Page 205 - Plant design and economics for chemical engineers

COST ESTIMATION 179

changes, small design changes, errors in estimation, and other unforeseen
expenses, which previous estimates have statistically shown to be of a recurring
nature. This factor may or may not include allowance for escalation. Contin-
gency factors ranging from 5 to 15 percent of the direct and indirect plant costs
are commonly used, with 8 percent being considered a fair average value.

Startup Expense

After plant construction has been completed, there are quite frequently changes
that have to be made before the plant can operate at maximum design
conditions. These changes involve expenditures for materials and equipment
and result in loss of income while the plant is shut down or is operating at only
partial capacity. Capital for these startup changes should be part of any capital
appropriation because they are essential to the success of the venture These
expenses may be as high as 12 percent of the fixed-capital invest nt. In
general, however, an allowance of 8 to 10 percent of the fixed-capital inve
4tment
for this item is satisfactory.
Startup expense is not necessarily included as part of the required invest-
ment; so it is not presented as a component in the summarizing Table 26 for
capital investment at the end of this chapter. In the overall cost analysis, startup
expense may be represented as a one-time-only expenditure in the first year of
the plant operation or as part of the total capital investment depending on the
company policies.

Methods for estimating capital investment
Various methods can be employed for estimating capital investment. The choice
of any one method depends upon the amount of detailed information available
and the accuracy desired. Seven methods are outlined in thischapter, with each
method requiring progressively less detailed information and less preparation
time. Consequently, the degree of accuracy decreases with each succeeding
method. A maximum accuracy within approximately f5 percent of the actual
capital investment can be obtained with method A.

METHOD A DETAILED-ITEM ESTIMATE. A detailed-item estimate requires
careful determination of each individual item shown in Table 1. Equipment and
material needs are determined from completed drawings and specifications and
are priced either from current cost data or preferably from firm delivered
quotations. Estimates of installation costs are determined from accurate labor
rates, efficiencies, and employee-hour calculations. Accurate estimates of engi-
neering, drafting, field supervision employee-hours, and field-expenses must be
detailed in the same manner. Complete site surveys and soil data must be
available to minimize errors in site development and construction cost esti-
mates. In fact, in this type of estimate, an attempt is made to firm up as much of
the estimate as possible by obtaining quotations from vendors and suppliers.
Because of the extensive data necessary and the large amounts of engineering