Development OF Factored Cost Esti Mates - AS Appli ED I N Engi Neeri NG, Procurement, AND Constructi ON FOR THE Process I Ndustri ES

59R-
10
DEVELOPMENTOFFACTOREDCOST
ESTIMATES-ASAPPLI EDIN
ENGINEERING,PROCUREMENT,
ANDCONSTRUCTI ONFOR
THEPROCESS
INDUSTRIES
AACE® International Recommended Practice No. 59R-10
DEVELOPMENT OF FACTORED COST ESTIMATES – AS

APPLIED IN ENGINEERING, PROCUREMENT, AND
CONSTRUCTION FOR THE PROCESS INDUSTRIES
TCM Framework: 7.3 – Cost Estimating and Budgeting
Rev. June 18, 2011

Note: As AACE International Recommended Practices evolve over time, please refer to web.aacei.org for the latest
revisions.
Any terms found in AACE Recommended Practice 10S-90, Cost Engineering Terminology, supersede terms defined in
other AACE work products, including but not limited to, other recommended practices, the Total Cost Management
Framework, and Skills & Knowledge of Cost Engineering.
Contributors:
Disclaimer: The content provided by the contributors to this recommended practice is their own and does not necessarily
reflect that of their employers, unless otherwise stated.
Rashmi Prasad (Primary Contributor) Peter R Bredehoeft, Jr. CEP

Kul B. Uppal, PE CEP Larry R. Dysert, CCC CEP
A. Larry Aaron, CCE CEP PSP James D. Whiteside, II PE
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AACE® International Recommended Practice No. 59R-10
DEVELOPMENT OF FACTORED COST ESTIMATES –
AS APPLIED IN ENGINEERING, PROCUREMENT, AND
CONSTRUCTION FOR THE PROCESS INDUSTRIES
TCM Framework: 7.3 – Cost Estimating and Budgeting
June 18, 2011
TABLE OF CONTENTS
Table of Contents ..........................................................................................................................................................1

Introduction ...................................................................................................................................................................1
Capactity Factored Estimates (CFE) ...............................................................................................................................2
Cost Indices ....................................................................................................................................................................3
Equipment Factored Estimates (EFE) .............................................................................................................................5
Parametric Cost Estimates ...........................................................................................................................................14
Accuracy of Factored Estimates...................................................................................................................................18
Conclusion ...................................................................................................................................................................20
References ...................................................................................................................................................................20
Contributors.................................................................................................................................................................21
INTRODUCTION
As identified in the AACE International Recommended Practice No. 18R-97 Cost Estimate Classification System – As
Applied in Engineering, Procurement, and Construction for the Process Industries, the estimating methodology
tends to progress from stochastic or factored to deterministic methods with increase in the level of project
definition.
Factored estimating techniques are proven to be reliable methods in the preparation of conceptual estimates
(Class 5 or 4 based on block flow diagrams (BFDs) or process flow diagrams (PFDs)) during the feasibility stage in
the process industries, and generally involves simple or complex modeling (or factoring) based on inferred or
statistical relationships between costs and other, usually design related, parameters. The process industry being
equipment-centric and process equipment being the cost driver serves as the key independent variable in
applicable cost estimating relationships.
This recommended practice outlines the common methodologies, techniques and data used to prepare factored
capital cost estimates in the process industries using estimating techniques such as: capacity factored estimates
(CFE), equipment factored estimates (EFE), and parametric cost estimates. However, it does not cover the
development of cost data and cost estimating relationships used in the estimating process.
All data presented in this document is only for illustrative purposes to demonstrate principles. Although the data
has been derived from industry sources, it is not intended to be used for commercial purposes. The user of this
document should use current data derived from other commercial data subscription services or their own project
data.

59R-10: Development of Factored Cost Estimates – As Applied in Engineering, Procurement, 2 of 21
and Construction for the Process Industries
June 18, 2011
CAPACTITY FACTORED ESTIMATES (CFE)
Capacity factored estimates are used to provide a relatively quick and sufficiently accurate means of determining
whether a proposed project should be continued or to decide between alternative designs or plant sizes. This early
screening method is often used to estimate the cost of battery-limit process facilities, but can also be applied to
individual equipment items. The cost of a new plant is derived from the cost of a similar plant of a known capacity
with a similar production route (such as both are batch processes), but not necessarily the same end products. It
relies on the nonlinear relationship between capacity and cost as per equation 1:
CostB/CostA = (CapB/CapA)r
where CostA and CostB are the costs of the two similar plants, CapA and CapB are the capacities of the two plants
and r is the exponent, or proration factor.
(equation 1)
The value of the exponent typically lies between 0.5 and 0.85, depending on the type of plant and must be
analyzed carefully for its applicability to each estimating situation. It is also the slope of the logarithmic curve that
reflects the change in the cost plotted against the change in capacity. It can be determined by plotting cost
estimates for several different operating capacities where the slope of the best line through the points is r, which
can also be calculated from two points as per equation 2:
r = ln(CapB/CapA)/ln(CostB/CostA)
(equation 2)
The curves are typically drawn from the data points of the known costs of completed plants. With an exponent less
than 1, scales of economy are achieved wherein as plant capacity increases by a percentage (say, by 20 percent),
the costs to build the larger plant increases by less than 20 percent. With more than two points, r is calculated by a
least-squares regression analysis. A plot of the ratios on log-log scale produces a straight line for values of r from
0.2 to 1.1.
This methodology of using capacity factors is also sometimes referred to as the “scale of operations” method or
the “six-tenths factor” method because of the reliance on an exponent of 0.6 if no other information is available.
With an exponent of 0.6, doubling the capacity of a plant increases costs by approximately 50 percent, and tripling
the capacity of a plant increases costs by approximately 100 percent. In reality, as plant capacity increases, the
exponent tends to increase as per figure 1. The capacity factor exponent between plants A and B may have a value
of 0.6, between plants B and C a value of 0.65, and between C and D, the exponent may have risen to 0.72. As
plant capacity increases to the limits of existing technology, the exponent approaches a value of one where it
becomes as economical to build two plants of a smaller size, rather than one large plant.

June 18, 2011
Figure 1 – The Capacity Factored Relationships Shown Here are Logarithmic. Exponents Differ Across Capacity
Ranges.
Usually companies should have indigenous capacity factors for several chemical process plants that must be
updated with regular studies. However, the above factors should be used with caution regarding their applicability
to any particular situation.
If the capacity factor used in the estimating algorithm is relatively close to the actual value, and if the plant being
estimated is relatively close in size to the similar plant of known cost, then the potential error from a CFE is
certainly well within the level of accuracy that would be expected from a stochastic method. Table 1 shows the
typical capacity factors for some process plants. However, differences in scope, location, and time should be
accounted for where each of these adjustments also adds additional uncertainty and potential error to the
estimate. If the new plant is triple the size of an existing plant and the actual capacity factor is 0.80 instead of the
assumed 0.70, one will have underestimated the cost of the new plant by only 10 percent. Similarly, for the same
three-fold scale-up in plant size, if the capacity factor should be 0.60 instead of the assumed 0.70, one will have
overestimated the plant cost by only 12 percent. The capacity-increase multiplier is CapB/CapA and in the base, r is
0.7. The error occurs as r varies from 0.7. Further, table 2 shows percent error when 0.7 is the factor used for the
estimate instead of the actual factor.
The CFE method should be used prudently. Making sure the new and existing known plants are near-duplicates,
include the risk in case of dissimilar process and size. Apply location and escalation adjustments to normalize costs
and use the capacity factor algorithm to adjust for plant size. In addition, apply appropriate cost indices to
accommodate the inflationary impact of time and adjustments for location. Finally, add any additional costs that
are required for the new plant, but were not included in the known plant.
COST INDICES
A cost index relates the costs of specific items at various dates to a specific time in the past and is useful to adjust
costs for inflation over time. Chemical Engineering (CE) publishes several useful cost indices each month such as
the CE Plant Cost Index and the Marshall & Swift Equipment Cost Index. The CE Cost Index provides values for
several plant-related costs including various types of equipment, buildings, construction labor and engineering
fees. These values relate costs of complete plants over time, using the 1957–1959 timeframe as the base period
(value = 100). The Marshall & Swift indices provide equipment cost index values arranged in accordance to the
process industry in which the unit is used, using 1926 as the base period.

