Dr.

Hemlata Karne
Factors Affecting Investment &
Production cost
 Sources of Equipment
 Price Fluctuation
 Company Policies
 Operating Time & Rate of Production
 Government Policies
Factors Affecting Investment &
Production cost
Sources of Equipments
 Purchase of new equipments
 Purchase of second hand equipments

Price Fluctuation
 Raw material & resource cost
 Equipments cost
 Salaries & wages
Factors Affecting Investment &
Production cost
Company Policies
 Safety policies
 Labor policies
 Labor unions demands

Operating Time & Rate of Production

 If equipment stands idle
 Sales demand, rate of production &
operating time
Break Even Chart
Factors Affecting Investment &
Production cost
Government Policies
 Laws & regulations
 Import, export tariff regulations
 Depreciation rates
 Income tax
 Environmental & safety regulations
Process Economics
Economic Nature Of
nature of Chemical
Process
Raw materials to Useful
Products(Higher Value)
Series of material and
energy flow
Each has an economic
value cost or source of
income
Process Economics..

 Chemical Reaction
 Stoichiometry and Thermodynamics
- material flow
-Overall conversion and heat requirements
 Unconverted feed
- separated recycled or reused
Process Economics
Additional Unit operations
Utilities including electricity,
steam, cooling water, refrigeration
Generation on site importing from
third parties
Process Economics….
 Feed Stock
- Cost of feed stock- quantity and quality
-Quantity from yield/desired product
-Quality defined by purity
 Catalyst
- selection based on yield and selectivity
-optimization reduces investment and operating cost
Capital costs
 ISBL
 Cos t of procuring and installing
all process equipment
 Contingency Charges (10% of ISBL+OSBL)
 Minor changes in project or
extra charges
 Engineering costs (10% of ISBL+OSBL)
 Home office/design
 Offsite costs (40% ISBL)
 If you want more infrastructure/
expand
 Working capital
 Money tied up in maintaining
feed stock, spare parts, products
etc..
Direct and Indirect Cost Estimates

Direct cost examples Indirect cost

• Physical assets examples
• Maintenance and
• Utilities
operating costs (M&O)
• IT systems and networks
• Materials
• Direct human labor (costs • Purchasing
and benefits) • Management
• Scrapped and reworked • Taxes
product • Legal functions
• Direct supervision of
• Warranty and guarantees
personnel
• Quality assurance
• Accounting functions
• Marketing and publicity
15-3 © 2012 by McGraw-Hill All Rights Reserved
Capital Investment

Fixed Capital Investment

Working Capital Investment
Fixed capital Investment
Manufacturing fixed capital Investment
 Equipment
 Installation cost
 Auxiliaries
 piping
 Instrumentation
 Foundations
 Site preparation
Fixed capital Investment
Nonmanufacturing fixed capital Investment
 Land
 Processing Building
 Administrative
 Warehouses
 Laboratories
 Transportation
 Shipping & Receiving facilities
 Utility & waste disposal
 Shops & other permanent parts
Fixed capital Investment
Construction Overhead Cost
 Field office & supervision expenses
 Home office expenses
 Engineering expenses
 Miscellaneous construction cost
 Contractor’s fees
 Contingencies
Working capital Investment
 Raw materials
 Finished products in stock and semi finished
products
 Accounts receivable
 Cash kept on hand for monthly payment
 Accounts payable
 Taxes payable.

