Cev633 CHP2

CEV633
ENGINEERING ECONOMICS
& PROJECT MANAGEMENT
1
Course Outcome
 Ability to explain the principles of engineering
economy and project management in solving chemical
engineering/environmental problems (C6) ~ CO1
 Ability to demonstrate the solutions of complex
engineering problems using modern engineering tools
(C3)~ CO2
 Ability to propose suitable solutions to the complex
engineering problems using the engineering economy
and project management principles (A5) ~ CO3
2
Classifications of Capital Cost Estimates
Types of Capital Cost Estimate

CLASS 1 – Detailed Estimate
CLASS 2 – Definitive Estimate
CLASS 3 – Preliminary Estimate
CLASS 4 – Study Estimate
CLASS 5 – Order-Of-Magnitute Estimate
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4
5
6
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Cost of Estimate – See Also Table 7.2

Accuracy 1
2
3
4
5
Cost of Estimate (Time)
8
 In Table 7.2
 The accuracy range associated with each class of estimate
and the costs associated with carrying out the estimate are
ranked relative to the most accurate class of estimate (Class
1)
>> For the cost estimation of chemical plant, Class 1 estimate
(detailed estimate) is typically +6% to -4% accurate
 The true cost of building the plant would likely be in the
range of 6% higher than 4% lower than the estimated
price
>> For the effort to prepare a Class 5 estimate for a chemical
process is typically in the range of 0.015% to 0.30% of the
total installed of the plant
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10
A typical series of cost estimated that would be
carried out is as follows:
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Estimation of purchased equipment cost
Method of estimation of the purchased of equipment by
using:
 Vendor quote
 Most accurate
- based on specific information
- requires significant engineering
 Use previous cost on similar equipment and scale for time
and size
 Reasonably accurate
- beware of large extrapolation
- beware of foreign currency
 Use cost estimating charts and scale for time
 Less accurate
 Convenient
12
Effect of Size (Capacity)
n
Ca  Aa 
  (7.1)
Cb  Ab  Cost Exponent
Cost Equipment Cost

Attribute - Size
Ca  KAa n (7.2)
Cb
where K n
Ab
13
Effect of Size (Capacity) cont.
 n = 0.4 – 0.8 Typically
 Often n ~ 0.6 and we refer to Eq.(7.1) as the (6/10)’s
Rule
 Assume all equipment have n = 0.6 in a process unit
and scale-up using this method for whole processes
 Order-of-Magnitude estimate
14
Effect of Size (Capacity) cont.
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16
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Example
 A New Plant Ordered a Set of Floating Head
Heat Exchangers (Area = 100 m2) cost $92,000.
What Would Cost be for a Heat Exchanger for
Similar Service if Area = 50 m2 and n = 0.44 ?
21
Example 1 - Solution
n
Ca  Aa 
n
 Aa 
  Ca  Cb 
Cb  Ab   Ab 
0.44
 50  Ca  $67,300
92,000 
 100 
100 m2 Exchanger is not twice as expensive as a 50 m2 exchanger
 Economy of Scale
22
Effect of Time
 Time increases – cost increases (inflation)
 Inflation is measured by cost indexes - Figure 7.3
 Chemical Engineering Plant Cost Index (CEPCI)
 Marshall and Swift Process Industry Index
 Numbers based on “basket of goods” typical for
construction of chemical plants - Table 7.5
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24
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Table 7.5: The Basis for the Chemical Engineering Plant Cost Index
Components of Index Weighting of Component (%)
Equipment, Machinery and Supports:
(a) Fabricated Equipment 37

(b) Process Machinery 14
(c) Pipe, Valves, and Fittings 20
(d) Process Instruments and Controls 7
(e) Pumps and Compressors 7
(f) Electrical Equipment and Materials 5
(g) Structural Supports, Insulation, and 10
Paint 100 61% of total
Erection and Installation Labor 22
Buildings, Materials, and Labor 7
Engineering and Supervision 10
Total 100
26
Equation for Time Effect
 I2 
C2  C1 
 I1 
 C = Cost
 I = Value of cost index
 1,2 = Represents points in time at which costs required
or known and index values known
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28
Example
 Cost of vessel in 1993 was 25,000, what is estimated
cost today (Sept 2007 – CEPCI = 500)?
Solution
 I now   500 
Cnow  C1993   25,000   $34,820
 I1993   359 
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Example - Accounting for Time and Size
 2 heat exchangers, 1 bought in 1990 and the other in
1995 for the same service
A B
Area = 70 m2 130 m2
Time= 1990 1995
Cost = 17 K 24 K
I = 358 381
 What is the Cost of a 80 m2 Heat Exchanger Today