June 18, 2011
To use either of these indices to adjust for cost escalation, multiply the un-escalated cost by the ratio of the index
values for the years in question. For example, to determine the cost of a new chlorine plant in February 2001 using
capacity factored estimates where the cost of a similar chlorine plant built in 1994 was $25M, first the cost of the
1994 must be normalized for 2001. The CE index value for 1994 is 368.1. The February 2001 value is 395.1. The
escalated cost of the chlorine plant is therefore: $25M x (395.1/368.1) = $25M x 1.073 = $26.8M.
Product Factor
Acrolynitrile 0.60
Butadiene 0.68
Chlorine 0.45
Ethanol 0.73
Ethylene Oxide 0.78
Hydrochloric Acid 0.68
Hydrogen Peroxide 0.75
Methanol 0.60
Nitric Acid 0.60
Phenol 0.75
Polymerization 0.58
Polypropylene 0.70
Polyvinyl Chloride 0.60
Sulfuric Acid 0.65
Styrene 0.60
Thermal Cracking 0.70
Urea 0.70
Vinyl Acetate 0.65
Vinyl Chloride 0.80
Table 1 – Capacity Factors for Process Plants[8]
Actual Capacity-Increase Multiplier (CapB/CapA)

Exponent 1.5 2 2.5 3 3.5 4 4.5 5
0.20 23% 41% 58% 73% 88% 100% 113% 124%
0.25 20% 36% 51% 64% 75% 87% 97% 106%
0.30 18% 32% 44% 55% 64% 74% 83% 91%
0.35 16% 28% 38% 47% 55% 63% 70% 76%
0.40 13% 23% 32% 39% 46% 52% 57% 63%
0.45 11% 18% 26% 32% 36% 41% 46% 50%
0.50 9% 15% 20% 25% 28% 32% 35% 38%
0.55 6% 11% 15% 18% 21% 23% 25% 28%
0.60 4% 7% 10% 12% 13% 15% 16% 18%
0.65 2% 3% 5% 6% 6% 7% 8% 8%
0.70 0% 0% 0% 0% 0% 0% 0% 0%
0.75 -2% -4% -5% -5% -6% -7% -7% -8%
0.80 -4% -7% -9% -10% -12% -13% -14% -15%
0.85 -6% -10% -13% -15% -17% -19% -20% -21%
0.90 -8% -13% -17% -20% -22% -24% -26% -28%
0.95 -10% -16% -21% -24% -27% -29% -31% -33%
1.00 -11% -19% -24% -28% -31% -34% -36% -38%
1.05 -13% -22% -28% -32% -36% -39% -41% -43%
1.10 -15% -24% -31% -36% -40% -43% -45% -47%
1.15 -16% -27% -34% -39% -43% -46% -49% -52%
1.20 -18% -30% -37% -42% -47% -50% -53% -55%
Table 2 – % Error when factor r = 0.7 is used for estimate instead of actual exponent

June 18, 2011
Discrepancies are found in previously published factors due to variations in plant definition, scope, size and other
factors such as:
• Some of the data in the original sources covered a smaller range than what is now standard.
• Changes in processes and technology.
• Changes in regulations for environmental control and safety that was not required in earlier plants.
Exponents tend to be higher if the process involves equipment designed for high pressure or is constructed of
expensive alloys. As r approaches 1, cost becomes a linear function of capacity — that is, doubling the capacity
doubles the cost. The value of r may also approach 1 if product lines will be duplicated rather than enlarged.
Whereas a small plant may require only one reactor, a much larger plant may need two or more operating in
parallel.
Large capacity extrapolations must be done carefully because the maximum size of single-train process plants may
be restricted by the equipment's design and fabrication limitations. For example, single-train methanol synthesis
plants are now constrained mainly by the size of centrifugal compressors. Costs must also be scaled down carefully
from very large to very small plants because, in many cases the equipment cost does not scale down but rather
remains about the same regardless of plant capacity.
Despite these shortcomings, the r factor method represents a fast, easy and reliable way of arriving at cost
estimates at the predesigned stage. It is helpful for looking at the effect of plant size on profitability when doing
discounted cash-flow rate-of-return and payback-period calculations, and it is very useful for making an economic
sensitivity analysis involving a large number of variables.
EQUIPMENT FACTORED ESTIMATES (EFE)
Equipment factored estimates are used when the engineering is approximately 1 to 15 percent complete to
determine whether there is sufficient reason to pursue the project. If so, this estimate is used to justify the funding
required to complete additional engineering and design for a Class 3 or budget estimate. It can be quite precise if
the equipment factors are appropriate, if the correct adjustments have been applied, and if the list of process
equipment is complete and accurate. This estimating procedure relies on the existence of a ratio between the cost
of an equipment item and costs for the associated non-equipment items (such as foundations, piping, and
electrical components) needed when building a plant. Its advantage over CFEs is its basis upon specific process
design.
The first step is to estimate the cost for each piece of process equipment. The equipment list should be examined
carefully for completeness and compared against the PFDs and piping & instrumentation diagrams (P&IDs). When
the equipment list is in a preliminary stage with only the major equipment identified, assume a cost percentage for
auxiliary equipment that has not yet been defined. The equipment sizing should be verified since equipment is
often sized at 100 percent of normal operating duty, but by the time the purchase orders are issued, some
percentage of over-sizing has been added to the design specifications. The percentage of over-sizing varies with
the type of equipment as well as with the organization’s procedures and guidelines. It is prudent to check with the
process engineers and determine if an allowance for over-sizing the equipment, as listed on the preliminary
equipment list, should be added before pricing the equipment. The purchase cost of the equipment is often
obtained from purchase orders, published equipment-cost data, and vendor quotations, and should include the
associated nozzles and appurtences, manways, internals, baffles, packing, trays, and process instrumentation.
Since the material cost of equipment can represent 20 to 40 percent of the total project costs for process plants, it
is extremely important to estimate the equipment costs as accurately as possible. If historical purchase
information is used, the costs should be escalated appropriately and adjustments made for location and market
conditions.

