Presentation on theme: "Capital Cost Estimating for Chemical Engineers"— Presentation transcript:
1Capital Cost Estimating for Chemical Engineers David Mody
2Purpose Context of the Capital Cost Different Methods of Capital Cost Estimating
3Economics Question: Why build a chemical process? Investment Decision: Chemical plant investment or Gov’t bond?
4Project EvaluationDoes the revenue we generate warrant the initial outlay of money?
5Project Balance Sheet Summary Of The Economics Capital Cost (fixed and working)Variable CostsRaw Material Costs / lb of productBy-Product CreditsUtility CostsLabourMaintenanceDepreciationFixed Costs
6Capital Cost Estimating Also Known as the “Initial Cost”Can be a strong or weak factor to the overall economicsRequires 2 parts engineering, 1 part hand waving
7The Total Estimate DIRECT FIELD COSTS Equipment Cost INDIRECT FIELD COSTSCONTINGENCY AND FEESEquipment Costbulk materials & labour to installoff-sites (pipe racks, rail spurs …)engineering, freight, insurance, overheadfirst fill of plant, taxes, dutiesescalationTOTAL PROJECTCOST
8Types Of Estimates Educated Guess Capacity Factor Equipment Factored Semi DetailedDetailedEstimate Types:-Wild Ass Guess Estimate - Experience person + 5 minutes of thought (no eng)-Capacity Factored Estimate - modicom of enginering - useful for justifying to your boss that you should spend $ to do an equipment factored estimate-Equipment Factored Estimate--Semi and Detailed Estimates - Often called Construction Cost Estimates. Expensive and require a lot of engineering $ to complete.
9The Time Accuracy of Estimates % Time vs Estimate Accuracy & % Completion100100Work Completed90908080ProjectCapacity Factored7070Completion6060Semi Detailed5050Estimate AccuracyEquipment% Work CompletedFactored404030Construction30Detailed20Begins201010Estimate Accuracy increases as Engineering is CompletedThe Capacity factored estimate typically needs 2 to 5% of the total engineering to be done (that includes civil, mechanical, electrical, instrumentation).Since the process engineer leads the job the 2 to 5% is closer to 20 to 30% of the total engineering a process engineer will do on the jobSince percentages don’t mean much to you or me we’re going to state it in terms of tangible products that you, the process engineer, will produce.20406080100Time (% of total schedule)
10Capacity Factored Estimates The Capacity factor estimate has two reqt’s:1) The Plant you intend to build has a sister plant, at a different capacity, and2) The sister plant was built at another time and thus inflation must be dealt with.Part 1) The 6/10th’s rule - corrects capacityCost of New Plant =Capacity of New PlantCapacity of Similar Plant0.6Cost of Similar PlantX
12Capacity Factor - Cost Indices Part 2) Correct for InflationUse compound interest laws (1 + 4%)yearsChemical Engineering Plant Cost IndexLocated in the back of the McGraw Hill magazine “chemical Engineering”Ratio cost index valuesMarshall and Swift IndexIndices are dangerous to use beyond a 5 year windowchanges in technology, enviro req.'s etc.
13Capacity Factor - Cost Indices Chemical Engineering Magazine
14Capacity FactorA plant was built in 1995 with a capacity of 10 million lb/hr at a cost of $20 million. We would like to build a similar process in 2002, but with a capacity of 17.5 million lb/hr. What would the cost be?Cost in 1995 dollars = (17.5/10)0.6 * $20 million = $28.0 million
15Capacity Factor Correct for Inflation The CECPCI for 1995 was 381.1, The CECPCI for July of 2001 is and for the year We judge the CECPCI for 2002 to be 398.Therefore the cost to build the plant in 2002 is:Cost in 2002 dollars = $28.0 million * (398/381.1) = $29.2 million
16Capacity FactorOther Factors can be brought into the equation such as:location factorsweatherWhere Technology, Environmental Regulations or Safety Aspects have changed the process this estimate may not be very accurate.Test the sensitivity of the overall economics to Capital Cost
17Equipment Factored Estimates TypesLang FactorEquipment Factored, equipment costs estimated (parametric equations)Equipment Factored, with major equipment quotes
18Equipment Factored Estimates Total Capital Cost =Flang * (Sum Of Purchased Cost of Equipment)
19Equipment Factored Estimates DIRECT FIELD COSTS (50%)INDIRECT FIELD COSTS (32 %)CONTINGENCY AND FEES (15% + 3%)
20Equipment Factored Estimates Direct costs - everything associated with the equipment and it's physical installation.Equipment itselfLabour to mount and install the equipmentPiping, instrumentation around the equipmentConcrete and steelwork required to hold the equipment in placeElectrical equipment required to run the equipment.
