Plant Design and Economics

Saeed Eini
Department of Chemical and Petroleum Engineering
Sharif University of Technology

1400-1401
 Engineering Economic Analysis of
Chemical Processes

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Engineering Economic

Why should we define a project?

Is it worth it?

Do we have enough resources?

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Engineering Economic
• Engineering Economic
o It refers to the estimation of the costs associated with the construction and operation of a
chemical process/project (capital costs and operating) and then the combination of these costs
into meaningful economic criteria and finally the evaluation of economics performance

Cost estimation
structure

The estimation of
capital cost

The estimation of
operating cost

The evaluation of
economic criteria
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Analysis of cost estimation

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Analysis of cost estimation
• The fund flow of an industrial project

Capital reservoir
Other capital
input Loans
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Bond Preferred
common stocks
Sharif University of Technology
stocks
 Analysis of cost estimation
• The fund flow of an industrial project

WCI
Working capital
investment for project
FCI
Nonmanufacturing fixed TCI
capital investment for project Total capital
FCI investment
Manufacturing fixed capital
Investment for project

Capital reservoir
Other capital
input Loans
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Bond Preferred
common stocks
Sharif University of Technology
stocks
 Analysis of cost estimation
• The fund flow of an industrial project

Gross profit
Sj-Co,j
Operations for
Sj Co,j
complete project
Total Income Costs for operations
from sales (not including depreciation)
WCI
Working capital
investment for project
FCI
Nonmanufacturing fixed TCI
capital investment for project Total capital
FCI investment
Manufacturing fixed capital
Investment for project

Capital reservoir
Other capital
input Loans
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Bond Preferred
common stocks
Sharif University of Technology
stocks
 Analysis of cost estimation
• The fund flow of an industrial project
Taxable gross profit
Sj-Co,j-dj

Gross profit Depreciation

Sj-Co,j dj
Operations for
Sj Co,j
complete project
Total Income Costs for operations
from sales (not including depreciation)
WCI
Working capital
investment for project
FCI
Nonmanufacturing fixed TCI
capital investment for project Total capital
FCI investment
Manufacturing fixed capital
Investment for project

Capital reservoir
Other capital
input Loans
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Bond Preferred
common stocks
Sharif University of Technology
stocks
 Analysis of cost estimation
Net profit after taxes
• The fund flow of an industrial project (Sj-Co,j-dj)(1-r)

Income taxes Taxable gross profit

(Sj-Co,j-dj)r Sj-Co,j-dj

Gross profit Depreciation

Sj-Co,j dj
Operations for
Sj Co,j
complete project
Total Income Costs for operations
from sales (not including depreciation)
WCI
Working capital
investment for project
FCI
Nonmanufacturing fixed TCI
capital investment for project Total capital
FCI investment
Manufacturing fixed capital
Investment for project

Capital reservoir
Other capital
input Loans
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Bond Preferred
common stocks
Sharif University of Technology
stocks
 Analysis of cost estimation
Net profit after taxes
• The fund flow of an industrial project (Sj-Co,j-dj)(1-r)

Income taxes Taxable gross profit

(Sj-Co,j-dj)r Sj-Co,j-dj

Gross profit Depreciation

Sj-Co,j dj
Operations for
Sj Co,j
complete project
Total Income Costs for operations
from sales (not including depreciation)
WCI
Working capital
investment for project
Net cash flow
FCI from The
Nonmanufacturing fixed TCI project
capital investment for project Total capital including
FCI investment depreciation
Manufacturing fixed capital (Sj-Co,j)(1-r)+djr
Investment for project

Capital reservoir
Other capital
input Loans
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Bond Preferred
common stocks
Sharif University of Technology
stocks
 Analysis of cost estimation
Net profit after taxes
• The fund flow of an industrial project (Sj-Co,j-dj)(1-r)

Income taxes Taxable gross profit

(Sj-Co,j-dj)r Sj-Co,j-dj

Gross profit Depreciation

Sj-Co,j dj
Operations for
Sj Co,j
complete project
Total Income Costs for operations
from sales (not including depreciation)
WCI
Working capital
investment for project
Net cash flow
Stockholders FCI from The
dividends Nonmanufacturing fixed TCI project
Repayment of capital investment for project Total capital including
borrowed capital FCI investment depreciation
Manufacturing fixed capital (Sj-Co,j)(1-r)+djr
Other Investment for project
investments
Capital reservoir
Other capital
input Loans
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Bond Preferred
common stocks
Sharif University of Technology
stocks
 Analysis of cost estimation
• Cash Position/flow

Income

-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10

Land FCI+WCI
Operating Expenditure
FCI FCI+WCI

FCI

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Analysis of cost estimation
• Cumulative Cash Position

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Analysis of cost estimation
• Cumulative Cash Position

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Analysis of cost estimation
• Cumulative Cash Position

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Analysis of cost estimation
• Cumulative Cash Position

