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Cost Estimation

Cost estimation is an important part of plant design that involves estimating capital investment costs, manufacturing costs, and general expenses. It is typically done after detailed equipment design to include design specifications and facility details. There are different techniques used for cost estimation based on the amount of information available and required accuracy, ranging from order-of-magnitude estimates with 30% accuracy to detailed estimates with 5% accuracy. Capital investment includes working capital for operations and fixed capital for physical equipment and facilities, with direct costs for purchased equipment, installation, and buildings, and indirect costs for design, engineering, and contingencies.

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157 views

Cost Estimation

Cost estimation is an important part of plant design that involves estimating capital investment costs, manufacturing costs, and general expenses. It is typically done after detailed equipment design to include design specifications and facility details. There are different techniques used for cost estimation based on the amount of information available and required accuracy, ranging from order-of-magnitude estimates with 30% accuracy to detailed estimates with 5% accuracy. Capital investment includes working capital for operations and fixed capital for physical equipment and facilities, with direct costs for purchased equipment, installation, and buildings, and indirect costs for design, engineering, and contingencies.

Uploaded by

Amna Ehsan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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COST ESTIMATION

An acceptable plant design must present a process that is capable of operating under conditions which
will yield a profit. Since net profit equals total income minus all expenses, it is essential that the chemical
engineer be aware of the many different types of costs involved in manufacturing processes. Capital
must be allocated for direct plant expenses, such as those for raw materials, labor, and equipment.
Besides direct expenses, many other indirect expenses are incurred, and these must be included if a
complete analysis of the total cost is to be obtained. Some examples of these indirect expenses are
administrative salaries, product-distribution costs, and costs for interplant communications. A capital
investment is required for any industrial process, and determination of the necessary investment is an
important part of a plant-design project. The total investment for any process consists of fixed-capital
investment for physical equipment and facilities in the plant plus 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. Thus, in an analysis of costs in industrial processes, capital-investment
costs, manufacturing costs, and general expenses must be taken into consideration

Cost estimation is done after the detailed equipment design as it includes the design specifications and
information related to the facilities provided to the plant. Pre - design cost estimation is the estimation
of cost in initial stages of design. This pre design cost estimation roughly gives the idea that whether or
not the capital should be invested on the project.

Cost Estimation Techniques:


Different techniques are utilized for capital cost estimation as per the following:

 Order of magnitude estimate which is based on previous data of similar plant and has an
accuracy of 30%
 Study estimate which is based on information and knowledge of major items of process
equipment and has an accuracy of 30%
 Preliminary estimate also called scope estimate which relies in data to permit the estimate to be
budgeted and has an accuracy of 20%.
 Definitive estimate which is based on information of complete data of plant process and its
specifications and has an accuracy of 10%.
 Detailed estimate is based on complete engineering drawings, specifications, firm quotations for
equipment, estimation of the construction cost, and site surveys and has an accuracy of 5%.

Following factors must be considered for picking the technique for cost estimation.

1. Amount of detailed information available


2. Required accuracy
3. Cost estimation time involved in the plant operation.
. . . .

Capital Investment:
For any industrial process a capital investment is required and is determined as an important factor in
plant design. It includes the cost related to physical equipment and facilities provided to plant. Total
capital investment consists of following .

1. Working capital: includes investment which is for plant operation, startup operation, storage of
raw materials and products, taxes payable and salaries.
2. Fixed capital investment: which is for physical equipment and facilities.

Fixed capital investment is subdivided into two categories:

 Direct costs
 Indirect costs

Direct Cost
. The direct cost items arc incurred in the construction of the plant in addition to the cost of equipment.
. . . . . . . . . . . . . . .

 Purchased Equipment
 Purchased Equipment Installation cost
 Instrumentation and Control cost
 Piping cost
 Electrical Equipment and Materials cost
 Building (Including Services) cost
 Yard Improvement cost
 Services Facilities cost
 Land cost

Indirect Cost

 Design and Engineering Cost (20-30% of Direct Capital cost)


 Contractor's Expenses (5-10% of Direct Capital investment)
 Contractor's Fee (5-10% of Direct Capital cost)
 Contingency

Capital Cost Calculation:

Purchased Equipment Cost Calculation:

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