COST ESTIMATION

Pricing Terminology

FOB cost.
The cost of the crated, fabricated equipment loaded onto a carrier at the location of fabrication (or another specified location). The acronym FOB stands for free-on-board, meaning the equipment has been placed on board the carrier without an additional loading charge, e.g., FOB Pittsburgh. Such a cost does not include tax, duties, freight, and delivery costs.

Cash flow for industrial operations

Cash flow neglecting time value of money.

Project cash flow

Point D is known as the break-even point and the time to reach the break-even point is called the payback time. (In a different context, the term breakeven point is also sometimes used for the percentage of plant capacity at which the income equals the cost for production.)

AB investment required to design the plant. BC capital to build the plant and startup, including working capital. CD. The net cash flow is now positive, but the cumulative amount remains negative until the investment is paid off. DE cumulative cash flow is positive. The project is earning a return on the investment. EF Toward the end of project life, the rate of cash flow may tend to fall off, due to increased operating costs and falling sales volume and price due to obsolescence of the plant,

Total production cost

Total production cost

= Direct Costs(1) + Indirect Costs(2) + General Cost(3)

(1)Direct Costs
utilities
Steam Electricity Fuel Refrigeration Water Inert gas Compressed air

+
Waste Treatment Operating Supplies Maintenance Supplies Operating Labor, Supervision Maintenance Labor, Supervision Quality Control Royalties

(2)Indirect Costs Fixed Costs

Depreciation Property Taxes Insurance Rent

Plant Overhead Costs

Indirect Labor, Supervision Fringe Benefits Medical Facilities Fire, Safety, Security Waste Treatment Facilities Packaging Facilities Restaurant Facilities Recreation Facilities Salvage Services Quality Control Laboratories Shipping, Receiving Facilities Storage Facilities Maintenance Facilities

(3)General Costs
Administrative
Executive Clerical Engineering Legal Communications

Marketing Costs
Sales Advertising Product Distribution Technical Sales Service

Financing Cost Research and Development

Calculation Procedure for Production Cost

Direct Cost

Code C

------Contd.------

------Contd.------

Direct Cost

Code C

b. Fixed Capital Cost = Depreciable Capital Cost + Land Cost + Land Development Cost

Indirect Cost

Code C

c. Salvage fraction, fs, is the fraction of the original depreciable capital cost

General Costs

Code C

Production Cost = Total of the Above Items

d. Numerical factor is from Reference 1. e. Working Capital = 0.20 x (Fixed Capital Cost) f. Interest is at the current rate

Estimation of total product cost

Code C

Estimation of total product cost

The values given can vary depending on many factors, such as plant location, type of process, and company policies. I. Manufacturing cost = direct production costs + fixed charges + plant overhead costs A. Direct production costs (about 60% of total product cost) 1 . Raw materials (10-50% of total product cost) 2 . Operating labor (10-20% of total product cost) 3 . Direct supervisory and clerical labor (10-25% of operating labor) 4 . Utilities (10-20% of total product cost) 5. Maint. and repairs (2-10% of fixed-capital investment) 6 . Operating supplies (10-20% of cost for maintenance and repairs, or 0.5-1% of fixed capital investment) 7 . Laboratory charges (10-20% of operating labor) 8. Patents and royalties (0-6% of total product cost) ----contd----

Code C

----contd----

B. Fixed charges (10-20% of total product cost) 1. Depreciation (depends on life period, salvage value, and method of calculation-about 10% of fixed-capital investment for machinery and equipment and 2-3% of building value for buildings) 2 . Local taxes (1-4% of fixed-capital investment) 3. Insurance (0.4-1% of furedcapital investment) 4. Rent (8-12% of value of rented land and buildings) C. Plant-overhead costs (50-70% of cost for operating labor, supervision, and maintenance, or 5-15% of total product cost); includes costs for the following: general plant upkeep and overhead, payroll overhead, packaging, medical services, safety and protection, restaurants, recreation, salvage, laboratories, and storage facilities.
----contd----

Code C

II. General expenses = administrative costs + distribution and selling costs + research and development costs A. Administrative costs (about 15% of costs for operating labor, supervision, and maintenance, or 2-6% of total product cost); includes costs for executive salaries, clerical wages, legal fees, office supplies, and communications B. Distribution and selling costs (2-20% of total product cost); includes costs for sales offices, salesmen, shipping, and advertising C . Research and development costs (2-5% of every sales dollar or about 5% of total product cost) D. Financing (interest)* (0-10% of total capital investment) III. Total product cost** = manufacturing cost + general expenses IV. Gross earnings cost (gross earnings = total income - total product cost; amount of gross earnings cost depends on amount of gross
earnings for entire company and income-tax regulations; a general range for gross-earnings cost is 30-40% of gross earnings) *Interest on borrowed money is often considered as a fixed charge. **A contingency factor can be included by increasing the total product cost by 15%.