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Analysis of cost estimation
• Cumulative Cash Position

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Analysis of cost estimation
• Cumulative Cash Position

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Analysis of cost estimation
• Cumulative Cash Position

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Analysis of cost estimation
• Factors affecting investment and production costs

o Costs should be of sufficient accuracy to provide reliable decisions

o It requires a complete understanding of the many factors that can affect costs

o We must be aware of actual prices for raw materials and equipment, company policies,
government regulations, and other factors affecting costs

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Analysis of cost estimation
• Factors affecting investment and production costs
o Source of equipment
 One of the major costs involved in chemical processes
 Idle/second-hand equipment
 Several price inquiry from different vendors
o Price fluctuations
 Equipment/labor/utility/material prices change over time
o Company policies
 Regulations and policies
 Labor union
o Operating time, rate of production and sales demand
 Capacity factor
o Government policies
 Env. and safety regulation
 Tax
 ….

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Analysis of cost estimation
• Capital Investment
o Capital: savings that may be used as the owner decides, such as investment

Total capital investment (TCI)

Working capital (WC) Fixed-capital investment (FCI)

Manufacturing FCI (direct cost) Nonmanufacturing FCI (indirect cost)

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Analysis of cost estimation
• Capital Investment

Total capital investment (TCI)

Working capital (WC) Fixed-capital investment (FCI)

Manufacturing FCI (direct cost) Nonmanufacturing FCI (indirect cost)

• For the installed process equipment with • For construction overhead and for all
all components that are needed for plant components that are not directly
complete process operation. related to the process operation
• site preparation, piping, instruments, • Land, processing buildings, administrative
insulation, foundations, and auxiliary and other offices, warehouses,
Saeed Eini
facilities laboratories, transportation, shipping,
Dep. of Chemical and Petroleum Eng. and receiving facilities, utility and waste
Sharif University of Technology disposal facilities, shops…
 Analysis of cost estimation
• Capital Investment

Total capital investment (TCI)

Working capital (WC) Fixed-capital investment (FCI)

• Funds which are required to pay the
expenses involved in the plant operation
before sales revenue becomes available.

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Most estimates of capital investment are based on the cost of the equipment required

• The most significant errors in capital investment estimation are generally due to omissions of
equipment, services, or auxiliary facilities rather than to gross errors in costing.

Direct costs

Breakdown of fixed-
capital investment items
for a chemical process

Indirect costs

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

1) Purchased equipment

2) Purchased-equipment installation

3) Instrumentation and controls

Direct costs
4) Piping
Breakdown of fixed-
capital investment items 5) Electrical systems
for a chemical process
6) Buildings (including services)

7) Yard improvements
Indirect costs

8) Service facilities

9) Land
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

1) Purchased equipment

2)All equipment listed on a complete flowsheet

Purchased-equipment installation
Spare parts and noninstalled equipment spares
Surplus equipment, supplies, and equipment allowance
3)Inflation cost allowance
Instrumentation and controls
Freight charges
Direct costs
Taxes, insurance, duties
4)Allowance
Piping for modifications during start-up
Breakdown of fixed-
capital investment items 5) Electrical systems
for a chemical process
6) Buildings (including services)

7) Yard improvements
Indirect costs

8) Service facilities

9) Land
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

1) Purchased equipment

2) Purchased-equipment installation

Installation of all equipment listed on complete flowsheet

3)Structural
Instrumentation
supports and controls
Direct costs Equipment insulation and painting
4) Piping
Breakdown of fixed-
capital investment items 5) Electrical systems
for a chemical process
6) Buildings (including services)

7) Yard improvements
Indirect costs

8) Service facilities

9) Land
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

1) Purchased equipment

2) Purchased-equipment installation

3) Instrumentation and controls

Direct costs
4)Purchase,
Piping installation, calibration, computer control with
supportive software
Breakdown of fixed-
capital investment items 5) Electrical systems
for a chemical process
6) Buildings (including services)

7) Yard improvements
Indirect costs

8) Service facilities

9) Land
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

1) Purchased equipment

2) Purchased-equipment installation

3) Instrumentation and controls

Direct costs
4) Piping
Breakdown of fixed- Process piping utilizing suitable structural materials
capital investment items 5)Pipe
Electrical systems
hangers, fittings, valves
Insulation
for a chemical process
6) Buildings (including services)

7) Yard improvements
Indirect costs

8) Service facilities

9) Land
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

1) Purchased equipment

2) Purchased-equipment installation

3) Instrumentation and controls

Direct costs
4) Piping
Breakdown of fixed-
capital investment items 5) Electrical systems
for a chemical process Electrical equipment switches, motors, conduit, wire,
6) Buildings (including
fittings, feeders, services)
grounding, instrument and control wiring,
lighting, panels
Electrical materials and labor
7) Yard improvements
Indirect costs

