Preliminary Design Report (Cost Estimation)

<Title of Design Project>

By

<Names and Signatures of Student>

<Date of Submission>
1. Introduction

Introduce the business need that the Cost Analysis intends to address, i.e. identify
and discuss (1) why there is a need to produce your product (your objective) and (2) what
need to be done to achieve your objective. This may also be expanded by a discussion of
the business drivers that motivated you to examine possible alternatives to the current
system, e.g. the need to be more competitive, a reaction to a threat in the marketplace, or to
modernize certain manual processes.

Identify the system to which this Cost Analysis applies, and the strategic goals the
analysis will support (e.g. attract investments, create and launch new products, gain market
position, etc.). Outline the scope of the Cost Analysis. Make sure to highlight areas that were
not included in this analysis and explain the reason for their omission, for example,
budgetary constraints.

Summarize the techniques used to estimate costs. Remove any ambiguity or

concerns the reader may have regarding the integrity and validity of these figures.

Outline the criteria used to evaluate alternative systems, e.g. increased efficiency, or
reduced operating costs.

2. Assumptions, Constraints, and Conditions

Identify assumptions and constraints regarding the current business and technical
structure. Note that changes to assumptions, constraints, and conditions may trigger a
change to the project costs.

2.1. Assumptions

Assumptions describe the present and future environment on which an analysis is

based. Examples may include:

 Data (i.e. costs, statistics, etc.) used in this analysis are assumed to be
accurate, reliable, and valid.
 Results of this analysis will be changed by inaccurate data.
 Expected life of the system is [X] years.

2.2. Constraints

Constraints are external factors which can limit the project development. Examples
may include:
 Technology which must be able to meet the minimum business
requirements.
 Programs and investments which may become cost ineffective if this is not
the case.

2.3. Conditions

Conditions are factors in the operating environment that may influence system
processes. Examples may include:
 Technologies used to support integration into the existing or proposed
environments.
  Redundant investment if duplicate systems, production platform, processes
is used
 All systems must adhere to the [Organization] Technical Standards

3. Description of the Project

Describe the technical and operational characteristics of the project. This section
describes its main components and how this this project meets the business need. Explain
how this project was chosen from a variety of alternatives.

4. Investment Estimation
Present here the costs for the design, development, installation, operation,
maintenance, and disposal for the project. This section will calculate all costs to develop and
operate the project, including capital investment and production costs. This may be done in
an Excel matrix or by listing the specific category of costs.

Before showing details of the estimation (as shown in matrices below), present
description(s) of method(s) or technique(s) used for estimation.

Total Investment = Fixed Capital + Working Capital

where:

Fixed Capital Investment (physical equipment and facilities in the plant) = ISBL
Direct Cost + ISLB Indirect Cost + Engineering and Construction Cost +
Contingency

Working Capital, which must be available to pay salaries, keep raw materials and
products on hand and handle other special items requiring a direct cash outlay

Fixed Capital Investment (FCI)

Purchased (including Fabricated) Equipment

• Using scaling factors and cost indices (Chemical Engineering Plant and/or
Marshall and Swift Equipment), present details in calculations for the
estimation of cost of each equipment listed. (Don’t forget to cite reference to
literature!)

S. No. Equip. Name Quantity Price in P

1
2

n
Total Cost of Purchased Equipment =

Purchased (including Fabricated) Equipment Installation

• Installation of equipment listed, structural supports, insulation, paint, etc.

 S. No. Equip. Name As Percentage of Price in P
Purchased
Equipment Cost1
1
2

n
Total Cost of Purchased Equipment Installation =

4.1. Direct Costs

S. No. Description As Percentage of Grand Total

in P
1 Purchased Equipment
2 Purchased Equipment Installation
3 Instrumentation and Controls1
4 Piping1
5 Electrical Equipment and Materials1
6 Structures and Buildings* 2
7 Civil Works1,3
8 Service Facilities1,4
9 Land1
Total ISBL Direct Costs =

4.2. Indirect Costs

S. No. Description * Grand Total

As Percentage of
in P
10 Engineering and Supervision
Construction Expense/
11
Contractor’s Fee
Total ISBL Indirect Costs =

4.3. Summary

1
Cite reference to literature for (each) value used!
2
For the consolidated report, this item will cover total cost incurred in constructing process buildings, auxiliary
buildings, maintenance shops, etc. Building services include plumbing, air handling units (HVAC), paint, labor,
etc.
3
For the consolidated report, this item will refer to site development and will include site clearing, grading,
roads, walkways, etc.
4
For this report, this item will include only utilities and facilities. For the consolidated report, this will also
include non-process equipment
 S. No. Description Cost in P Cost in P Cost in P
ISBL Direct Costs

1 Purchased Equipment
2 Purchased Equipment Installation
3 Instrumentation and Controls
4 Piping
5 Electrical Equipment and Materials
6 Structures and Buildings
7 Civil Works
8 Service Facilities
9 Land
Total ISBL Direct Costs
ISBL Indirect Costs

10 Engineering and Supervision

11 Construction Expense/Contractor’s
Fee

Total ISBL Indirect Costs

12 Offsites
13 Design and Engineering
14 Contingency
Fixed Capital Investment (FCI)
Working Capital (WC), 15% of TCI
Total Capital Investment (TCI)

5. Estimation of Total Product Cost

Present here the estimate the installation, operation, and maintenance costs of the
process. Include costs for personnel, equipment, and training. This may be done in an Excel
matrix or by listing the specific category of costs.