June 18, 2011
Once the equipment cost is established, the appropriate equipment factors should be generated and applied with
necessary adjustments for equipment size, metallurgy and operating conditions specific to project or process
conditions. For example, if the plot layout of the project requires much closer equipment placement than is typical,
one may want to make adjustments for the shorter runs of piping and electrical than would be accommodated by
the equipment factors. If a project is situated in an active seismic zone, one may need to adjust the factors for
foundations and support steel.
After developing equipment factored costs, account should be made for project costs that are not covered by the
equipment factors such as by generating indirect field costs (IFCs) and home-office costs (HOCs), engineering costs
and fees.
J.J. Lang[23] proposed a simple set of multiplicative factors to estimate the total installed cost of a plant from the
total cost of its major equipment items (TME) based on whether the given facility is a ”solids” plant handling
mainly solid process streams, or a “solids-fluids” plant, or a ”fluids” plant, where the factors are 3.89, 5.04, and
6.21 respectively. Since, this approach has only one element, the error of the product is greater than that of either
the TME figure or that of the multiplicative factor and the latter itself is an average based on a large number of
industries and products. Accordingly, the accuracy of this method is not attractive. It is least reliable for outside
battery limits (OSBL) and offsite costs which are highly variable.
PROCESS Direct Costs ALL SOLID Process FLUID & SOLID Process (*) ALL FLUID Process
Mat’l Labor Total TC% Mat’l Labor Total TC% Mat’l Labor Total TC%
Purchased Equipment 1.000 N/A 1.00 26% 1.000 N/A 1.00 24% 1.000 N/A 1.00 20%
Equipment Setting 0.014 0.024 0.04 1% 0.014 0.024 0.04 1% 0.014 0.024 0.04 1%
Site Development 0.016 0.029 0.05 1% 0.016 0.029 0.05 1% 0.016 0.029 0.05 1%
Concrete 0.038 0.054 0.09 2% 0.031 0.059 0.09 2% 0.028 0.052 0.08 2%
Structural Steel 0.106 0.050 0.16 4% 0.103 0.040 0.14 3% 0.100 0.030 0.13 3%
Buildings 0.016 0.006 0.02 1% 0.016 0.006 0.02 1% 0.016 0.006 0.02 0%
Piping 0.200 0.160 0.36 9% 0.307 0.242 0.55 13% 0.520 0.450 0.97 19%
Instrumentation & Controls 0.100 0.200 0.30 8% 0.100 0.215 0.32 7% 0.140 0.280 0.42 8%
Electrical 0.109 0.086 0.20 5% 0.109 0.086 0.20 5% 0.088 0.072 0.16 3%
Insulation 0.020 0.004 0.02 1% 0.030 0.004 0.03 1% 0.060 0.012 0.07 1%
Painting 0.009 0.060 0.07 2% 0.009 0.060 0.07 2% 0.008 0.050 0.06 1%
Direct Costs = 1.63 0.67 2.30 59% 1.74 0.77 2.50 59% 1.99 1.01 3.00 59%
PROCESS Indirect Costs

Labor Indirects & Field Costs 0.160 0.392 0.55 14% 0.176 0.424 0.60 14% 0.220 0.500 0.72 14%
Contractor Engineering & Fee 0.015 0.703 0.72 18% 0.016 0.759 0.78 18% 0.020 0.890 0.91 18%
Owner Engineering & Oversight 0.080 0.242 0.32 8% 0.082 0.267 0.35 8% 0.085 0.330 0.42 8%
Total PROCESS Direct and Indirect = 1.88 2.01 3.89 100% 2.01 2.22 4.22 100% 2.32 2.73 5.04 100%
Excludes OSBL (non-process infrastructure), excludes land acquisition, excludes contingency, and assumes at-grade installations
(*) = Most reliable data
Assumed material equipment cost (MEC) factor for bulks and direct field labor (DFL) = 1.5
Labor is based on 1.0 labor productivity factor (LPF) @ $20.00 W2 rate + 91% for field indirects = $38.14 all in hourly composite labor rate
Table 3 – “Original” Lang factors (multipliers) of delivered equipment cost for capitalized costs and % of total
installed costs to construct large scale capacity US Gulf Coast process plants.
Happel[28] estimated purchase cost for all pieces of equipment (material), labor needed for installation using
factors for each class of equipment, extra material and labor for piping, insulation etc. from ratios relative to sum
of material and added installed cost of special equipment, overhead, engineering fees, and contingency. A number
of items given in table 4 below are prorated from the sum of key accounts G. Material listing in the second column
refers to delivered cost to the plant site ready for erection. The labor items in the adjoining column are the direct
labor involved in erecting each of the items noted. When material items A through F are made of expensive

June 18, 2011
material such as stainless steel, the labor percentage will be much lower than shown in table 4 which is based on
carbon steel items in material column.
Item Material Labor

Vessels A 10% of A
Towers, field fabricated B 30 to 35% of B
Towers, prefabricated C 10 to 15% of C
Exchangers D 10% of D
Pumps, compressors and other machinery E 10% of E
Instruments F 10 to 15% of F
Key accounts (Sum of A to F) G
Table 4 – Happel’s Method: Table 1
Item Material Labor

Key accounts (Sum of A to F) G
Insulation H = 5 to 10% of G 150% of H
Piping I = 40 to 50% of G 100% of I
Foundations J = 3 to 5% of G 150% of J
Buildings K = 4% of G 70% of K
Structures L = 4% of G 20% of L
Fireproofing M = 0.5 to 1% of G 500 to 800% of M
Electrical N = 3 to 6% of G 150% of N
Painting and cleanup O = 0.5 to 1% of G 500 to 800% of O
Sum of Material and Labor P
Sum of material and labor P

Installed cost of special equipment Q
Subtotal R = P+Q
Overheads S = 30% of R
Total erected cost T = R+S
Engineering fee U = 10% of T
Contingency fee V = 10% of T
Total investment W = T+U+V
It presents difficulties in piping estimation as it is time-consuming to detail the piping sufficiently to estimate it
directly. If a percentage of 40 to 50% on key equipment for piping material is employed as suggested above, errors
may result in the estimates of plants having a large proportion of investment in machinery, compressors or other
relatively expensive equipment. The use of “exotic” pipe material such as Teflon or stainless will also naturally
completely upset calculations made on the basis of a simple percentage. A good check can be made on piping
material by noting that valves will constitute 40% of total. Another item that must be considered carefully is the
allowance for profit and fees to the engineering contractor. Prices are fixed by supply and demand rather than
arbitrary percentages like those noted above, so that equipment companies with a considerable backlog of orders
may be able to enjoy greater profits. Another important factor to bear in mind when estimating construction costs
from published data or company records is that these costs are not constant like the physical properties of
chemical compounds. It is necessary to correct them by the use of some type of construction index, especially
when all information has not been obtained at the same time. In addition tables 4, 5, and 6 above do not cover
OSBL items so these should be included separately in the estimate.