----contd----

Code C

FACTORS AFFECTING INVESTMENT AND PRODUCTION COSTS

FACTORS AFFECTING INVESTMENT AND PRODUCTION COSTS

o o o

Sources of Equipment: cost may be reduced by

employing idle equipment, purchasing second-hand equipment, If new equipment must be bought, the chances for a low cost estimate are increased if the design specifications are not overly strict Price Fluctuations: prices increase with time and inflation rate; decrease with recession Company Policies: safety regulations, accounting procedures and
methods for determining depreciation costs, labor-union policies, etc.

Operating Time and Rate of Production: fraction of the

total available time during which the process is in operation affects the labor, maintenance, protection, and depreciation costs

Governmental Policies: import and export tariff regulations,

restrictions on permissible depreciation rates, income-tax rules, and environmental regulations.

break-even point
point where the

total product cost

equals the

total income
The point of maximum net earnings at the production rate approximately 450,000 kg/month

Estimation of capital investment

Estimation of capital investment

values given can vary depending on many factors, such as plant location, type of process, complexity of instrumentation, etc. I. Direct costs = material and labor involved in actual installation of complete facility (70-85% of fixed-capital investment) A. Equipment + installation + instrumentation + piping + electrical + insulation + painting (50-60% of fixed-capital investment) 1. Purchased equipment (15-40%of fixed-capital investment) 2. Installation, including insulation and painting (25-55% of purchased equipment cost) 3. Instrumentation and controls, installed (6-30% of purchased equipment cost) 4. Piping, installed (10-80% of purchased-equipment cost) 5. Electrical, installed (10-40% of purchased equipment cost)

Code C

Components of project costs and revenues

Fixed Capital Investment [FCI]
is the total cost of designing, constructing, and installing a plant and the associated modifications needed to prepare the plant site. FCI is made up of 1. The inside battery limits (ISBL) investmentthe cost of the plant itself; 2. The modifications and improvements that must be made to the site infrastructure, known as offsite or OSBL investment; 3. Engineering and construction costs; 4. Contingency charges.

ISBL Plant Costs

include the cost of procuring and installing all the process equipment that makes up the new plant.

Direct field costs include

1. All the major process equipment, such as vessels, reactors, columns, furnaces, heat exchangers, coolers, pumps, compressors, motors, fans, turbines, filters, centrifuges, dryers, etc., including field fabrication and testing if necessary; 2. Bulk items, such as piping, valves, wiring, instruments, structures, insulation, paint, lube oils, solvents, catalysts, etc.; 3. Civil works such as roads, foundations, piling, buildings, sewers, ditches, embankments*, etc.; 4. Installation labor and supervision.
1. a bank, mound, dike, or the like, raised to hold back water, carry a * roadway, etc. 2. the action of embanking.

ISBL Plant Costs- contd.

Indirect field costs include:
1. Construction costs such as construction equipment rental, temporary construction (rigging, trailers, etc.), temporary water and power, construction workshops, etc.; 2. Field expenses and services such as field canteens, specialists costs, overtime pay, and adverse weather costs; 3. Construction insurance; 4. Labor benefits and burdens (Social Security, workers compensation, etc.); 5. Miscellaneous overhead items such as agents fees, legal costs, import duties, special freight costs, local taxes, patent fees or royalties, corporate overheads, etc.
It is important to define the ISBL scope carefully, as other project costs are often estimated from ISBL cost. The overall project economics can be badly miscalculated if the ISBL scope is poorly defined.