(2007)? (I = 500)
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Solution
 Must First Bring Costs to a Common Time
A = 70
 500 
Ca (2007)  17    $23,743
A = 130  358 
 500 
Cb (2007)  24    $31, 496
 381 
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Solution (cont’d)
C  KA n
$23,743  K (70)n
$31, 496  K (130)n
log  31, 496  log(23, 743)
n  0.4565
log 130   log(70)
C 23,743
K  n  0.4565  $3, 414
A 70
C  3, 414 80
0.4565
 $25, 235
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Estimating the total capital cost of a plant
Total Cost of Plant
 For a chemical plant  must take into consideration
many costs other than the purchased cost of the
equipments
 Analogy:
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Solution
36
Lang Factors
 A simple technique to estimate the capital cost of a
chemical plant
 The cost determined from the Lang Factor
represents the cost to build a major expansion to
an existing chemical plant.
 The total cost is determined by multiplying the
total purchased cost for all the major items of
equipment by a constant.
 The major items of equipment are those shown in
the process flow diagram.
37
Lang Factors
 Use multiplier depending on type of plant to
escalate equipment costs to installed costs
38
Lang Factors (cont’d)
n
CTM  FLang  C pi (7.5)
i 1
Total Module Cost Purchased Cost of Major Equipment

From Preliminary PFD
(Pumps, Compressors, vessels, etc.)
39
Lang Factors (cont’d)
 This estimating technique is insensitive to changes in process

configuration, especially between processes in the same broad
categories shown in Table 7.7.
 It cannot accurately account for the common problems of special
materials of construction and high operating pressures.
 A number of alternative techniques are available. All require
more detailed calculations using specific price information for
the individual units/equipment.
40
Module Costing Technique
• A common technique to estimate the cost of a new chemical
plant.
• It is generally accepted as the best for making preliminary cost
estimates and is used extensively in this text.
• This approach, introduced by Guthrie [9, 10] in the late 1960s
and early 1970s
• It forms the basis of many of the equipment module techniques
in use today.
• This costing technique relates all costs back to the purchased
cost of equipment evaluated for some base conditions.
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• Deviations from these base conditions are handled by using
multiplying factors that depend on the following:
(1) The specific equipment type
(2) The specific system pressure
(3) The specific materials of construction
42
CBM  C p FBM
o (7.6)
Bare Module Cost Factor
(sum of all multipliers)
Bare Module Purchased Equipment Cost for based
Cost Condition for CS and 1 atm pressure - Appendix A
FBM = B1 + B2FpFM
o
FBM  B1  B2
Fp = pressure factor (= 1 for 1 bar)

FM = material of construction factor (=1 for CS)
C p  Cop Fp FM
43
Bare Module Cost for Equipment at Base Conditions
• The bare module equipment cost represents the sum of
direct and indirect costs shown in Table 7.6.
• The conditions specified for the base case are
1. Unit fabricated from most common material, usually
carbon steel (CS)
2. Unit operated at near-ambient pressure
• Equation (7.6) is used to obtain the bare module cost for
the base conditions.
• For these base conditions, a superscript zero (0) is added
to the bare module cost factor and the bare module
equipment cost.
• Thus and refer to the base conditions.
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Solution:
47
• Fortunately, the procedure illustrated in Example 7.9 does not
have to be repeated in order to estimate for every piece of
equipment.
• This has already been done for a large number of equipment
modules, and the results are given in Appendix A.
• In order to estimate bare module costs for equipment, purchased
costs for the equipment at base case conditions (ambient pressure
using carbon steel) must be available along with the
corresponding bare module factor and factors to account for
different operating pressures and materials of construction.
• These data are made available for a variety of common gas/liquid
processing equipment in Appendix A.
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49
Solution:
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Solution:
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Solution:
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Solution:
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Solution:
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Solution:
55
Bare Module Cost for Non-Base-Case Conditions
• For equipment made from other materials of construction and/or
operating at non-ambient pressure, the values for FM and FP are
greater than 1.0.
• In the equipment module technique, these additional costs are
incorporated into the bare module cost factor, FBM.
• The bare module factor used for the base case FoBM, is replaced
with an actual bare module cost factor, FBM, in Equation (7.6).
• The information needed to determine this actual bare module
factor is provided in Appendix A.
• The effect of pressure on the cost of equipment is considered first
56
Pressure:
• As the pressure at which a piece of equipment operates increases,
the thickness of the walls of the equipment will also increase.
• For the simple case of a cylindrical vessel operating at greater
than ambient pressure, the relationship between design pressure
and wall thickness required to withstand the radial stress in the
cylindrical portion of the vessel, as recommended by the ASME,
is given as
• where t is the wall thickness in meters,