June 18, 2011
Hand[24] advanced the above approaches by applying individual factors to major equipment categories. At a 50%
error range for the quantity and for the cost of each category, the error range for each element would be 70.7%.
But when the elements are added up, the error range of the sum (representing total installed cost) is only 39.8%.
Hackney[25,26] developed an equipment ratio method with factors for labor and materials applied to not only major
equipment but also auxiliary equipment, to installation, and to various crafts, such as piping, electrical and
building. The auxiliary equipment cost is usually estimated as a percent of the major equipment; the costs of
installation and craft activities are taken as percentages of the major and auxiliary equipment summed. A checklist
was included for numerically estimating the certainty with which the individual aspects of the project are known.
Examples include the amounts, physical forms and allowable impurities in the raw materials and products and the
extent to which the process design has been reviewed. The sum of the individual ratings is an indication of how
accurate the estimate is. In spite of its more detailed attention to uncertainty and accuracy, it does not lend itself
to direct transfer to a more detailed budget estimate. It is preferable to employ methods that can successively
”advance” to the more detailed estimates.
Guthrie[27] developed a module method that applied the Hackney approach to individual equipment accounts. It
used individual material factors for various crafts but one overall labor factor. The total plant cost is the sum of the
individual equipment modules, costs of linking the modules and indirect costs. The latter, including design
engineering, project management and contractor's profit, can account for about 10 to 30% of the total plant cost,
depending on site topography, the economic climate of the area, the time of year (i.e., the weather) and the
nature of the bidding process itself. The modules can also serve to monitor costs during construction and to
control the scheduling of labor since the factors are replaced with material and labor prices and the latter are
translated into labor hours. Because of the extensive summing involved, the accuracy of this method is high.
Assume for instance, that the technique is being used for a definitive estimate and that each quantity factor and
cost factor for the pump module has an accuracy of 5%. Summing the individual pump-installation elements brings
the total accuracy for the module into the range of 3%, and when all the modules in the cost estimate for the plant
are summed, the accuracy of the plant estimate will improve to 2% or less.
The completion of any construction project yields cost data that can be valuable for future cost estimates provided
that these data are not time-indexed over an unreasonably large number of years. Cost data on major pieces of
equipment are readily available from computerized services whose databases are derived from equipment vendor
and vessel fabricator information. It is often possible to get better accuracy on the factors for equipment
installation by basing the installation outlays on the equipment size or design available from the flow sheets for the
plant. It often reveals circumstances affecting the installation cost that are masked by the cost figures alone. The
article “Sharpen Your Cost Estimating Skills” by Larry R. Dysert[6], is a good source of process equipment factors.
This document shows equipment factors for process equipment range from 2.4 for columns to 3.4 for pumps and
motors, based upon the raw equipment costs.
Equipment costs must be estimated to gauge a project's economic viability, to evaluate alternative investment
opportunities, to choose from among several process designs the one likely to be the most profitable, to plan
capital appropriations, to budget and control expenditures or a competitive bid for building a new plant or
revamping an existing one. Shop fabricated costs including freight derived from cost curves is suitable for making
study estimates of total plant costs and is more than adequate for making order-of magnitude ones. Since costs
are changing and costs obtained from one source are likely not to agree with those acquired from another, costs
derived from the related graphs should not be considered incontestable but rather should be adjusted in light of
cost data from other sources according to one's judgment and experience.
A good source of process equipment costs is DOE/NETL-2002/1169, “Process Equipment Cost Estimation”[10]
report:

June 18, 2011
Cooling tower purchased equipment cost range from $4,000 for a 150 gal/min unit to $100,000 for a 6,000
gal/min. The cooling tower would consist of a factory assembled cooling tower including fans, drivers and basins.
The design basis would be:
• Temperature Range: 15 °F
• Approach Gradient: 10 °F
• Wet Bulb Temperature: 75 °F
Air cooler purchased equipment cost range from $11,000 for a 100 sq/ft to $120,000 for a 10,000 sq/ft of bare
tube area. The air cooler would consist of variety of plenum chambers, louver arrangements, fin types (or bare
tubes), sizes, materials, free-standing or rack mounted, multiple bays and multiple services within a single bay.
• Tube Material: A214
• Tube Length: 6 – 60 Feet
• Number of Bays: 1 – 3
• Power/ Fan: 2 – 25 HP
• Bay Width: 4 – 12 Feet
• Design Pressure: 150 psig
• Inlet Temperature: 300 °F
• Tube Diameter: 1 Inch
• Plenum Type: Transition shaped
• Louver Type: Face louvers only
• Fin Type: L-footed tension wound aluminum
Furnace/process heater purchased equipment cost range from $100,000 for 2 Million BTU/hour to $5,000,000 for
500 Million BTU/hour of heat duty. The furnace heater would consist of gas or oil-fired vertical cylindrical type for
low heat duty range moderate temperature with long contact time. Walls of the furnace are refractory lined.
• Tube Material: A214
• Design Temperature: 750 °F
Rotary pump purchased equipment cost range from $2,000 for 10 gal/min to $10,000 for 800 gal/min of capacity.
The rotary pump would consist of rotary (sliding vanes) pump including motor driver.
• Material: Cast Iron
• Temperature: 68 °F
• Power: 25 – 20 HP
• Speed: 1800 RPM
• Liquid Specific Gravity: 1
• Efficiency: 82%
Single stage centrifugal pump purchased equipment cost range from $3,000 for 100 gal/min to $600,000 for
10,000 gal/min of capacity. The single stage centrifugal pumps would consist for process or general service when
flow/head conditions exceed general service, split casing not a cartridge or barrel and includes standard motor
driver. The design basis would be:
• Material: Carbon Steel

June 18, 2011
• Efficiency: <50 GPM = 60%, 50 – 199 GPM = 65%, 100 – 500 GPM = 75%, > 500 GPM = 82%
• Driver Type: Standard motor
• Seal Type: Single mechanical seal
Reciprocating pump (duplex) purchased equipment cost range from $4,000 for 2 HP to $30,000 for 100 HP driver
power. Reciprocating pump (triplex) purchased equipment cost range from $8,000 for 2 HP to $80,000 for 100 HP
driver power. The reciprocating pump would consist of duplex with steam driver having Triplex (plunger) with
pump motor driver. The design basis would be:
• Material: Carbon Steel
• Efficiency: 82%
The direct field cost (DFC) factor is an uplift applied to the free on board (FOB) cost of the equipment and ranges
between 2.4 - 4.3 (with instrument) and 2 - 3.5(without instrument) for different equipment.
Guthrie introduced a module costing method as a type of EFE where the main relation is as per equation 3:
CBM = CPFBM
(equation 3)
For other items the related relations are shown below:
Labor CL = αL(CP + CM) = (1 + αM)αLCP

Direct
Freight CFIT = αFIT(CP+CM) = (1 + αM)αFITCP
Overhead CO = αOCL = (1 + αM)αLαOCP
Indirect
Engineering CE = αE(CP + CM) = (1 + αM)αECP
Direct Field Labor Cost (DFL) = 0.25(DFC)

Indirect Field Cost (IFC) = 1.15(DFL)
Total Field Cost (TFC) = DFC + IFC
Home-Office Cost (HOC) = 0.3(DFC)
Other Project Cost (OTC) = 0.03(DFC) +0.15(TFC + HOC)
Total Project Cost (TPC) = OTC + TFC + HOC
where,
CBM = bare module cost of equipment (direct plus indirect costs)
CP = equipment cost in base case (carbon steel material at atmospheric pressure)
FBM = module factor (a factor that includes all direct and indirect costs)
CM = required material cost
CFIT = freight and insurance factor
αM = material factor
αL = labor factor
αO = overhead factor
αE = engineering factor
Each component of fixed capital investment can be considered as a factor of equipment cost. The required
material cost and the module factor are given in equations 4 and 5:

June 18, 2011
CM = αMCP
(equation 4)
FBM = (1+αM)(αL + αFIT + αLαO + αE)
(equation 5)
The bare module cost includes the direct and indirect cost only and doesn't include contingency and auxiliary
services costs. For example, if the cost of a heat exchanger in a base case (with carbon steel material and operating
at ambient pressure) equals to $10,000 then for (αM = 0.7, αL = 0.37, αFIT = 0.08, α0 = 0.7, αE = 0.15) the bare
module cost equals to $14,603. The equipment cost in a non-base case is shown in equations 6 and 7:
FBM0 = B1 + B2FPFM
(equation 6)
CBM0 = CPFBM0
(equation 7)
where
FBM0 = module factor for non-base case;
FP = correction factor for pressure;
FM = correction factor for material.
B1 and B2 are calculated on the basis of fixed investment components, which obtained for different equipments in
specified ranges. The equipment cost (CP) is obtained by parametric models with a cost relation shown in equation
8:
log10(CP) = K1 + K2log10(A) + K3log10(A)2
where A is a key parameter of equipment.