Offsite cost or OSBL investment

includes [costs of the additions that must be made to the site
infrastructure to accommodate adding a new plant or increasing the capacity of an existing plant]:

Electric main substations, transformers, switchgear, and power lines; Power generation plants, turbine engines, standby generators; Boilers, steam mains, condensate lines, boiler feed water treatment plant, supply pumps; Cooling towers, circulation pumps, cooling water mains, cooling water treatment; Water pipes, water demineralization, waste-water treatment plant, site drainage, and sewers - contd.-----

- contd.-----

Air separation plants to provide site nitrogen for inert gas, nitrogen lines; Dryers and blowers for instrument air, instrument air lines; Pipe bridges, feed and product pipelines; Tanker farms, loading facilities, conveyors, docks, warehouses, railroads, lift trucks; Laboratories, analytical equipment, offices, canteens, changing rooms, central control rooms; Workshops and maintenance facilities; Emergency services, firefighting equipment, fire hydrants, medical facilities, etc.; Site security, fencing, gatehouses, and landscaping.

For petrochemical projects, offsite costs are usually between 20% and 50% of ISBL cost, and 40% is usually used as an initial estimate if no details of the site are known.[greenfieldor brownfield site]

Engineering Costs
sometimes referred to as home office costs or contractor charges, include the costs of detailed design and other engineering services required to carry out the project: 1. Detailed design engineering of process equipment, piping systems, control systems and offsites, plant layout, drafting, cost engineering, scale models, and civil engineering; 2. Procurement of main plant items and bulks; 3. Construction supervision and services; 4. Administrative charges, including engineering supervision, project management, expediting, inspection, travel and living expenses, and home office overheads; 5. Bonding; 6. Contractors profit. A rule of thumb for engineering costs is 30% of ISBL plus OSBL cost for smaller projects and 10% of ISBL plus OSBL cost for larger projects.

Contingency Charges
Contingency charges are extra costs added into the project budget to allow for variation from the cost estimate. Changes in project scope Changes in prices (e.g., prices of steel, copper, catalyst, etc.) Currency fluctuations Labor disputes Subcontractor problems and Other unexpected problems. A minimum contingency charge of 10% of ISBL plus OSBL cost should be used on all projects. If the technology is uncertain, then higher contingency charges (up to 50%) are used.

Working Capital
1. Value of raw material inventoryusually estimated as 2 weeks delivered cost of raw materials 2. Value of product and byproduct inventoryestimated as 2 weeks cost of production 3. Cash on handestimated as 1 weeks cost of production; 4. Accounts receivableproducts shipped but not yet paid for estimated as 1 months cost of production; 5. Credit for accounts payablefeedstocks, solvents, catalysts, packaging, etc. received but not yet paid forestimated as 1 months delivered cost; 6. Spare parts inventoryestimated as 1% to 2%of ISBL plus OSBL investment cost.

Working capital estimation

Sum of items 1 through 5 is roughly 7 weeks cost of production minus 2 weeks feedstock costs (item 5 is a credit). Working capital can vary from as low as 5% of the fixed capital for a simple, single product process, with little or no finished product storage, to as high as 30% for a process producing a diverse range of product grades for a sophisticated market, such as synthetic fibers. A typical figure for petrochemical plants is 15% of the fixed capital (ISBL plus OSBL cost). Working capital is better estimated from the cost of production rather than capital investment. It is recovered at the end of the plant life.

Variable Costs of Production

Variable costs of production are costs that are proportional to the plant output or operation rate. 1. Raw materials consumed by the process; 2. Utilitiesfuel burned in process heaters, steam, cooling water, electricity, raw water, instrument air, nitrogen, and other services brought in from elsewhere on the site; 3. Consumablessolvents, acids, bases, inert materials, corrosion inhibitors, additives, catalysts, and adsorbents that require continuous or frequent replacement; 4. Effluent disposal; 5. Packaging and shippingdrums, bags, tankers, freight charges, etc. Variable costs can usually be reduced by more efficient design or operation of the plant.

