Page 219 - Plant design and economics for chemical engineers

COST ESTIMATION 191
where the product of the annual production rate and the average selling price of
the commodities is the gross annual sales figures. The reciprocal of the turnover
ratio is sometimes defined as the capital ratio or the investment ratio.? Turnover
ratios of up to 5 are common for some business establishments and some are as
low as 0.2. For the chemical industry, as a very rough rule of thumb, the ratio
can be approximated as 1.

ORGANIZATION FOR PRESENTING CAPITAL
INVESTMENT ESTIMATES BY
COMPARTMENTALIZATION

The methods for estimating capital investment presented in the preceding
sections represent the fundamental approaches that can be used. However, the
direct application of these methods can often be accomplished with consider-
able improvement by considering the fixed-capital investment requirement by
parts. With this approach, each identified part is treated as a separate unit to
obtain the total investment cost directly related to it. Various forms of compart-
mentalization for this type of treatment have been proposed. Included in these
are (1) the modular estimate,+ (2) the unit-operations estimate,$ (3) the func-
tional-unit estimate,5[ and (4) the average-unit-cost esfimate.tt
The same principle of breakdown into individual components is used for
each of the four approaches. For the modular estimate, the basis is to consider
individual modules in the total system with each consisting of a group of similar
items. For example, all heat exchangers might be included in one module, all
furnaces in another, all vertical process vessels in another, etc. The total cost
estimate is considered under six general groupings including chemical process-
ing, solids handling, site development, industrial buildings, offsite facilities, and

tWhen the term invesiment ratio is used, the investment is usually considered to be the total capital
investment which includes working capital as well as other capitalized costs.
SW. J. Dodge et al., Metropolitan New York Section of AACE, The Module Estimating Technique
as an Aid in Developing Plant Capital Costs, Tram AACE (1962); K. M. Guthrie, Capital Cost
Estimating, Chem. Eng., 76(6):114 (March 24, 1969); K. M. Guthrie, “Process Plant Estimating,
Evaluation, and Control,” Craftsman Book Company of America, Solana Beach, CA, 1974;
A. Pikulik and H. E. Diaz, Chem. Eng., 84(21):106 (Oct. 10, 1977); R. H. Perry and D. H. Green,
“Chemical Engineers’ Handbook,” 6th ed., McGraw-Hill Book Company, Inc., New York, 1984.
8E. F. Hensley, “The Unit-Operations Approach,” American Association of Cost Engineers, Paper
presented at Annual Meeting, 1967; E. W. Merrow, K. E. Phillips, and C. W. Meyers, “Understand-
ing Cost Growth and Performance Shortfalls in Pioneer Process Plants,” Rand Corporation, Santa
Monica, CA, 1981; see also Chem. Eng., 88(3):41 (Feb. 9, 1981).
?A. V. Bridgewater, The Functional-Unit Approach to Rapid Cost Estimation, AACE Bull.,
18(5):153 (1976).
ttC. A. Miller, New Cost Factors Give Quick Accurate Estimates, Chem. Eng., 72(19):226 (Sept. 13,
1965); C. A. Miller, Current Concepts in Capital Cost Forecasting, Chem. Eng. hgr., 69(5):77
(1973); 0. P. Charbanda, “Process Plant and Equipment Cost Estimation,” Craftsman Book
Company of America, Solana Beach, CA, 1979; S. Cran, Improved Factored Method Gives Better
Preliminary Cost Estimates,” Chem. Eng., 88(7):79 (Apr. 6, 1981).