Total Product Cost (costs for the operation of the plant and selling the products)
= Manufacturing Cost + General Expenses

Basis

1. The Total Product Cost is calculated based on the _____________ Cost Basis.
2. Number of days working per year is taken as _____________ days.
3. Plant is running in shifts, i.e. _____________ hours per day.
4. Capacity of the plant per year of the ________________________ product is
_____________ kg/m3/pieces.

5.1. Manufacturing Cost

5.1.1. Annual Direct Production Cost

Raw Materials
Quantity per Cost per Total Annual cost
S. No. Description annum, Kg unit in P in P
1
2

n
Total Cost of Raw Materials =

Operating Labor
No. Monthly Salary Total Annual
S. No. Description Required in P Salary in P
1
2

n
Total Cost of Operating Labor =

Operating Supervision
No. Monthly Salary Total Annual
S. No. Description Required in P Salary in P
1
2

n
Total Cost of Operating Supervision =

Power and Utilities

No. of Cost in Total Annual cost
S. No. Description Units/year P/year in P
1
2

n
Total Cost of Power and Utilities =

Maintenance and Repair

assumed as % of = P

Operating Supplies
assumed as % of = P

Laboratory Charges
assumed as % of = P
 Patents and Royalties
assumed as % of = P

Catalysts and Solvents

Quantity per Cost per Total Annual cost
S. No. Description annum, Kg unit in P in P
1
2

n
Total Cost of Catalyst and Solvents
=

5.1.2. Annual Fixed Charges

Depreciation
(i) Annual Cost of Depreciation of Machinery and Equipment
assumed as % of = P

(ii) Annual Cost of Building

assumed as % of = P

(iii)Annual Cost of Depreciation of Instrumentation and Control, Piping, Electrical

Equipment and Materials
assumed as % of = P

Property Taxes
assumed as % of = P

Insurance
assumed as % of = P

Rent for Land and Building

assumed as of = P

5.1.3. Plant Overhead Cost

assumed as % of = P

5.1.4. General Expenses

Administrative Expenses
assumed as % of = P

Distribution and Marketing Expenses

assumed as % of = P

Research and Development

assumed as % of = P
 Financing (interest)
assumed as % of = P

5.2. Summary

S. No. Description Cost in P Cost in P Cost in P

Manufacturing Costs
Direct Production Costs
1 Raw Materials
2 Operating Labor
3 Operating Supervision
4 Power and Utilities
5 Maintenance and Repairs
6 Operating Supplies
7 Laboratory Charges
8 Patents and Royalties
9 Catalysts and Solvents
Total Direct Production Costs
Fixed Charges
10 Depreciation
11 Taxes
12 Insurance
13 Rent
Total Fixed Charges
Plant Overhead Costs
14 Plant Overhead Costs
Total Plant Overhead Costs
Total Manufacturing Costs (M)
General Expenses
15 Administrative Expenses
Distribution and Marketing
16
Expenses
17 Research and Development
18 Financing (Interest)
Total General Expenses (G)
Total Product Cost, M + G

6. Cash Flow Analysis

Cash flow analysis is concerned with money flows in and out of an entity during the
period under study (i.e. from operations, financing activities, and investing activities), the aim
of which is to assess whether the entity has sufficient financial resources to meet its money
requirements and to provide basic data for the financial and subsequent economic analysis
of the project. It is an examination of how the entity is generating (or consuming) its money,
where it is coming from, and what it means about the value of the overall entity over a period
of time. It allows especially assessment of the ability of the entity to pay back a loan and the
loan's impact on the entity's cash situation.
 The main tool used is the cash flow statement (refer to next page). It is drawn up by
recording all cash movements (in terms of “receipts” and “outlays”), and only those, when
they actually occur. Cash flow from operations is calculated by taking a company’s (1) net
income, (2) adjusting for non-cash items, and (3) accounting for changes in working capital.

7. References

List all sources cited in the text, listed alphabetically by author’s last name.
Statement of Cash Flow

Capital Taxable Net Cash

Total product cost Depreciation Taxes
Percentage Product investment income profit flow
Year of design unit Sales Fixed Workin Plant
Variable Fixed General
capacity price capital g overhead
costs charges expenses
cost capital costs
202
0                        
202
1                        
202
2                        
202
3                        
202
4                        
202
5                        
202
6                        
202
7                        
202
8                        
202
9                        
203
0                        
203
1                        
203
2                        
203
3                        
203
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