Fixed Costs of Production

are incurred regardless of the plant operation rate or output. If the plant decreases its production, these costs are not reduced. Fixed costs include 1. Operating. 2. Supervisionusually taken as 25% of operating labor. 3. Direct salary overheadusually 40 to 60% of operating labor plus supervision 4. Maintenance, which includes both materials and labor, and is typically estimated as 3 to 5% of ISBL investment, depending on the expected plant reliability. Plants with more moving equipment or more solids handling usually require higher maintenance. - contd.-----

- contd.-----

5. Property taxes and insurancetypically 1 to 2% of ISBL fixed capital. 6. Rent of land (and/or buildings)typically estimated as 1 to 2% of ISBL plus OSBL investment. Most projects assume land is rented rather than purchased, but in some cases the land is bought and the cost is added to the fixed capital investment and recovered at the end of the plant life. 7. General plant overhead: charges to cover corporate overhead functions such as human resources, research and development (R&D), information technology, finance, etc. Oil refining companies that carry out minimal R&D have much lower overhead than pharmaceuticals manufacturers. Plant overhead is typically taken as 65% of total labor (including supervision and direct overhead) plus maintenance. - contd.-----

- contd.-----

8. Allocated environmental charges to cover superfund paymentstypically 1% of ISBL plus OSBL cost. 9. Running license fees and royalty paymentsi.e., those not capitalized at the start of the project. 10. Capital chargesthese include interest payments due on any debt or loans used to finance the project, but do not include expected returns on invested equity capital. 11. Sales and marketing costsin some cases these are considered part of general plant overhead. They can vary from almost zero for some commodities to millions of dollars a year for branded items such as foods, toiletries, drugs, and cosmetics.
- contd.-----

- contd.-----

Fixed costs are also a strong disincentive for building small plants. As plant size is increased, labor, supervision, and overhead costs usually do not increase; hence, the fixed cost per pound of product decreases. This, together with economies of scale in capital investment, gives larger plants more flexibility to reduce prices and hence force smaller plants out of business during downturns in the business cycle. Fixed costs are not easily influenced by better design or operation of the plant, other than improvements that allow the plant to be operated safely with a smaller workforce. Fixed costs are more amenable to control at the corporate level than the plant level.

Revenues
are the incomes earned from sales of main products and byproducts. Some byproducts are produced by the main reaction stoichiometry and are unavoidable unless new chemistry can be found. These stoichiometric byproducts must usually be sold for whatever price they can get; otherwise, waste disposal costs will be excessive. Other byproducts are produced from feed impurities or by nonselective reactions. The decision to recover, purify, and sell; recycle or otherwise attenuate; or dispose of them as wastes is an important design optimization problem

Margins
Sum of product and byproduct revenues minus raw material costs is known as the gross margin (or sometimes product margin or just margin). Gross margin=Revenues - Raw materials costs

Profits
The cash cost of production (CCOP) is the sum of the fixed and variable production costs: CCOP = VCOP + FCOP Where: VCOP = sum of all the variable costs of production minus byproduct revenues; FCOP = sum of all the fixed costs of production. Gross profit = Main product revenues CCOP gross profit includes all the other variable costs in addition to raw materials, and also includes fixed costs and byproduct revenues. Net profit = gross profit taxes Total cost of production: TCOP = CCOP + ACC ACC = annual capital charge

ESTIMATING CAPITAL COSTS

ESTIMATING CAPITAL COSTS

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. 3. Definitive (authorization, budgeting, control, Class 3) estimates, accuracy typically 1015%. 4. Detailed estimates (quotation, tender, firm estimate, contractors estimate,Class 2 estimate), accuracy 510%, which are used for project cost control and estimates for fixed price contracts. 5. Check estimates (tender, as-bid, Class 1 estimate), accuracy 510%.This is based on a completed design and concluded negotiations on procurement of specialized items and long lead-time items

Code C

Code N

Code N

COST INDEXES
is merely an index value for a given point in time showing the cost at that time relative to a certain base time. If the cost at some time in the past is known, the equivalent cost at the present time can be determined by multiplying the original cost by the ratio of the present index value to the index value applicable when the original cost was obtained

- contd.-----

- contd.-----

Cost indexes give a general estimate, do not take into account all factors, such as special technological advancements or local conditions. common indexes permit fairly accurate estimates if the time period involved is less than 10 years.

Types of cost indexes

Many different types of cost indexes are published regularly. these can be used for estimating equipment costs; labor, construction, materials, or other specialized fields.

most common of these indexes

Marshall and Swift all-industry and processindustry equipment indexes, Engineering News-Record construction index, Nelson-Farrar refinery construction index, Chemical Engineering plant cost index. Code

Marshall and Swift all-industry and process-industry equipment indexes

Published monthly in the journal Chemical Engineering

Code A

Engineering News-Record construction index

The journal Engineering News Record publishes this monthly construction cost index. This is based on civil engineering projects and is sometimes used for updating offsite costs. This index has been published since 1904 and is the oldest of all the indices.