8) Service facilities

9) Land
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

1) Purchased equipment
Process buildings
substructures, superstructures, platforms, supports, stairways, ladders, access ways, cranes,
monorails, hoists, elevators 2) Purchased-equipment installation
Auxiliary buildings
administration and office, medical or dispensary, cafeteria, garage, product warehouse, parts
warehouse, guard and safety,3) fireInstrumentation and controls
station, change house, personnel building, shipping office and
platform,
Direct research laboratory, control laboratory
costs
Maintenance shop
4) Pipingwelding, carpentry, instrument
electric, piping, sheet metal, machine,
Building services
Breakdown of fixed- plumbing, heating, ventilation, dust collection, air conditioning, building lighting, elevators, escalators,
capital investment items telephones, intercommunication 5) Electrical systems
systems, painting, sprinkler systems, fire alarm
for a chemical process
6) Buildings (including services)

7) Yard improvements
Indirect costs

8) Service facilities

9) Land
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

1) Purchased equipment

2) Purchased-equipment installation

3) Instrumentation and controls

Direct costs
4) Piping
Breakdown of fixed-
capital investment items 5) Electrical systems
for a chemical process
6) Buildings (including services)

7) Yard improvements
Indirect costs
Site development
8)site
Service facilities
clearing, grading, roads, walkways, railroads, fences, parking
areas, wharves and piers, recreational facilities, landscaping
9) Land
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

1) Purchased equipment

2) Purchased-equipment installation
Utilities
steam, water, power, refrigeration, compressed air, fuel,and
3) Instrumentation waste disposal
controls
Facilities
Direct costs
boiler plant incinerator, wells, river intake, water treatment, cooling towers, water storage, electric
substation, refrigeration plant, air4)plant,
Pipingfuel storage, waste disposal plant, environmental controls, fire
protection
Breakdown of fixed- Nonprocess equipment
capital investment items 5) Electrical
office furniture and equipment, cafeteria systems
equipment, safety and medical equipment, shop equipment,
automotive equipment, yard material-handling equipment, laboratory equipment, locker-room
for a chemical process equipment, garage equipment, shelves, bins, pallets, hand trucks, housekeeping equipment, fire
extinguishers, hoses, fire engines, 6) Buildings (including services)
loading stations
Distribution and packaging
raw material and product storage and handling equipment, product packaging equipment, blending
facilities, 7) Yard improvements
Indirectloading
costs stations

8) Service facilities

9) Land
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

1) Purchased equipment

2) Purchased-equipment installation

3) Instrumentation and controls

Direct costs
4) Piping
Breakdown of fixed-
capital investment items 5) Electrical systems
for a chemical process
6) Buildings (including services)

7) Yard improvements
Indirect costs
Surveys
8) Service and fees
facilities
Property cost

9) Land
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

Direct costs

Breakdown of fixed- 1) Engineering and supervision

capital investment items
for a chemical process
2) Legal expenses

3) Construction expenses
Indirect costs
4) Contractor's fee

5) Contingency
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

Direct costs

Breakdown of fixed- 1) Engineering and supervision

capital investment items
for a chemical process Engineering costs
2) Legal expenses
administrative, process, design and general engineering, computer
graphics, cost engineering, procuring, expediting, reproduction,
communications,
3) Constructionscale models, consultant fees, travel
expenses
Indirect costs Engineering supervision and inspection

4) Contractor's fee

5) Contingency
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

Direct costs

Breakdown of fixed- 1) Engineering and supervision

capital investment items
for a chemical process
2) Legal expenses
Identification of applicable federal, state, and local regulations
3)Preparation
Construction expenses of forms required by regulatory agencies
and submission
Indirect costs Acquisition of regulatory approval
Contract negotiations
4) Contractor's fee

5) Contingency
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

DirectConstruction,
costs operation, and maintenance of temporary facilities, offices, roads,
parking lots, railroads, electrical, piping, communications, fencing
Construction tools and equipment
Construction supervision, accounting, timekeeping, purchasing, expediting
Breakdown of fixed- Warehouse personnel and 1) Engineering
expense, guards and supervision
capital investment items Safety, medical, fringe benefits
for a chemical process Permits, field tests, special licenses
Taxes, insurance, interest2) Legal expenses

3) Construction expenses
Indirect costs
4) Contractor's fee

5) Contingency
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment

Direct costs

Breakdown of fixed- 1) Engineering and supervision

capital investment items
for a chemical process
2) Legal expenses

3) Construction expenses
Indirect costs
4) Contractor's fee

5) Contingency
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
Breakdown of fixed-
capital investment items 1) Purchased equipment
for a chemical process
2) Purchased-equipment installation

3) Instrumentation and controls

Direct costs
4) Piping

1) Engineering and supervision 5) Electrical systems

2) Legal expenses 6) Buildings (including services)

3) Construction expenses 7) Yard improvements

Indirect costs
4) Contractor's fee 8) Service facilities

5) Contingency 9) Land
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Types of Capital Cost Estimates

o An estimate of the capital investment for a process may vary from a predesign estimate based on
little information except the magnitude of the proposed project to a detailed estimate prepared
from complete drawings and specifications.

