of the company’s projects archives. That Petroleum Industry of Iran. Contact can be
pressure and temperature correction factors data is the starting point for using these made by sending e-mail to:
or equipment type can also be written in capital cost estimation methods. ◆ [email protected].
relationships of key parameters. By using
Technical Articles - Each month, Cost
these relationships, a preliminary cost REFERENCES Engineering journal publishes one or more peer-
estimation for equipment can be attained. 1. Baasel W.D. Preliminiary Chemical reviewed technical articles. Unless noted
One can then calculate a plant’s total cost by Engineering Plant Design, Second otherwise, these articles go through a blind peer
exerting some other factors. Edition, 1990, ISBN.0-442-23440-6. review evaluation prior to publication. Experts in
2. Dysert L.R.Sharpen Your Cost the subject area judge the technical accuracy of
The best way to obtain these the articles, advise the authors on the strengths and
relationships is through the finished project Estimation Skills, Cost Engineering,
weaknesses of their submissions, and what changes
archives of an organization. A data bank of Vol. 45, No. 6, June 2003. can be made to improve the article before
equipment costs needs to be prepared. Then publication.
use regression methods and statistical tests,
such as F and t - tests, to drive the best
models [2, 5]. By using these models, it is
possible to fastly and easily prepare
feasibility reports or bid documents.

Detailed Cost Estimation Method

Classes 3, 2 and 1 in table 1 relates to a
detailed cost estimation where the design
activity has progressed up to 100 percent. In
class 3, the design is completed to about 40
percent. The semi-detailed unit costs, with
assembly level line items, are used with
accuracy ranges between -20 percent (lower
limit) and +30 percent (upper limit). In this
class, the budget can be authorized for the
project.
In class 2 ,where the design activity is
completed to about 70 percent, the detailed
unit cost with a forced detailed take off is
used with accuracy ranges between -15
percent (lower limit) and +20 percent
(upper limit) to control or bid the tender.
And finally, in class 1, where the design
completion is up to 100 percent, the
detailed unit cost with detailed takeoff is
used to check the estimate or to bid the
tender with accuracy ranges between - 10

Cost Engineering Vol. 48/No. 5 MAY 2006 25

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