Code A

Nelson-Farrer Refinery Construction Index (NF index).

Is for oil refinery and petrochemicals projects, The Oil and Gas Journal publishes the NelsonFarrer Refinery Construction Index (NF index). This index is updated monthly, and indices for 40 types of equipment are updated quarterly. This 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. should be used with caution and only for refinery construction.

Code A

Chemical Engineering Plant Cost Index (CEPCI)

also referred to as the CE index A composite index for the United States process plant industry Published monthly in the journal Chemical Engineering

Code A

Code C

Other Indexes and Analysis

Cost indexes for materials and labor for various types of industries are published monthly by the U.S. Bureau of Labor Statistics in the Monthly Labor Review. Engineering Costs and Production Economics. This presents cost indexes for plant costs for various countries Index reflects average changes. Two indexes covering the same types of projects may give results that differ considerably

Code C

Estimating Equipment Costs by Scaling

six-tenths-factor rule

Cost of equipment a & b = ISBL cost of equipment

Typical exponents for equipment cost vs. capacity

Code C

Purchased-Equipment Installation
The installation of equipment involves costs for labor, foundations, supports, platforms, construction expenses related to the erection of purchased equipment

Code C

Installation cost for equipment as a percentage of the purchased-equipment cost

Code C

Code C

Insulation Costs
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 to 9 percent of the purchased-equipment cost. This is equivalent to approximately 2 percent of the total capital investment.

Code C

Instrumentation and Controls

Instrument costs, installation-labor costs, and expenses for auxiliary equipment and materials depends on the amount of control required and may amount to 6 to 30 percent of the purchased cost for all equipment [ may amount to 50 to 70 percent of the purchased cost, with the installation charges being approximately equal to the cost for accessories] For the normal solid-fluid chemical processing plant, a value of 13 percent of the purchased equipment is normally used [approximately 3 percent of the total capital investment]

Code C

Piping
The cost for piping covers labor, valves, fittings, pipe, supports, and other items involved in the complete erection of all piping used directly in the process. This includes raw-material, intermediateproduct, finished-product, steam, water, air, sewer, and other process piping. Since process-plant piping can run as high as 80 percent of purchased-equipment cost or 20 percent of fixed-capital investment

Code C

Code C

Electrical Installations
10 to 15 percent of the value of all purchased equipment. 3 and 10 percent of the fixed capital investment.

Code C

Buildings Including Services

The cost for buildings including services 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 are included

Code C

Yard Improvements
10 to 20 percent of the purchased-equipment cost. 2 to 5 percent of the fixed-capital investment.

Typical variation in percent of fixed-capital investment for yard improvements

Code N

Service Facilities
Utilities for supplying steam, water, power, compressed air, and fuel. Waste disposal, fire protection, and miscellaneous service items, such as shop, first aid, and cafeteria equipment and facilities 30 to 80 percent of the purchased-equipment cost with 55 percent representing an average for a normal solid-fluid processing plant

Typical variation in percent of fixed-capital investment for service facilities

Code N

Land
As a rough average, land costs for industrial plants amount to 4 to 8 percent of the purchased-equipment cost or 1 to 2 percent of the total capital investment. this cost is not included in the fixed-capital investment when estimating certain annual operating costs, such as depreciation.

Code N

Engineering and Supervision

Code N

Construction Expense
This expense item is occasionally included under equipment installation, or more often under engineering, supervision, and construction. For ordinary chemical-process plants the construction expenses average roughly 10 percent of the total direct costs for the plant.

Code N

Contractors Fee
The contractors 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.

Contingencies
capital investment to compensate for unpredictable events, such as storms, floods, strikes, price changes, small design changes, errors in estimation, and other unforeseen expenses, which previous estimates have statistically shown to be of a recurring nature. This factor may or may not include allowance for escalation. Contingency factors ranging from 5 to 15 percent of the direct and indirect plant costs are commonly used, with 8 percent being considered a fair average value.