based on similar previous cost data

Cat. 1 Order-of-magnitude estimate (ratio estimate) probable accuracy of estimate over ±30 percent.

based on knowledge of major items of equipment

Cat. 2 Study estimate (factored estimate) probable accuracy of estimate up to ±30 percent

based on sufficient data to permit the estimate to be budgeted

Cat. 3 Preliminary estimate (scope estimate) probable accuracy of estimate within ±20 percent.

based on complete data but before completion of drawings and specifications

Cat. 4 Definitive estimate (project control estimate) probable accuracy of estimate within ±10 percent.

based on complete engineering drawings, specifications, and site surveys

Cat. 5 Detailed estimate (contractor's estimate) probable accuracy of estimate within ±5 percent.

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Types of Capital Cost Estimates
o Cost-estimating information guide

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Types of Capital Cost Estimates
o Cost-estimating information guide (Continued)

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Types of Capital Cost Estimates
o AACE classification (Association for the Advancement of Cost Engineering)

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Cost Indexes
o Most cost data that are available for making a preliminary or predesign estimate are only valid at
the time they were developed.

o Cost indexes are used for updating cost data applicable at a past date to costs that are
representative of conditions at a later time.

o No index can take into account all factors, such as special technological advancements or local
conditions.

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Cost Indexes

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Cost components in capital investment

(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)

(10)
(11)
(12)
(13)
(14)

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• (1) Purchased-Equipment Cost
o The cost of purchased equipment is the basis of several predesign methods for estimating capital
investment
o For process equipment the specifications required to complete the material and energy balances
are usually sufficient to make a cost estimate.
o The most accurate method for determining process equipment costs is to obtain firm bids from
fabricators or suppliers.
o Second-best in reliability are cost values from the file of past purchase orders and by scaling (six-
tenths factor rule)

o In general, the cost capacity concept should not be used beyond a 10-fold range of capacity
o The two pieces of equipment must be similar with regard to type of construction, materials of
construction, temperature and pressure operating range, and other pertinent variables
o The actual values of the cost capacity exponent vary from less than 0.3 to greater than 1.0

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• (1) Purchased Equipment Cost
o Six-tenths factor rule
o Purchased-equipment prices are
usually quoted as FOB (free on board,
meaning that the purchaser pays the
freight).
o Freight costs depend upon many
factors, such as the weight and size of
the equipment, distance from source
to plant, and method of transport.
o For predesign estimates, a delivery
allowance of 10 percent of the
purchased equipment cost is
recommended.

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• (2) Purchased-Equipment Installation
o Installation of process equipment involves costs for labor, foundations, supports, platforms,
construction expenses, and other factors directly related to the erection of purchased equipment.
o Warning!
o It depends upon the complexity of the equipment and the type of plant
o In addition to the installation cost, the total cost for the labor and materials required for insulating
equipment and piping in ordinary chemical plants is approximately 8 to 9 percent of the delivered
purchased-equipment cost.

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• (3) Instrumentation and Controls
o Total instrumentation and control cost depends on the amount of control required
o It may amount to 8 to 50 percent of the total delivered equipment cost.
o For the normal solid-fluid chemical processing plant, a value of 26 percent of the delivered
purchased-equipment cost is recommended as an estimate for the total instrumentation and
control cost.

• Piping
(4) o The cost for piping covers labor, valves, fittings, pipe, supports, and other items involved in the
complete erection of all piping used directly in the process and include raw material, intermediate-
product, finished-product, steam, water, air, sewer, and other process piping.
o Process-plant piping can run as high as 80 percent of delivered purchased-equipment cost or 20
percent of the fixed-capital investment
o Labor for installation: 40 to 50 % of the total installed cost of piping

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• (5) Electrical Systems
o The electrical systems consist of four major components, namely, power wiring, lighting,
transformation and service, and instrument and control wiring.
o It is estimated to be 15 to 30 percent of the delivered purchased-equipment cost

• (6) Buildings
o The cost of buildings, including services, consists of expenses for labor, materials, and supplies
involved in the erection of all buildings connected with the plant.
o In addition, costs for plumbing, heating, lighting, ventilation, and similar building services are
included.

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• (7) Yard Improvements
o Costs for fencing, grading, roads, sidewalks, railroad sidings, landscaping, and similar items are all
considered part of yard improvements
o The cost for these items in most chemical plants approximates 10 to 20 percent of the purchased-
equipment cost.

• (8) Land
o As a rough average, land costs for industrial plants amount to 4 to 8 percent of the purchased-
equipment cost
o By law, the cost of land cannot be depreciated; therefore it is usually not included in the fixed-
capital investment. Rather, it is shown as a one-time investment at the beginning of plant
construction.