(equation 8)
The pressure correction factor (FP) is described in equation 9:
log10(FP) = C1 + C2 log10(P) + C3log10(P)2
The coefficients K1, K2, K3, C1, C2, C3 are given for different equipment.
(equation 9)
By totaling the above module cost for equipments, the total module cost can be obtained. To calculate the total
plant cost one needs to add the auxiliary services and contingency costs, so 15 percent of the module cost is
considered for contingency, 3 percent for contractors, and 35 percent for auxiliary services.
Finally, the cost of a grass root plant can be calculated through equation 10:
CGR =1.18 ∑ C0BM,i +0.35 ∑ CBM,i
where CGR = grass roots cost

(equation 10)
The auxiliary services and utilities do not depend on the pressure or material of the battery limit and usually its
cost is 35 percent of the module cost, at a base case of (CBM,i).
The capital cost, which includes all the capital, needed to ready a plant for startup is derived from:

June 18, 2011
• Direct project expenses include equipment FOB cost (CP), material (CM) required for installation, and labor (CL)
to install that equipment and material.
• Indirect project expenses include freight, insurance, and taxes (CFIT), construction overhead (CO) and
contractor engineering expenses (CE).
• Contingency and fees includes contractor fees (CFEE) and overall contingency (CCONT).
• Auxiliary facilities includes site development (CSITE), auxiliary buildings (CAUX) and off sites and utilities (COFF).
TOTAL CAPITAL INVESTMENT COST BREAKDOWN
Total bare-module cost equipment CFE

Total bare-module cost machinery CPM
Total bare-module cost spares CSPARE
Total bare-module cost storage tanks CSTORAGE
Total bare-module cost initial catalyst CCATAL __________
Sums to total bare module investment CTBM
Cost of site preparation CSITE
Cost of service facilities (auxiliary buildings) CAUX
Cost of utility plant and related facilities COFF __________
Sums to cost of direct permanent investment CDPI
Cost of contingencies and contractors fees CCONT __________
Sums to total depreciable capital CTDC
Cost of land CLAND
Cost of royalties CROYALTY
Cost of plant startup CSTART__________
Sums to total permanent investment CTPI
Working capital CWC__________
Sums to total capital investment CTCI
CSITE = (0.10 - 0.20) CTBM FOR GRASS ROOTS, (0.04 - 0.06) CTBM FOR INTEGRATED COMPLEX
CAUX = (0.1)CTBM FOR HOUSED OR INSIDE
Indirect on labor is based on U.S. Gulf Coast (USGC) as the suggested choice which is 115% to 180% of direct labor
cost. All other locations are compared with the USGC to establish their indirect percentages. A typical make-up for
all indirect on labor is shown below:
Proposed Ranges
Field Supervision & Field Office Expenses 25.0% to 41.0%
Temporary Facilities & Structures 9.0% to 18.0%
(Includes Temporary Support Systems & Utilities)
Construction Equipment & Tools 20.0% to 35.0%
Construction Consumables & Small Tools 9.0% to 15.0%
Statutory Burdens & Benefits 40.0% to 50.0%
Misc. Overhead & Indirects 2.5% to 6.0%
Profit/Fees for Construction Management 1.5% to 2.5%
Mobilization/Demobilization 4.0% to 6.5%
Scaffolding 4.0% to 6.0%
Total 115% to 180%

June 18, 2011
For international locations the field indirect and overheads (FIOH) percentage is identified through local contacts
or personal visits or through contacts with joint venture partners or from published information from different
sources. FIOH refers to a contractor’s construction costs necessary to support the direct work and is a function of
the project’s planned duration of need, as extended by a definable estimated rate per hour, together with an
estimated cost associated with site mobilization/transport and final demobilization, relative size of project, type of
project (grassroots or retrofit), local labor and construction practices, site specific location and conditions (such as
extremely remote site requiring daily transport of workers to/from jobsite or special allowances for seasonal
weather conditions). To compare the indirect costs from different contractors, the multipliers should be on a
similar basis and include field supervision and indirect support staff, travel/relocation/subsistence, field per diems
and relocation, temporary facilities and structures, temporary support systems and utilities, construction
equipment and tools, safety and first aid, field office furnishings and supplies, communications, construction
consumables, insurance/taxes, statutory payroll burdens and benefits, miscellaneous overhead and indirects
(home office overheads, home office equipment, computers, purchasing services), and profit/fees. Statutory
burdens should include social security, medical insurance, unemployment benefits, worker’s compensation
insurance, general liability insurance, health and welfare, pension, education fund, industry fund, vacation, etc.
Temporary construction and consumables (TC&C) are the material, labor, and subcontract costs associated with
establishing and operating a temporary infrastructure to support construction work. Examples of TC&Cs include:
temporary facilities (such as trailers and temporary buildings, field offices, furniture for temporary buildings, field
shops including shop machinery, field warehouses, and worker camps, temporary roads, and fencing), scaffolding
materials and labor, site clean-up, temporary utility costs, fuel, gas, welding rods, protective clothing and personal
protective equipment, etc.
Field supervision/field office costs are the material, labor, and subcontract costs associated with supervising the
construction work. Examples of these costs include: wages, salaries, benefits, relocation costs, travel expenses for
assigned and local field staff (such as construction managers, superintendents, area supervisors, craft supervisors,
warehouse supervisors, field project controls, trainers, field buyers/expediters, safety officers, etc.), and ongoing
expenses for a field office such as personal computers, telephone, fax machines, copiers, etc.
Construction equipment/tools are material, labor, and subcontract costs necessary for providing tools and
machines to support the construction work. Examples include: cranes, trucks, welding machines, jacking
equipment, small tools, rigging devices, etc.
The contractor engineering is based on total equipment items:

• Small projects: 650 to 950 work-hours per equipment item
• Grassroots projects: 1,100 to 1,550 work-hours per equipment item
• Retrofits: 30% to 45% of all direct costs (included in direct cost is equipment, material, and labor)
The individual item count includes all numbered equipment, any numbered spares, and the individually numbered
pieces of equipment on a packaged unit.
A secondary check for grassroots projects for contractor engineering will be a cost range of 12% to 25% of all direct
costs or 8% to 14% of total project costs. The owner engineering cost is estimated as 10% to 12% of all direct costs
or 25% to 45% of contractor engineering.
The contingency amount will vary based on the type of unit under consideration:
• Well established process design (previously built): 5% to 10%
• Well established process designs, debottleneck type: 20% to 35%
• Any OSBL unit: 25% to 40%
• Brand new process design (never built before): 15% to 30%