Startup Expense
Changes that have to be made before the plant can operate at maximum design conditions. These changes involve expenditures for materials and equipment and result in loss of income while the plant is shut down or is operating at only partial capacity. Capital for these startup changes should be part of any capital appropriation because they are essential to the success of the venture These expenses may be as high as 12 percent of the fixed-capital investment. In general, however, an allowance of 8 to 10 percent of the fixed-capital investment for this item is satisfactory. Startup expense is not necessarily included as part of the required investment; so it is not presented as a component in the summarizing Table 26 for capital investment at the end of this chapter. In the overall cost analysis, startup expense may be represented as a one-time-only expenditure in the first year of the plant operation or as part of the total capital investment depending on the company policies.

Code C

Methods for estimating capital investment

METHOD A DETAILED-ITEM ESTIMATE METHOD B UNIT-COST ESTIMATE METHOD C PERCENTAGE OF DELIVERED-EQUIPMENT COST METHOD D LANG FACTORS FOR APPROXIMATION OF CAPITAL INVFSTMENT. METHOD E POWER FACTOR APPLIED TO PLANTCAPACITY RATIO METHOD F INVESTMENT COST PER UNIT OF CAPACITY METHOD G TURNOVER RATIOS

Code Relationship between two estimating proceduresN

Breakdown of fixed-capital investment items for a chemical process

Direct Costs
1. Purchased equipment All equipment listed on a complete flow sheet Spare parts and noninstalled equipment spares Surplus equipment, supplies, and equipment allowance Inflation cost allowance Freight charges Taxes, insurance, duties Allowance for modifications during startup 2. Purchased-equipment installation Installation of all equipment listed on complete flow sheet Structural supports, insulation, paint 3. Instrumentation and controls Purchase, installation, calibration, computer tie-in

Code C

4. Piping Process piping-carbon steel, alloy, cast iron, lead, lined, aluminum, copper, ceramic, plastic, rubber, reinforced concrete Pipe hangers, fittings, valves Insulation-piping, equipment 5. Electrical equipment and materials Electrical equipment -switches, motors, conduit, wire, fittings, feeders, grounding, instrument and control wiring, lighting, panels Electrical materials and labor 6. Buildings (including services) Process buildings-substructures, superstructures, platforms, supports, stairways, ladders, access ways, cranes, monorails, hoists, elevators Auxiliary buildings-administration and office, medical or dispensary, cafeteria, garage, product warehouse, parts warehouse, guard and safety, fire station, change house, personnel building, shipping office and platform, research laboratory, control laboratory

Code C

Maintenance shops-electric, piping, sheet metal, machine, welding, carpentry, instrument Building services-plumbing, heating, ventilation, dust collection, air conditioning, building lighting, elevators, escalators, telephones, intercommunication systems, painting, sprinkler systems, fire alarm 7. Yard improvements Site development-site clearing, grading, roads, walkways, railroads, fences, parking areas, wharves and piers, recreational facilities, landscaping 8. Service facilities Utilities-steam, water, power, refrigeration, compressed air, fuel, waste disposal Facilities-boiler plant incinerator, wells, river intake, water treatment, cooling towers, water storage, electric substation, refrigeration plant, air plant, fuel storage, waste disposal plant, environmental controls, fire protection

Code C

Nonprocess equipment-office furniture and equipment, cafeteria equipment, safety and medical equipment, shop equipment, automotive equipment, yard material-handling equipment, laboratory equipment, locker-room equipment, garage equipment, shelves, bins, pallets, hand trucks, housekeeping equipment, fire extinguishers, hoses, fire engines, loading stations Distribution and packaging-raw-material and product storage and handling equipment, product packaging equipment, blending facilities, loading stations 9. Land Surveys and fees Property cost

Code C

Indirect costs
1. Engineering and supervision Engineering costs-administrative, process, design and general engineering, drafting, cost engineering, procuring, expediting, reproduction, communications, scale models, consultant fees, travel Engineering supervision and inspection 2. Construction expenses Construction, operation and maintenance of temporary facilities, offices, roads, parking lots, railroads, electrical, piping, communications, fencing Construction tools and equipment Construction supervision, accounting, timekeeping, purchasing, expediting Warehouse personnel and expense, guards Safety, medical, fringe benefits Permits, field tests, special licenses Taxes, insurance, interest 3. Contractors fee 4. Contingency