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• (9) Service Facilities
o Utilities for supplying steam, water, power,
compressed air, and fuel are part of the
service facilities of a chemical process
plant. Waste disposal, fire protection, and
miscellaneous service items, such as shop,
first aid, and cafeteria equipment and
facilities, require capital investments that
are included under the general heading of
service facilities cost.
o The total cost for service facilities in
chemical plants generally ranges from 30
to 80 percent of the purchased-
equipment cost with 55 percent
representing an average for a normal solid-
fluid processing plant.

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
(10) • Engineering and Supervision
o It includes the costs for construction design and engineering, including internal or licensed
software, computer-based drawings, purchasing, accounting, construction and cost engineering,
travel, communications, and home office expense plus overhead
o It is approximately 30 percent of the delivered-equipment cost or 8 percent of the fixed-capital
investment for the process plant

(11) • Legal Expenses

o Understanding and proving compliance with government, environmental, and safety
requirements also constitute major sources of legal costs.
o These usually total on the order of 1 to 3 percent of fixed-capital investment.

(12) • Construction Expenses (field expense)

o It includes temporary construction and operation, construction tools and rentals, home office
personnel located at the construction site, construction payroll, travel and living, taxes and
insurance, and other construction overhead.
o The construction expenses average roughly 8 to 10 percent of the fixed-capital investment
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
(13) • Contractor's Fee
o It can be estimated to be about 1.5 to 6 percent of the fixed-capital investment

(14) • Contingencies
o A contingency amount is included in all but the smallest estimates of capital investment in
recognition of the fact that experience shows there will be unexpected events and changes that
inevitably increase the cost of the project.
o Events, such as storms, floods, transportation accidents, strikes, price changes, small design
changes, errors in estimation, and other unforeseen expenses, will occur even though they
cannot be predicted.
o Contingency factors ranging from 5 to 15 percent of the fixed-capital investment are commonly
used, with 8 percent being considered a reasonable average value.

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Cost components in capital investment

(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)

(10)
(11)
(12)
(13)
(14)

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Methods for estimating capital investment

o Method A: Detailed-Item Estimate

o Method B: Unit Cost Estimate

o Method C: Percentage of Delivered-Equipment Cost

Less detailed information
Less preparation time
o Method D: Lang Factors for Approximation of Capital Investment Less accuracy

o Method E: Power Factor Applied to Plant/Capacity Ratio

o Method F: Investment Cost per Unit of Capacity

o Method G: Turnover Ratio

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Estimating capital investment; Method A: Detailed-Item Estimate
o Careful determination of each individual item
o It requires completed drawings and specifications
o Items are priced either from current cost data or preferably from firm delivered quotations from
vendors and suppliers
o Estimates of installation costs are determined from accurate labor rates, efficiencies, and
employee-hour calculations
o An accuracy in the ±5 percent range is expected from a detailed estimate
o It is prepared by contractors bidding on lump-sum work from finished drawings and specifications

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Estimating capital investment; Method B: Unit Cost Estimate
o Unit costs are obtained from accurate records of previous cost experiences
o What is the required engineering employee-hours ? What is the fee?

field expense factor

the unit cost
the specific the specific
for engineering the number of
detailed estimates of purchased price material unit material labor
unit cost per the engineering drawings or
obtained either from quotations or cost
employee-hour employee-hours specifications
index-corrected cost records and
published data the specific the unit cost
material the labor per drawing or
quantity employee-hours specification
installation labor is for the specific
evaluated as a fraction of material
the delivered-equipment
cost

o An accuracy in the ±10 to 20 percent range is expected from this method

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Estimating capital investment; Method C: Percentage of Delivered-Equipment Cost
o It requires determination of the delivered equipment cost as the main item
o The other items are then estimated as percentages of the delivered-equipment cost

o The expected accuracy is

in the ±20 to 30 percent range
o For comparable plants of
different capacity, the accuracy
is close to ±10 percent

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Estimating capital investment; Method D: Lang Factors
o It requires determination of the delivered equipment cost as the main item
o The other items are then estimated as percentages of the delivered-equipment cost

𝐹𝐶𝐼 𝑜𝑟 𝑇𝐶𝐼 = 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑒𝑑 − 𝑒𝑞𝑢𝑖𝑝𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡 × 𝐿𝑎𝑛𝑔

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Estimating capital investment; Method D: Lang Factors
o Another approach, based on Lang factors, is to use separate factors for installation of equipment,
foundations, utilities, piping, etc., or even to divide each item of cost into material and labor
factors. the cost of equipment
already installed

incremental cost of cost of field-

indirect cost Purchased corrosion-resistant alloy fabricated vessels
factor (normally equipment FOB
taken as 1.4) total heat exchanger cost

pump plus driver

Factor for field labor:
cost

Factor for piping materials:

Factor for miscellaneous items:

cost of tower shells

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Estimating capital investment; Method E: Power Factor
o This method relates the fixed-capital investment of a new process plant to the fixed-capital
investment of similar previously constructed plants by an exponential power ratio.
𝐶𝑛 = 𝐶𝑓𝑒 𝑅 𝑥