June 18, 2011
• DCS implementation, any unit: 10% to 15%.
The escalation for equipment, materials, and construction activities is based on the most current construction cost
index. The freight cost for a typical project is 2% to 6% of equipment cost. For overseas locations, the freight cost
varies from 8% to 18% of equipment cost, depending upon the country under consideration. The spare parts
(capital spares only) for US installations are 4% to 8% of equipment costs. The percentages are higher for overseas
locations (8% to 12% of equipment cost) but should be looked at on an individual basis.
PARAMETRIC COST ESTIMATES
Parametric cost estimates are used to estimate equipment cost and finally the total plant cost at an acceptable
error percentage when there is little technical data about equipment and other capital cost items or engineering
deliverables for submission to equipment manufacturers. It involves development of parametric model based on
data on equipment costs from specified time duration. Then, using statistical methods, the models coefficients are
obtained and their accuracy and estimation capabilities are studied. The best reference for reliable cost data is the
completed projects of an organization. Applying this data, using regression methods and statistical tests, a final
model is proposed.
A parametric model is a mathematical representation of cost relationships that provide a logical and predictable
correlation between the physical or functional characteristics of a plant and its resultant cost. Capacity and
equipment-factored estimates are simple parametric models. Sophisticated parametric models involve several
independent variables or cost drivers.
The first step in developing a parametric model is to establish its scope. This includes defining the end use, physical
characteristics, critical components and cost drivers of the model taking into consideration the type of process to
be covered, the type of costs to be estimated (such as TIC and TFC) and the accuracy range.
The model should be based on actual costs from completed projects and reflect the company’s engineering
practices and technology. It should use key design parameters that can be defined with reasonable accuracy early
in the project scope development and provide the capability for the estimator to easily adjust the derived costs for
specific factors affecting a particular project. Finally, the model should generate current year costs or have the
ability to escalate to current year costs.
Data collection and development for a parametric estimating model requires significant effort. Both cost and scope
information must be identified and collected. It is best to collect cost data at a fairly low level of detail. The cost
data can always be summarized later if an aggregate level of cost information provides a better model. It is
important to include the year for the cost data in order to normalize costs later. The type of data to be collected is
usually decided upon in cooperation with the engineering and project personnel. It is best to create a formal data
collection form that can be consistently used and revised if necessary.
After the data have been collected, it must be normalized. By doing this, we make adjustments to account for
escalation, location, site conditions, system specifications and cost scope. Data analysis, the next step in the
development of a parametric model, is achieved by a wide variety of techniques such as performing regression of
cost versus selected design parameters to determine the key drivers for the model. The regression involves
iterative experiments to find the best-fit algorithms or mathematical relationships that describe how data behave.
The result is a parametric model. Most spreadsheet applications provide regression analysis and simulation
functions that are reasonably simple to use. As an algorithm is discovered that appears to provide good results, it
must be tested to ensure that it properly explains the data. Using advanced statistical tools can quicken the
process but can be more difficult to use. Sometimes erratic or outlying data points will need to be removed from

June 18, 2011
the input data in order to avoid distortions in the results. The algorithms will usually take one of the equations
11&12:
A linear relationship, such as,
Cost = a + bV1 + cV2 + ...

(equation 11)
or a nonlinear relationship, such as,
Cost = a + bV1x + cV2y + …

(equation 12)
where V1 and V2 are input variables; a, b, and c are constants derived from regression; and x and y are exponents
derived from regression.
The equation that is the best fit for the data will typically have the highest R-squared (R2) value, which provides a
measure of how well the algorithm predicts the calculated costs. However, a high value by itself does not imply
that the relationships between the data input and the resulting cost are statistically significant. One still needs to
examine the algorithm to ensure that it makes sense.
A cursory examination of the model can help identify the obvious relationships that are expected. If the
relationships from the model appear to be reasonable, then additional tests (such as the t-test and f-test) can be
run to determine statistical significance and to verify that the model is providing results with an acceptable range
of error. A quick check can be performed by running the regression results directly against the input data to see
the percent error for each of the inputs. This allows the estimator to determine problems and refine the
algorithms. After the individual algorithms have been developed and assembled into a complete parametric cost
model, it is important to test the model as a whole against new data (data not used in the development of the
model) for verification.
During the data application stage, a user interface and a presentation form for the parametric cost model is
established. Computer spreadsheets provide an excellent means of accepting estimator input, calculating costs
based upon algorithms, and displaying output.
Perhaps the most important effort in developing a parametric (and any other) cost model is making sure the
application is thoroughly documented. Record the actual data used to create the model, the resulting regression
equations, test results and a discussion on how the data was adjusted or normalized for use in the data analysis
stage. Any assumptions and allowances designed into the cost model should be documented, as should any
exclusion. The range of applicable input values and the limitations of the model’s algorithms should also be noted.
Write a user manual to show the steps involved in preparing an estimate using the cost model and to describe the
required inputs to the cost model.
Induced-draft cooling towers are typically used in process plants to provide a recycle cooling-water loop. These
units are generally prefabricated and installed on a subcontract or turnkey basis by the vendor. Key design
parameters that appear to affect the costs of cooling towers are the cooling range, the temperature approach and
the water flow rate. The cooling range is the temperature difference between the water entering the cooling
tower and the water leaving it. The approach is the difference in the cold water leaving the tower and the wet-bulb
temperature of the ambient air.

June 18, 2011
Cooling Temperature Flow Rate, gal/min Actual Cost, $ Predicted Cost, $ % Error
Range, °F Approach, °F
30 15 50,000 1,040,200 1,014,000 -2.5%
30 15 40,000 787,100 843,000 7.1%
40 15 50,000 1,129,550 1,173,000 3.8%
40 20 50,000 868,200 830,000 -4.4%
25 10 30,000 926,400 914,000 -1.3%
35 8 35,000 1,332,400 1,314,000 -1.4%
Table 7 – Actual Costs versus Predicted Costs with Parametric Equation
Table 7 provides the actual costs and design parameters of six recently completed units whose costs have been
normalized (adjusted for location and time) to a Northeast US, year-2000 timeframe[6]. These data are the input to
a series of regression analyses that are run to determine an accurate algorithm for estimating costs. Using a
computer spreadsheet, the cost estimation algorithm was developed as per equation 13:
Predicted Cost = $86,600 + $84,500(Cooling Range, °F)0.65 – $68,600(Approach, °F) +

+ $76,700(Flow Rate, 1,000 gal/min)0.7
(equation 13)
The above equation demonstrates that the cooling range and flow rates affect cost in a nonlinear fashion, while
the approach affects cost in a linear manner. Increasing the approach will result in a less costly cooling tower, since
it increases the efficiency of the heat transfer-taking place. These are reasonable assumptions. The regression
analysis resulted in an R2 value of 0.96, which indicates that the equation is a “good fit” for explaining the
variability in the data. The percentage of error varies from –4.4 percent to 7.1 percent. The estimating algorithm
developed from regression analysis, can be used to develop cost versus design parameters that can be represented
graphically.
This information can then be used to prepare estimates for future cooling towers. It is fairly easy to develop a
spreadsheet model that will accept the design parameters as input variables, and calculate the costs based on the
parametric estimating algorithm.
To derive the models, one needs to suppose that a linear relationship exists between the cost of the equipment
and its key parameters as per equation 14:
ln(CE) = A + Bln(KP) + Cln(KP)2
Where CE is equipment cost and KP is a key parameter. The models for other equipment are given in Table 8
calculated using the linear regression method along with the coefficients.
(equation 14)