P is the design pressure (bar),
D is the diameter of the vessel (m),
S is the maximum allowable working pressure (maximum allowable stress) of
material (bar),
E is a weld efficiency >> Typical values are from 1.0 to 0.6,
CA is the corrosion allowance (m) >> typical values are from 3.15 to 6.3 mm 57
Pressure:
• The maximum working pressure of the material of construction, S, is dependent
not only on the material but also on the operating temperature.
• Some typical values of S are given for common materials of construction in
Figure 7.5
58
Pressure:
• The effect of pressure on the weight (and ultimately cost) of carbon steel vessel
shells as a function of vessel diameter is shown in Figure 7.6.
• The y-axis of the figure shows the ratio of the vessel thickness at the design
pressure to that at ambient pressure, and the x-axis is the design pressure.
• A corrosion allowance of 3.15 mm (1/8 inch) and a value of S = 944 bar
(13,700 psi) are assumed.
• It is also assumed that the vessel is designed with a minimum wall thickness of
6.3 mm (1/4 inch)
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Pressure:
60
Pressure:
• where D is the vessel diameter in m,

P is the operating pressure in barg,
CA is the corrosion allowance (assumed to be 0.00315 m),
tmin is the minimum allowable vessel thickness (assumed to be 0.0063m)
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Pressure:
• Pressure factors for different equipment are given in Appendix A, Equation
(A.3), and Table A.2.
• These pressure factors are presented in the general form given by Equation
(A.3):
62
Pressure:
Solution:
63
Material of Construction (MOC) :
• The choice of what MOC to use depends on the chemicals that will contact the
walls of the equipment
• The compatibility of the MOC with the process stream must be investigated
fully before the final design is completed
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• Many polymeric compounds are nonreactive in both acidic and alkaline
environments.
• Polymers generally lack the structural strength and resilience of metals.
• For operations at less than about 120°C in corrosive environments the use of
polymers as liners for steel equipment or incorporated into fiberglass structures
(at moderate operating pressures) often gives the most economical solution.
• The most common MOCs are still ferrous alloys, in particular carbon steel.
• Carbon steels are distinguished from other ferrous alloys such as wrought and
cast iron by the amount of carbon in them.
• Carbon steel has less than 1.5 wt% carbon, can be given varying amounts of
hardness or ductility, is easy to weld, and is cheap. It is still the material of
choice when corrosion is not a concern.
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• The combination of operating temperature and operating pressure will also
affect the choice of MOC.
• From Table 7.9, it is evident that the number of MOCs available is very large
and that the correct choice of materials requires input from a trained
metallurgist.
• The approximate relative cost of some common metals is given in Table 7.10.
• As a very approximate rule, if the metal of interest does not appear in
Appendix A, then Table 7.10 can be used to find a metal that has approximately
the same cost.
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Solution:
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Solution:
70
What is your comment?
71
Combination of Pressure and MOC Information to
FBM & CBM
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Combination of Pressure and MOC Information to
FBM & CBM
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Algorithm for Calculating Bare Module Costs
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Solution:
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Solution:
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Solution:
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Solution:
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Grassroots and Total Module Costs
• The term grassroots (or green field) refers to a completely new facility in which
the construction is started on essentially undeveloped land, a grass field.
• The term total module cost refers to the cost of making small to moderate
expansions or alterations to an existing facility.
• To estimate these costs, it is necessary to account for other costs in addition to
the direct and indirect costs.
• These additional costs were presented in Table 7.6 and can be divided into two
groups:
• Group 1: Contingency and Fee Costs:
• Depending on the reliability of the cost data and completeness of the process
flowsheet available
• This factor is included in the evaluation of the cost as a protection against oversights
and faulty information
• Unless otherwise stated, values of 15% and 3% of the bare module cost are assumed
for contingency costs and fees, respectively
• Adding these costs to the bare module cost provides the total module cost.
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• Group 2: Auxiliary Facilities Costs:
• These include costs for site development, auxiliary buildings, and off-sites and
utilities.
• These terms are generally unaffected by the materials of construction or the operating
pressure of the process.
• Unless otherwise stated, these costs are assumed to be equal to 50% of the bare
module costs for the base case conditions.
• Adding these costs to the total module cost provides the grassroots cost.
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Solution:
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Solution:
83
Solution:
84
A Computer Program (CAPCOST) for Capital Cost
Estimation Using the Equipment
Module Approach
 Calculates costs based on input

 CEPCI – use current value of 500 or latest from
Chemical Engineering
 Program automatically assigns equipment numbers
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Capcost
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THAT’S ALL FOR TODAY …..
THANK YOU….
 Don’t take easy for your

EXERCISES…. Practice make it
perfect……
91

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CEV633

Types of Capital Cost Estimate

Cost of Estimate – See Also Table 7.2

Cost of Estimate (Time)

Cost Equipment Cost

Components of Index Weighting of Component (%)

Equipment, Machinery and Supports:

(a) Fabricated Equipment 37

Buildings, Materials, and Labor 7

Engineering and Supervision 10

 What is the Cost of a 80 m2 Heat Exchanger Today

Total Module Cost Purchased Cost of Major Equipment

 This estimating technique is insensitive to changes in process

Fp = pressure factor (= 1 for 1 bar)

• where t is the wall thickness in meters,

• where D is the vessel diameter in m,

What is your comment?

 Calculates costs based on input

 Don’t take easy for your

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