Power
Fixed-capital
investment of a
new plant Capacity ratio

Fixed-capital Cost index ratio

investment of a
constructed facility

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Estimating capital investment; Method E: Power Factor

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of Capital Investment
• Estimating capital investment; Method F: Investment Cost per Unit of Capacity
o This method is based on the fixed-capital investment required for various processes per unit of
annual production capacity (FCI per unit of production)
o It is similar to the previous method, ignoring the exponent

• Estimating capital investment; Method G: Turnover Ratio/Capital Ratio/Investment Ratio

o This method is based on the fixed-capital investment required for various processes per unit of
annual production capacity (FCI per unit of production)
o It is very similar to the previous method, excluding the exponent

o Turnover ratios varies from 0.2 to 4

o For the chemical industry the ratio can be approximated as 0.5

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of revenue

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of revenue
• Revenue
o Revenue comes from sale of the product or products produced by the plant

o What about production rate in the different years of plant operation?

 First year of operation: 50% of the plant capacity
 Rest of the plant lifecycle: 100% of the plant capacity

o What about downtime?

 typically 10 to 20 percent and hence the actual operating time is from approximately 300 to
330 days per year

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of total product cost

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Estimation of total product cost
• Total product costs
o This component is the total of all costs of operating the plant, selling the products, recovering
the capital investment, and contributing to corporate functions such as management and
research and development
Variable
production costs

Manufacturing costs Fixed charges

Plant overhead
Total product cost costs

Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

• include expenses directly associated with the

Variable manufacturing operation
production costs • These costs are incurred for the most part only
when the plant operates
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Raw Operating
Manufacturing
Operating costs Fixed charges
Maintenance Operating Laboratory Patents and Catalysts and
Supervision Utilities
Materials Labor and Repairs Supplies Charges Royalties Solvents
and clerical
Plant overhead
Total product cost costs

Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Raw Operating
Manufacturing
Operating costs Fixed charges
Maintenance Operating Laboratory Patents and Catalysts and
Supervision Utilities
Materials Labor and Repairs Supplies Charges Royalties Solvents
and clerical
Plant overhead
• The amounts
Total of raw
product costs
costmaterials are determined from process material balances
• Prices can be found in literature, published data, vendors , …
• Chemical prices are usually quoted on an f.o.b. (free-on-board) basis
• Transportation charges should be included in the raw material costs when available Administrative
(variable, but 10 percent of the raw material cost) expenses
• In chemical plants, raw material costs are usually in the range of 10 to 60 percent of
the total product cost
Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Raw Operating
Manufacturing
Operating costs Fixed charges
Maintenance Operating Laboratory Patents and Catalysts and
Supervision Utilities
Materials Labor and Repairs Supplies Charges Royalties Solvents
and clerical
Plant overhead
Total product cost • costs
Operating labor may be divided into skilled and unskilled labor
• For chemical processes, operating labor usually amounts to about 10 to 20
percent of the total product cost
• In preliminary cost analyses, the quantity of operating labor can often be Administrative
estimated either from company experience with similar processes or from expenses
published information on similar processes (power law, exponent: 0.2 to 0.25)
Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Raw Operating
Manufacturing
Operating costs Fixed charges
Maintenance Operating Laboratory Patents and Catalysts and
Supervision Utilities
Materials Labor and Repairs Supplies Charges Royalties Solvents
and clerical
Plant overhead
Total product cost costs

Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Raw Operating
Manufacturing
Operating costs Fixed charges
Maintenance Operating Laboratory Patents and Catalysts and
Supervision Utilities
Materials Labor and Repairs Supplies Charges Royalties Solvents
and clerical
Plant overhead
Total product cost costs

Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Raw Operating
Manufacturing
Operating costs Fixed charges
Maintenance Operating Laboratory Patents and Catalysts and
Supervision Utilities
Materials Labor and Repairs Supplies Charges Royalties Solvents
and clerical
Plant overhead
Total product cost costs
Another rule of thumb for the estimation of labor requirement per 1000 kg of product:
• For a fluids processing plant: 0.33 to 2 employee-hours
• For a solid-fluids plant: 2 to 4 employee-hours Administrative
• For a solid processing plants: 4 to 8 employee-hours expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Raw Operating
Manufacturing
Operating costs Fixed charges
Maintenance Operating Laboratory Patents and Catalysts and
Supervision Utilities
Materials Labor and Repairs Supplies Charges Royalties Solvents
and clerical
Plant overhead
Total product cost costs
• The cost of this item: 15 percent of the cost for operating labor
• For reduced capacities, supervision usually remains fixed at the 100 percent capacity rate
Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Raw Operating
Manufacturing
Operating costs Fixed charges
Maintenance Operating Laboratory Patents and Catalysts and
Supervision Utilities
Materials Labor and Repairs Supplies Charges Royalties Solvents
and clerical
Plant overhead
Total product cost costs
• As a rough approximation, utility costs for ordinary chemical
processes amount to 10 to 20 percent of the total product cost.
Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Raw Operating
Manufacturing
Operating costs Fixed charges
Maintenance Operating Laboratory Patents and Catalysts and
Supervision Utilities
Materials Labor and Repairs Supplies Charges Royalties Solvents
and clerical
Plant overhead
Total product cost costs
• Annual costs for equipment maintenance and repairs may range from 2 to 20 percent of the equipment cost
• Charges for plant buildings average 3 to 4 percent of the building cost
• In the process industries, the total plant cost per year for maintenance and repairs ranges from 2 to 10 percent of the fixed-capital
Administrative
investment, with 7 percent being a reasonable value.
•
expenses
For operating rates less than plant capacity, the maintenance and repair cost is generally estimated as 85 percent of that at 100
percent capacity for a 75 percent operating rate, and 75 percent of that at 100 percent capacity for a 50 percent operating rate.
Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Raw Operating
Manufacturing
Operating costs Fixed charges
Maintenance Operating Laboratory Patents and Catalysts and
Supervision Utilities
Materials Labor and Repairs Supplies Charges Royalties Solvents
and clerical
Plant overhead
Total product cost costs
• This item includes lubricants, test chemicals, ….
• The annual cost for these types of supplies is about 15 percent of the total cost for maintenance and repairs
Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Raw Operating
Manufacturing
Operating costs Fixed charges
Maintenance Operating Laboratory Patents and Catalysts and
Supervision Utilities
Materials Labor and Repairs Supplies Charges Royalties Solvents
and clerical
Plant overhead
Total product cost costs
• This expense is generally calculated by estimating the employee-hours involved
• This cost may be taken as 10 to 20 percent of the operating labor
Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Raw Operating
Manufacturing
Operating costs Fixed charges
Maintenance Operating Laboratory Patents and Catalysts and
Supervision Utilities
Materials Labor and Repairs Supplies Charges Royalties Solvents
and clerical
Plant overhead
Total product cost costs
• A rough approximation of patent and royalty costs for patented
processes is 0 to 6 percent of the total product cost
Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Raw Operating
Manufacturing
Operating costs Fixed charges
Maintenance Operating Laboratory Patents and Catalysts and
Supervision Utilities
Materials Labor and Repairs Supplies Charges Royalties Solvents
and clerical
Plant overhead
Total product cost costs

Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs

Manufacturing costs Fixed charges

Plant overhead
Total product cost costs

Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

• Costs that change little or not at all with the amount of production
Variable
• As a rough approximation, these charges amount to about 10 to 20
percent of the production costs
total product cost.

Manufacturing costs Fixed charges

Plant overhead Property

Depreciation Financing Local Taxes
costs Rent
Total product cost Insurance

Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs

Manufacturing costs Fixed charges

Plant overhead Property

Depreciation Financing Local Taxes
costs Rent
Total product cost Insurance

• Administrative
The initial investment must be paid back, and this is done by charging depreciation as a manufacturing expense
• In economic studies, it is acceptable to use a constant yearly depreciation rate for a fixed periodexpenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs

Manufacturing costs Fixed charges

Financing
Plant overhead Property
Depreciation Local Taxes
costs Rent
Total product cost Interest Insurance

• The compensation paid for the use of borrowed capitalAdministrative

• For income tax calculations, interest on money supplied byexpenses
the
corporation cannot be charged as a cost
Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs

Manufacturing costs Fixed charges

Financing
Plant overhead Property
Depreciation Local Taxes
costs Rent
Total product cost Interest Insurance

• Administrative
This item depends on the particular locality of the plant and the regional laws
• expenses
Usually, it is in the range of 1 to 4 percent of the fixed-capital investment

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs

Manufacturing costs Fixed charges

Financing
Plant overhead Property
Depreciation Local Taxes
costs Rent
Total product cost Interest Insurance

• Administrative
These rates amount to about 1 percent of the fixed-capital investment per year
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs

Manufacturing costs Fixed charges

Financing
Plant overhead Property
Depreciation Local Taxes
costs Rent
Total product cost Interest Insurance

• Annual costs for rented land and buildings amount Administrative

to about 8 to 12 percent of
the value of the rented property. expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs

Manufacturing costs Fixed charges

Plant overhead
Total product cost costs

Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs

Manufacturing costs Fixed charges

Plant overhead
Total product cost costs
…
Administrative
• expenses
The plant overhead cost for chemical plants is about 50 to 70 percent of
the total expenses for operating labor, supervision, and maintenance
Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs

Manufacturing costs Fixed charges

• This item includes salaries and wages for administrators, secretaries,
accountants, computer support staff, engineering, and legal personnel
Plant overhead
Total product cost • costs
The administrative costs may be approximated as 15 to 25 percent of
operating labor.

Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs
• This item includes salaries, wages, supplies, and other expenses for
Manufacturing costs sales offices, salaries,
Fixed chargescommissions, and traveling expenses for sales
representatives, shipping expenses, cost of containers, advertising
expenses, and technical sales service
Plant overhead
• These costs for most chemical plants are in the range of 2 to 20 percent
Total product cost costs
of the total product cost

Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs

• costs
Manufacturing Research and development costs include salaries and wages for all personnel directly
Fixed charges
connected with this type of work, fixed and operating expenses for all machinery and
equipment involved, costs for materials and supplies, and consultants' fees.
Plant overhead
• In the chemical industry, these costs amount to about 5 percent of total product cost
Total product cost costs

Administrative
expenses

Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Estimation of total product cost

Variable
production costs

Manufacturing costs Fixed charges

Plant overhead
Total product cost costs

Administrative
+ Contingencies expenses
(5 to 15 percent)
Distribution and
General expenses
marketing expenses

Saeed Eini Research and

Dep. of Chemical and Petroleum Eng.
development
Sharif University of Technology
 Summary: Total capital investment

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Summary: Total product cost

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Gross profit, net profit, and
cash flow

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Gross profit, net profit, and cash flow
• Gross profit

product sales revenue total product cost

in year j

• Taxable gross profit

depreciation

• Net profit

Income tax rate

• Annual cash flow

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Working Capital

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Working Capital
• Working capital refers to funds, in addition to fixed capital, needed by a company to meet its
obligations until payments are received from others for goods the company has sold them.

• It is fairly standard to provide working capital for a one-month period of plant operation

• Most chemical plants use an initial working capital amounting to 10 to 20 percent of the total capital
investment
• This percentage may increase to as much as 50 percent or more for companies producing products of
seasonal demand, because of the large inventories which must be maintained for appreciable periods

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Equipment purchase cost

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Equipment purchase cost
• Sources of Purchase Cost of Process Equipment

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Equipment purchase cost
• Equipment purchase cost: Type 1
o Example: Shell-and-Tube Heat Exchangers
 FOB purchase cost (CP):

base cost
tube-length correction

material factor

pressure factor

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Equipment purchase cost
• Equipment purchase cost: Type 1
o Example: FOB purchase cost (CP) of Shell-and-Tube Heat Exchangers

 Base cost (CB) for carbon-steel tubes, 20 ft long, shell-side pressures up to 100 psig:

 A: Tube outside surface area, in ft2, ranging from 150 to 12,000 ft2
 at 2013 (CE = 567)
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Equipment purchase cost
• Equipment purchase cost: Type 1
o Example: FOB purchase cost (CP) of Shell-and-Tube Heat Exchangers

 Material factor:

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Equipment purchase cost
• Equipment purchase cost: Type 1
o Example: FOB purchase cost (CP) of Shell-and-Tube Heat Exchangers

 Length factor:

 Pressure factor (applicable from 100 to 2,000 psig):

 P: shell-side pressure, in psig

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Equipment purchase cost
• Equipment purchase cost: Type 1

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Equipment purchase cost
• Equipment purchase cost: Type 2

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology Chemical Process: Design and Integration, 2nd edition, Smith, 2016.
 Equipment purchase cost
• Equipment purchase cost: Type 2

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology Plant Design and Economics for Chemical Engineers, 5th edition, Peters, Timmerhaus, West, 2005.
 Cost estimation summary

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Cost estimation summary

Total capital investment Total product cost

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Cost estimation summary
Purchased equipment
Purchased-equipment installation
Direct costs Instrumentation and controls
Fixed-Capital Investment Piping
Electrical systems
Indirect costs
Buildings (including services)
Yard improvements
Total capital investment Working capital
Service facilities
Land

Start up *
Engineering and supervision
Legal expenses
Construction expenses
Contractor's fee
Contingency

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Cost estimation summary
Total capital investment

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Cost estimation summary

Variable production costs

Manufacturing costs Fixed charges
Plant overhead
Total product cost
Administrative
General expenses Distribution and marketing
Research and development

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Cost estimation summary
Total product cost

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Cost estimation summary
It is strictly recommended to have a look at the other references

Product and Process Design Principles, Analysis, Synthesis and Evaluation, Fourth edition, Seider et al., 2017.
Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Attention!

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Attention!
• Take care of the details !!!
o Whether the cost item is included in the cost scheme or not!
o Be consistent!

• How to estimate the investment costs for utility units

o using an indirect method (e.g. 55 percent of the purchased-equipment cost )
o using a direct method such as the following table:

Product and Process Design Principles, Analysis, Synthesis and Evaluation, Fourth edition, Seider et al., 2017.

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Attention!
• Utility price

Saeed Eini Product and Process Design Principles, Analysis, Synthesis and Evaluation, Fourth edition, Seider et al., 2017.
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology
 Attention!
• Processing trains

Sour water
stripper unit

Saeed Eini
Dep. of Chemical and Petroleum Eng.
Sharif University of Technology