June 18, 2011
.
Figure 2 – Graph developed from regression data for tower cost that can be used for future cooling towers.
Equipment Proposed Models Parameter Ranges %AAD Coefficients

Pressure Vessels (Carbon Steel) CE = exp[A1 + B1ln(W) + C1ln(W)^2] 180 < W < 621,000 21% A1 = -1.731737
2 < P < 20 B1 = 0.5598
C1 = 0.024773
Pressure Vessels (Stainless Steel) CE = exp[A2 + B2ln(W)] 168 < W < 108,849 27.6% A2 = -2.788577
2<P<5 B2 = 0.94935
Atmospheric Storage Tanks (Carbon CE = exp[A3 + B3ln(W)] 2,800 < W < 1,540,000 4.2% A3 = -4.619487
Steel) B3 = 0.9892
Separation Tower (Carbon Steel) CE = exp[A4 + B4ln(W) + C4ln(W)^2] 5,360 < W < 178,000 12.8% A4 = 13.271536
3.5 < P < 30 B4 = -2.253712
C4 = 0.154118
Separation Tower (Stainless Steel) CE = exp[A5 + B5ln(W) + C5(L/D)] 6,400 < W < 39,000 37% A5 = -2.484312
1.4 < (L/D) < 21.3 B5 = 0.964302
3.5 < P < 37 C5 = 0.04109
Shell and Tube Heat Exchangers – BEU CE = exp[A6 + B6ln(W)] 4,400 < W < 77,400 3.2% A6 = -2.910474
Type (Carbon Steel) 7 < P < 85 B6 = 1.016550
Oil Injected Screw Compressor CE = exp[A7 + B7WP + C7WP^0.5] 7 < WP < 315 9.2% A7 = 2.193159320
7 < P < 85 B7 = -0.01059287
C7 = 0.450875824
Where: W(weight, kg), P(operating pressure, bar), L(length, m), D(diameter, m), C E(equipment cost, Millions Iranian Rials), WP(power, kW).
Note: The above costs are related to year 2004 in the Iranian market.
Table 8 – Obtained models for some equipment
The parametric models for the above equipment were prepared using a provided data bank including the cost and
some specifications of equipment. Because of limitations, both in the number of projects and in the type of
equipment, the defined models are in specified limited domains. To increase these domains, additional cost data in
broader ranges are needed.
To increase these domains, additional cost data in broader ranges are needed. The achieved results can be used as
initial data to develop more complete models.
In the above table, the obtained models are shown, as well as the applicable ranges and absolute average
deviation percentages, which are listed as %AAD. The %AAD can be defined as per equation 15:
n
1 ABS(Yi − ̂
Y)
%AAD = 100x ( ) ∑ [ ]
n Yi
i=1
̂ is the estimated value and Yi is the cost value from data bank and n is the number of data.
where Y
(equation 15)

June 18, 2011
For example, the cost of a BEU type heat exchanger (carbon steel) with a weight of 10,000 kg can be calculated as:
CE = exp(-2.910474 + 1.01655 ln(10000)) = 631.15 MRls = $71253.60
(For exchange rate in 2004 use: 8900 Rials = 1 $)
The confidence interval method also provides a means of quantifying uncertainty. For each coefficient (B i) is as per
equation 16:
Bi = B ± tSE
where B is estimated coefficients, t is t-student from the distribution table and depends on degree of freedom and
statistical significance. SE is the standard error for coefficients.
(equation 16)
The confidence interval was determined at 95 percent statistical significance for coefficients of the six first models
and 90 percent statistical significance for the last model for a compressor.
Table 9 shows the related confidence intervals and standard errors for coefficients in the proposed models. Since
none of the intervals straddle zero, then none of the coefficients are zero, and therefore, they are acceptable.
The goodness of fit is explained by R-square in regression. R2 = 1 is a perfect score. R2 = 0.99 is a very good score
that shows the goodness of fit.
Equipment Coefficients t Standard Confidence Interval R2

Error
Pressure Vessels (Carbon Steel) B1 = 0.5598 1.98 0.135254 0.292005 < B1 < 0.827595 0.99
C1 = 0.024773 1.98 0.007028 0.0108576 < C1 < 0.0386884 0.99
Pressure Vessels (Stainless Steel) B2 = 0.94935 2.074 0.035066 0.876623 < B2 < 1.022077 0.98
Atmospheric Storage Tanks (Carbon Steel) B3 = 0.9892 2.074 0.007508 0.97362 < B3 < 1.00477 0.99
Separation Tower (Carbon Steel) B4 = -2.253712 2.179 0.696337 -3.77103 < B4 < -0.73639 0.99
C4 = 0.154118 2.179 0.032736 0.082786 < C4 < 0.22545 0.99
Separation Tower (Stainless Steel) B5 = 0.964302 2.776 0.011674 0.640231 < B5 < 1.288372 0.99
C5 = 0.04109 2.776 0.001323 0.0004363 < C5 < 0.0077816 0.99
Shell and Tube Heat Exchangers – BEU Type B6 = 1.016550 2.131 0.006779 1.002104 < B6 < 1.030996 0.99
(Carbon Steel)
Oil Injected Screw Compressor B7 = -0.01059287 1.697 0.000939 -0.00624 < B7 < -0.00899 0.99
C7 = 0.450875824 1.697 0.025139 0.0024 < C7 < 0.087 0.99
Table 9 – Confidence Intervals
Cost estimation accuracy by parametric models in the feasibility study stages ranges between 20 to 50 percent
(upper limit) and -15 to -30 percent (lower limit). These models can be accepted with accuracy ranges between ±3
percent to ±37 percent. The obtained models are related to a specific year. Because of inflation, they must be re-
evaluated for use in following years.
ACCURACY OF FACTORED ESTIMATES
There are different kinds of cost estimates prepared in the conceptual arena depending on their purpose or the
amount of time and information available with an accuracy of plus or minus X %, implying that the true value lies
between (100 + X)% and (100 - X)%. However, that range is biased, because the largest possible positive deviation
theoretically approaches infinity whereas the largest possible negative deviation is only 100%. So, a value of (100 -
X) is a more significant departure from X than is the value (100 + X).