Code C

METHOD A: DETAILED-ITEM ESTIMATE

Equipment and material needs are determined from completed drawings and specifications and are priced either from current cost data or preferably from firm delivered quotations. Estimates of installation costs are determined from accurate labor rates, efficiencies, and employee-hour calculations.
Accurate estimates of engineering, drafting, field supervision employee-hours, and field-expenses must be detailed in the same manner. Site development and construction cost estimates. Because of the extensive data necessary and the large amounts of engineering time required to prepare such a detailed-item estimate, this type of estimate is almost exclusively only prepared by contractors bidding on lump-sum work from finished drawings and specifications

Code C

METHOD B: UNIT-COST ESTIMATE

Is used for preparing definitive and preliminary estimates gives good estimating accuracies for fixed-capital investment provided accurate records have been kept of previous cost experience. requires detailed estimates of purchased price obtained either from quotations or index-corrected cost records and published data. Equipment installation labor is evaluated as a fraction of the delivered-equipment cost. Costs for concrete, steel, pipe, electricals, instrumentation, insulation, etc., are obtained by take-offs from the drawings and applying unit costs to the material and labor needs. A unit cost is also applied to engineering employee-hours, number of drawings, and specifications.

Code C

A factor for construction expense, contractors fee, and contingency is estimated from previously completed projects and is used to complete this type of estimate.

Code N

METHOD C: PERCENTAGE OF DELIVEREDEQUIPMENT COST

for estimating the fixed or total-capital investment requires determination of the delivered-equipment cost. The other items included in the total direct plant cost are then estimated as percentages of the deliveredequipment cost. The additional components of the capital investment are based on average percentages of the total direct plant cost, total direct and indirect plant costs, or total capital investment.

Code N

Ratio factors for estimating capital-investment items based on delivered equipment cost are given in Table below

Values presented are applicable for major process plant additions to an existing site where the necessary land is available through purchase or present ownership. The values are based on fixed-capital investments ranging from under $1 million to over $20 million.

Code N

Correction factors for operating pressure, operating temperature, and material of construction to apply for fixed-capital investment of major plant items

Code N

WORTHITE is a high nickel-chromium acid-resisting steel for the chemical and process industries. ASM SS-24

Code N

Code N

Code N

METHOD D: LANG FACTORS FOR APPROXIMATION OF CAPITAL INVFSTMENT

used quite frequently to obtain order-ofmagnitude cost estimates these factors include costs for land and contractors fees

Code N

Code N

log fF = 0.635 - 0.154log0.00lE - 0.992 e/E + 0.506 fo/E log fp = -0.266 - 0.0141og0.00lE - 0.156 e/E + 0.556 p/E log fm = 0.344 + 0.033 log0.001E + 1.194 t/E

Code N

METHOD E:POWER FACTOR APPLIED TO PLANT-CAPACITY RATIO

Cn=C(R)x X=0.6 to o.7

A closer approximation for this relationship which involves the direct and indirect plant costs has been proposed as for a new similar single-process plant at a new location with a different capacity and with the same number of process units

Code N

For estimates of fixed-capital investment are desired for a similar plant at a new location and with a different capacity, but with multiples of the original process units,

Code N

METHOD F: INVESTMENT COST PER UNIT OF CAPACITY

Fixed-capital investment required for various processes per unit of annual production capacity are published It is possible to determine the unit investment costs which apply for average conditions. An order-of-magnitude estimate of the fixed-capital investment for a given process can then be obtained by multiplying the appropriate investment cost per unit of capacity by the annual production capacity of the proposed plant. The necessary correction for change of costs with time can be made with the use of cost indexes.

METHOD G: TURNOVER RATIOS

rapid evaluation method suitable for order-of-magnitude estimates Turnover ratio is defined as the ratio of gross annual sales to the fixed-capital investment, Turnover ratio = [gross annual sales]/[FCI] where the product of the annual production rate and the average selling price of the commodities is the gross annual sales figures. The reciprocal of the turnover ratio is sometimes defined as the capital ratio or the investment ratio. Turnover ratios of up to 5 are common for some business establishments and some are as low as 0.2. For the chemical industry, as a very rough rule of thumb, the ratio can be approximated as 1.