21Equipment Factored Estimates InDirect costsFreight, insurance and taxes for the equipment construction periodConstruction overhead - vacation, sick leave, workman's compensation etc.for the labour personal an all costs associated with construction supervisory personnelAll engineering costs
22Equipment Factored Estimates Contingency - a factor to cover unforeseen circumstances.loss of time due to stormsstrikessmall changes in design, andunpredictable price increases.Fee
23Equipment Factored Estimates DIRECT FIELD COSTS (50%)Equipment (20%)Field Labour & Material to install equip. (30%)INDIRECT FIELD COSTS (32 %)CONTINGENCY AND FEES (15% + 3%)
24Equipment Factored Estimates Further refinement of the direct field costs has shown that each type of equipment (pump, column, exchanger) has a it’s own factor to obtain direct field cost.Tanks and VesselsColumns and TraysPumps and CompressorsExchangersHeatersDirect FieldCostxFactors=
26Equipment Factored Estimates Cost of the pump alone only a small fraction of the total cost to install the pump: The equipment factor allows us to account for:- typical instrumentation (1 control valve, Pressure indicators)- typical piping around the pump (manual isolation valves for maintenance)- civil costs (baseplate)- construction costs (bolting the pump up, aligning it)- electrical costs (motor controls, electrical wiring)Cost $9850Installed Cost $36,500
28Total Plant CostTotal Plant Cost = (Direct Field Cost + Stuff) x FactorsThe typical installed pump or reflux system is only a fraction of the costs also:For instance the plant could have pipe racks, buildings, cooling towers, waste treatment, flares, Sophisticated control systems all of which need to be included in the total costShow Diagram of Expone Scope
29“Off Sites” Inside Battery Limits Rail Car Loading Cooling Tower Rail SpursOffice BldgPipe RacksCooling TowerRail Car LoadingSteam BoilersFire Water SysNitrogen PlantInsideBattery Limits38
30Equipment Factored Estimates Direct Field Cost (DFC)Direct Field Labour (DFL)AllowancesIndirect Field Cost (IFC)Home Office EngineeringTotal Project Cost (ITC)0.25 x DFC1.0 to 1.6 x DFLEquipment PurchasePriceX EquipmentFactor“Off Sites” Cost1.18 x
31Example A project is composed of the following equipment: 5 pumps priced at $8000 each2 distillation columns priced at $30,000 each2 sets of distillation column trays at $20,000 each6 heat exchangers at $15,000 eachWhat is the final project cost?
33Equipment Factored Estimates Understanding What’s NOT included in the Factors is Critical!Suffers from poor accuracy if equipment is missingEquipment Factored Estimates Produce good results with the right amount of data and REALLY bad results (worse than capacity factored estimates) when you miss stuff.YOu must have ALL the equipmentItems like:spare pumps or other equipment, boilers, air compressors, large storage tanks, pipe racks , special instrumentation, office buidings ... are all NOT included.
38Detailed Estimates Equipment factored estimates are plagued by missing equipment due to inadequate design,industry averages, andhistorical numbers.Detailed EstimatesRequire Cost and Quantity ofConcrete, wire, instruments, structural steel etc. etc.Require extensive engineering effort
39Capital Costs - Working Capital Usually costs that are not lost forever (i.e. the first fill of chemicals, solvents) when the plant is shut downTypically:1 month of raw materials inventory2 to 3 months of product inventoryUsually 10 to 20 % of fixed capital
40Types Of Estimates Educated Guess Capacity Factor cost=capacity ratio0.6Equipment FactoredLang FactorIndividual Equipment factorsSemi DetailedDetailedEstimate Types:-Wild Ass Guess Estimate - Experience person + 5 minutes of thought (no eng)-Capacity Factored Estimate - modicom of enginering - useful for justifying to your boss that you should spend $ to do an equipment factored estimate-Equipment Factored Estimate--Semi and Detailed Estimates - Often called Construction Cost Estimates. Expensive and require a lot of engineering $ to complete.
46Risk AnalysisTest a range of values and determine the range of Outputs (Tornado Plots)Develop 3 scenarios“dismal decades”“best guess”“midsummer nights dream”Combine the relevant parametersDetermine an IRR and NPV under these conditions. If they still exceed minimum requirements the project is acceptable.
47Risk Analysis Probability Monte Carlo A more sophisticated method that attempts to predict statistically the probability of a range of IRRs or NPVs.requires not only the range of values but also an idea of the probability of these values occurring.For instance if we think our initial cost will be $10MM and it’s likely to be +/- 10% but unlikely to be more than +/- 50%.Probability-50%-10%+10%+50%
48Risk AnalysisThere are functions built into Excel to generate a gaussian distributed value based on random valueNORMINV(probability,mean,standard_dev)Commercial Software for Monte Carlo CalculationsRefer to programs such and Crystal Ball
49Summary Whew… it’s been a long one By now we should have A way of determining a rough capital costAn analysis of the whole SheebangSo Long….