June 18, 2011
In line with this logic, the listing of cost estimates classes sanctioned by AACE [1] typically uses ranges with the
positive deviation being larger than the negative:
Primary Characteristic Secondary Characteristic

DEGREE OF PROJECT EXPECTED ACCURACY
ESTIMATE END USAGE METHODOLOGY
DEFINITION Typical purpose of
RANGE
CLASS Expressed as % of complete estimate
Typical estimating method Typical variation in low and high
definition ranges [a]
Capacity factored,
Concept L: -20% to -50%
Class 5 0% to 2% parametric models,
screening H: +30% to +100%
judgment, or analogy
Study or Equipment factored or L: -15% to -30%
Class 4 1% to 15%
feasibility parametric models H: +20% to +50%
Budget Semi-detailed unit costs
L: -10% to -20%
Class 3 10% to 40% authorization or with assembly level line
H: +10% to +30%
control items
Control or Detailed unit cost with L: -5% to -15%
Class 2 30% to 75%
bid/tender forced detailed take-off H: +5% to +20%
Check estimate Detailed unit cost with L: -3% to -10%
Class 1 65% to 100%
or bid/tender detailed take-off H: +3% to +15%
Notes: [a] The state of process technology and availability of applicable reference cost data affect the range markedly.
The +/- value represents typical percentage variation of actual costs from the cost estimate after application of
contingency (typically at a 50% level of confidence) for given scope.
Table 1 – Cost Estimate Classification Matrix for Process Industries[1]
It is important to understand how uncertainties propagate in cost estimates involving the four arithmetic
manipulations (being the sum of multiplicative products or requiring subtraction and division during its calculation)
since the values of the quantities, unit costs and other numbers being thus manipulated typically are uncertain.
Consider an estimate to be a summation of elements with each element being the product of two variables or
factors: a) Quantity Factor: the number of units - individual pieces as reactors, areas as surfaces to be insulated,
volumes as cubic meters of concrete to be poured or other units that enumerate the entity being priced, and b)
Cost Factor: the corresponding unit cost. When two or more independent variables A and B are multiplied
together, any inaccuracies in the individual variables are amplified in their product:
(A ± a)(B ± b) = AB ± (A2b2 + B2a2)1/2
If a is a symmetric accuracy range for A, and b is a symmetric accuracy range for B
For instance, consider a cost estimate element consisting of a tank. Its required volume A is expected to be 21,000
gal with an uncertainty of ± 20%, and its anticipated unit capital cost B is $2/gal with an uncertainty of ± 30%. Thus,
a equals (21,000)(0.20) or 4,200, and b is (2)(0.30) or $0.60. Then their product P becomes: P = (21,000)(2.00) ±
(21,0002 x 0.602 + 22 x 4,2002)1/2 = 42,000 ± 15,143, or ± 36.1% between the percent ranges corresponding to the
product of two independent variables, each having its own accuracy range. The range of the product is at the
intersection of the row and column appropriate for the two variables. The ± 20% quantity factor would be accurate
enough for budgeting purposes under the aforementioned conventional listing, and the ± 30% cost factor would
qualify for study or factored estimates, but their product qualifies only for use as a conventional order-of-
magnitude or conceptual estimate. If the quantity and cost factors each were instead ± 50% accurate, their
product would be ± 70.7%, unacceptable even for order-of-magnitude purposes.

June 18, 2011
Division has the same effect as multiplication, increasing the range of inaccuracy whereby the product or quotient
is less accurate than the more uncertain of the two factors involved.
When two or more independent variables are added, any inaccuracies in the individual variables are decreased in
their sums. The expression for two numbers A and B having symmetric accuracy ranges a and b is:
(A ± a) + (B ± b) = A + B ± (a2 + b2)1/2
Consider, for instance, summing the costs of 10-in. and 8-in. flanges, respectively costing $120 with an accuracy of
10% and $80 with an accuracy of ± 10%. Then a = (120)(0.10) = $12, and b = (80)(0.20) = $16, and their sum S
becomes: S = (120 + 80) ± (122 + 162)1/2 = 200 ± 20 = 200 ± 10%
The expected error range of the total will be less than the error in either of the individual numbers or, at most,
equal to the lower of them.
This decrease in accuracies is not limited to the summation of two variables. The inaccuracies of the seven cost-
estimating elements such as list of process equipment that is needed for a distillation unit become far less
significant when the associated costs are summed. This demonstrates that the more detail in which we define the
scope of our project, the more accurate our estimate becomes.
In subtraction, the same formula is used as for addition. The expected absolute range is the same as when adding,
but the percentage range is much greater. Consider again the two flanges mentioned above and take the
difference D in their costs: D = (120 - 80) ± (122 + 162)1/2 = 40 ± 20, or ± 50%
These uncertainty-propagation rules have significant implications for the accuracies that we can expect from any
given estimating method.
CONCLUSION
Factored cost estimation is proposed as sample methods to organizations and engineering companies to derive
their own cost relations by referring to their past project cost archives. When deciding upon potential investment
opportunities, management must employ a cost screening process that requires various estimates to support key
decision points. At each of these points, the level of engineering and technical information needed to prepare the
estimate will change. Accordingly, the techniques used prepare the estimates will vary depending upon the
information available at the time of preparation, the end use of the estimate, and its desired accuracy. The
challenge for the engineer is to know what is needed to prepare these estimates, and to ensure they are well
documented, consistent, reliable, accurate and supportive of the decision-making process.
REFERENCES
1. AACE International Recommended Practice No. 18R-97, Cost Estimate Classification System – As Applied in
Engineering, Procurement, and Construction for the Process Industries, AACE International, Morgantown, WV,
(latest revision)
2. Black, Dr. J. H., “Application of Parametric Estimating to Cost Engineering”, 1984 AACE Transactions, AACE
International, 1984
3. Mohammed Reza Shabani and Reza Behradi Yekta, “Chemical Processes Equipment Cost Estimation Using
Parametric Models”, AACE International, May 2006
4. Chilton, C. H., “Six Tenths Factor Applies to Complete Plant Costs”, Chemical Engineering, April 1950

June 18, 2011
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CONTRIBUTORS
Disclaimer: The content provided by the contributors to this recommended practice is their own and does not
necessarily reflect that of their employers, unless otherwise stated.
Rashmi Prasad (Primary Contributor)

Kul B. Uppal, PE CEP
A. Larry Aaron, CCE CEP PSP
Peter R Bredehoeft, Jr. CEP
Larry R. Dysert, CCC CEP
James D. Whiteside, II PE


Development OF Factored Cost Esti Mates - AS Appli ED I N Engi Neeri NG, Procurement, AND Constructi ON FOR THE Process I Ndustri ES

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DEVELOPMENT OF FACTORED COST ESTIMATES – AS

Rev. June 18, 2011

Rashmi Prasad (Primary Contributor) Peter R Bredehoeft, Jr. CEP

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Table of Contents ..........................................................................................................................................................1

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CAPACTITY FACTORED ESTIMATES (CFE)

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Actual Capacity-Increase Multiplier (CapB/CapA)

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EQUIPMENT FACTORED ESTIMATES (EFE)

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PROCESS Indirect Costs

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Item Material Labor

Item Material Labor

Sum of material and labor P

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For other items the related relations are shown below:

Labor CL = αL(CP + CM) = (1 + αM)αLCP

Direct Field Labor Cost (DFL) = 0.25(DFC)

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log10(CP) = K1 + K2log10(A) + K3log10(A)2

where A is a key parameter of equipment.

The pressure correction factor (FP) is described in equation 9:

log10(FP) = C1 + C2 log10(P) + C3log10(P)2

CGR =1.18 ∑ C0BM,i +0.35 ∑ CBM,i

where CGR = grass roots cost

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TOTAL CAPITAL INVESTMENT COST BREAKDOWN

Total bare-module cost equipment CFE

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The contractor engineering is based on total equipment items:

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• DCS implementation, any unit: 10% to 15%.

PARAMETRIC COST ESTIMATES

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A linear relationship, such as,

Cost = a + bV1 + cV2 + ...

Cost = a + bV1x + cV2y + …

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Predicted Cost = $86,600 + $84,500(Cooling Range, °F)0.65 – $68,600(Approach, °F) +

ln(CE) = A + Bln(KP) + Cln(KP)2