Working capital Investment= 10-

20% of Total Capital Investment
Breakdown of fixed-capital investment items for a chemical
process
Direct Costs
1. Purchased equipment
All equipment listed on a complete flow sheet
Spare parts and noninstalled equipment spares
Surplus equipment, supplies, and equipment allowance
Inflation cost allowance
Freight charges
Taxes, insurance, duties
Allowance for modifications during startup
2. Purchased-equipment installation
Installation of all equipment listed on complete flow sheet
Structural supports, insulation, paint
3. Instrumentation and controls
Purchase, installation, calibration, computer tie-in
4. Piping
Process piping-carbon steel, alloy, cast iron, lead, lined, aluminum, copper, ceramic,
plastic,
rubber, reinforced concrete
Pipe hangers, fittings, valves
Insulation-piping, equipment
5. Electrical equipment and materials
Electrical equipment -switches, motors, conduit, wire, fittings, feeders, grounding,
instrument
and control wiring lighting, panels
Electrical materials and labor
6. Buildings (including services)
Process buildings-substructures, superstructures, platforms, supports, stairways,
ladders, access
ways, cranes, monorails, hoists, elevators
Auxiliary buildings-administration and office, medical or dispensary, cafeteria,
garage, product
warehouse, parts warehouse, guard and safety, fire station, change house, personnel
building,
shipping office and platform, research laboratory, control laboratory
Maintenance shops-electric, piping, sheet metal, machine, welding, carpentry,
I. Yard improvements
Site development-site clearing, grading, roads, walkways, railroads, fences,
parking areas,wharves and piers, recreational facilities, landscaping
8. Service facilities
Utilities-steam, water, power, refrigeration, compressed air, fuel, waste
disposal Facilities-boiler plant incinerator, wells, river intake,
water treatment, cooling towers, water
storage, electric substation, refrigeration plant, air plant, fuel storage, waste
disposal plant, environmental controls, fine protection
Nonprocess equipment-office furniture and equipment, cafeteria equipment,
safety and medical equipment, shop equipment, automotive equipment, yard
material-handling equipment, laboratory equipment, locker-room
equipment, garage equipment, shelves, bins, pallets, hand trucks,
housekeeping equipment, fire extinguishers, hoses, fire engines, loading
stations
Distribution and packaging-raw-material and product storage and handling
equipment, product
packaging equipment, blending facilities, loading stations
Direct Costs
9. Land
Surveys and fees
Property cost
Indirect costs
1. Engineering and supervision
Engineering costs-administrative, process, design and general engineering,
drafting, cost engineering, procuring, expediting, reproduction,
communications, scale models, consultant
fees, travel
Engineering supervision and inspection
2. Construction expenses
Construction, 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
Warehouse personnel and expense, guards Safety, medical, fringe benefits
Permits, field tests, special licenses
Taxes, insurance, interest
3. Contractor’s fee
4. Contingency
Cost Estimate Methods
 1. Order of Magnitude Estimate (Feasibility)
 2. Study Estimate / Major Equipment
 3. Preliminary Design (Scope) Estimate
 4. Definitive (Project Control) Estimate
 5. Detailed (Firm or Contractors) Estimate
Cost Estimate Methods
 Order of Magnitude Estimate
 Method of Hill
 Marshall Swift for I/Ibase
 Six Tenths Rule for Production Capacity
 CTCI-2 (I)=CTCI-1 (Ibase)*(I/Ibase)* (Capacity2/Capacity1)0.6
 Study Estimate (±35%)
 Method of Lang
 CTCI=1.05*fL-TCI ∑ (Ii/Ibase-i) Cp-i
 Lang factors for different types of Plants
 Solids -3.10, Solids&Fluids 3.62, Fluids 4.73
 Sum over all major equipment
 Preliminary Estimate (±20%)
 Method of Guthrie
 Bare module cost, CBM= Cp-base(I/Ibase)[FBM+(FdFpFm-1)]
 d= design factor, p = pressure factor, m =materials factor
 CTCI= ∑ CBM_i
 Quote Estimate
 Capital Cost Estimate Classifications
Estimate Type Accuracey Data Diagrams Notes

Order of + 30%, - 30% Existing plants BFD Capacity +

Magnitude inflation
Study (Major + 30%, - 30% Roughly sized major PFD Generalized
equipment, equipment charts cost
Factored)
Preliminary + 20%, - 20% major equip. + piping PFD Group project
Design (scope) + instr. + Elec. + util.
Definitive + 10%, - 10% Prelim spcs for all PFD +
equipment P&ID
Detailed (firm or + 5%, - 5% Complete engineering
contractor
Capital Cost Estimate Classifications
Example 5.1
The estimated capital cost from a chemical plant using the study estimate method (Class
4) was calculated to be $2 million. If the plant were to be built, over what range would
you expect the actual capital estimate to vary?

For a Class 4 estimate, from Table 5.2, the expected accuracy range is between 3 and 12
times that of a Class 1 estimate. A Class 1 estimate can be expected to vary from +6% to -
4%. We can evaluate the narrowest and broadest expected capital cost ranges as:
Lowest Expected Cost Range
High value for actual plant cost ($2.0 x 106)[1 + (0.06)(3)] = $2.36 X 106
Low value for actual plant cost ($2.0 x 106)[1 - (0.04)(3)] = $1.76 x 106

Highest Expected Cost Range

High value for actual plant cost ($2.0 x 106)[1 + (0.06 )(12)] = $3.44 x 106
Low value for actual plant cost ($2.0 x 106)[1 - (0.04 )(12)] = $1.04 x 106

The actual expected range would depend on the level of project definition and effort. If
the effort and definition are at the high end, then the expected cost range would be
between $1.76 and $2.36 million. If the effort and definition are at the low end, then the
expected cost range would be between $1.04 and $3.44 million.
Example 5.2
Compare the costs for performing an order-of-magnitude estimate and a detailed
estimate for a plant that cost $5.0 x 106 to build.

Solution :
For the order-of-magnitude estimate, the cost of the estimate is in the range of
0.015% to 0.3% of the final cost of the plant:

Highest Expected Value: ($5.0 x 106)(0.003) = $15,000

Lowest Expected Value: ($5.0 x 106)(0.00015) = $750
For the detailed estimate, the cost of the estimate is in the range of 10 to 100 times
that of the order-of-magnitude estimate

For the lowest expected cost range

Highest Expected Value: ($5.0 x 106 )(0.03) = $150,000

Lowest Expected Value: ($5.0 x 106)(0.0015) = $7500

For the highest expected cost range:

Highest Expected Value: ($5.0 x 106)(0.3) = $1,500,000
Lowest Expected Value: ($5.0 x 106)(0.015) = $75,000