Page 268 - Chemical engineering design

CHAPTER 6

Costing and Project Evaluation

6.1. INTRODUCTION

Cost estimation is a specialised subject and a profession in its own right. The design
engineer, however, needs to be able to make quick, rough, cost estimates to decide between
alternative designs and for project evaluation. Chemical plants are built to make a profit,
and an estimate of the investment required and the cost of production are needed before
the profitability of a project can be assessed.
In this chapter the various components that make up the capital cost of a plant and the
components of the operating costs are discussed, and the techniques used for estimating
reviewed briefly. Simple costing methods and some cost data are given, which can be
used to make preliminary estimates of capital and operating costs at the flow-sheet stage.
They can also be used to cost out alternative processing schemes and equipment.
For a more detailed treatment of the subject the reader should refer to the numerous
specialised texts that have been published on cost estimation. The following books are
particularly recommended: Happle and Jordan (1975) and Guthrie (1974), Page (1984),
Garrett (1989).

6.2. ACCURACY AND PURPOSE OF CAPITAL COST ESTIMATES

The accuracy of an estimate depends on the amount of design detail available: the accuracy
of the cost data available; and the time spent on preparing the estimate. In the early stages
of a project only an approximate estimate will be required, and justified, by the amount
of information by then developed.
Capital cost estimates can be broadly classified into three types according to their
accuracy and purpose:

1. Preliminary (approximate) estimates, accuracy typically š30 per cent, which are
used in initial feasibility studies and to make coarse choices between design alter-
natives. They are based on limited cost data and design detail.
2. Authorisation (Budgeting) estimates, accuracy typically š10 15 per cent. These are
used for the authorisation of funds to proceed with the design to the point where an
accurate and more detailed estimate can be made. Authorisation may also include
funds to cover cancellation charges on any long delivery equipment ordered at this
stage of the design to avoid delay in the project. In a contracting organisation this
type of estimate could be used with a large contingency factor to obtain a price for
tendering. Normally, however, an accuracy of about š5 per cent would be needed

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