What we (and SSL&W) present are just general concepts.

There are no universal criteria and rules in corporate finance (beyond the tax laws). Details differ in different texts and in different companies. This point applies to the definition of the costing levels, to capital and manufacturing cost calculations, and to the cash flow in profitability analysis. And the different ways to do the accounting can be very confusing!

The more accurate the estimate, the more expensive is the exercise. We generally carry out the rougher estimates near the beginning of a project and refine them as we move farther along.

error

Just a schematic to convey the idea

Same categories in the (TBW&S) table on the next slide Compare them with the four levels in SSL&W, Section 22.4.

Order-of-magnitude estimate
~only need production rate and cost of major units *

Study estimate
Based on the Lang factors (defined in later slides)

Preliminary estimate
Based on the Guthurie factors (they are the ones in the spreadsheet later), but SSL&W have a way to simplify their use in this rough estimate __ * All three estimates here of course have more details. But they are explained well in SSL&W and can be set up easily in a spreadsheet. There are other estimation methods too, e.g., in TBW&S

The simpler order-of-magnitude and study estimates.

Per SSL&W definitions, that would include the preliminary.

Even when we do the final AIChE Design, we use cost correlations and scaling factors and stop at the preliminary estimate (TBWS or SSLW definitions). The CAPCOST spreadsheet came with TBW&S takes care of all the details. And Aspen Icarus does even more!

Reminder
Most of the grudge work has been taken over by computersfor us. We just need to know why or understand where the numbers came from under most circumstances. We still need the intuition and knowledge to sense when the numbers may not be correct. And on a job, configure the system properly for the company's special needs.

That's a long way from the installed cost!

First step(s): sizing calculations

1. Do material and energy balance (or PFD simulation) 2. Design equipment 3. Do equipment sizing*

* Generally easy with heat changers, pumps, etc. because we can extract the data directly from the PFD simulation. But be prepared to do some manual work of your own with vessel and tower sizes (at least when you are learning the ropes so you can check computer results).

Once we have the sizing data, we can look up charts for the purchased cost

Excellent collection of cost chars and descriptions in Section 22.5. At least take a look of them. They are important to frame your engineering intuition. Some similar is programmed into Aspen Icarus. SSL&W Table 22.32 is great for setting up a spreadsheet to do our own estimations. Warning: SSL&W are not too explicit with pressure and materials (other than Table 22.21).

Actual calculations have been replaced by cost correlations programmed into computers. Example: Eq. (A.1) in TBW&S: log Cp = K1 + K2 log A + K3 (log A)
o 2

The cost scaling could be a simple power law equation

C Co A Ao
n

where Co is the price of some reference size Ao, and with different values of cost exponent n for different equipment. Values of n varies from 0.4 to 0.7, but for order of magnitude estimation, we take n = 0.6. With that, if A = 2Ao, then C ~ 1.5 Co

Another tool for a quick order of magnitude estimation

Total plant Sum of purchased = Lang x capital cost cost of all equipment

(See SSL&W Tables 22.16 and 22.17)

We need to scale the equipment cost to account for inflation: C = Co (I /Io) The cost index can be found in trade journals such as Chemical Engineering and Chemical Marketing Reporter (now part of ICIS).
Nelson-Farrar, Marshall-Swift, Engineering News-Record, ChemE Plant, CPI indexes SSL&W also have nice tables for reference

For general process design, a common one to use is the Chemical Engineering Plant Cost Index.

TBW&S Table 5.6

(Fixed Capital)

There are many cost factors. We'll try to clarify them next. (Details here follow closer to Peters & Timmerhaus and Ulrich. Reminder: there is no universal rule on the exact accounting.)

Side track: before the huge mess, SSL&W have excellent descriptions of individual items/categories.

On-site
Off-site = outside the battery limits

Purchased price (a.k.a. free on board, f.o.b.) Installation material and equipment Labor Freight Insurance Construction overhead etc. Bare module cost Contingency & fees

Direct cost Bare module cost Indirect cost

Other texts
Total module cost Total grass root cost Site development Auxiliary facilities, etc. (Also the final, final installed cost)

Bare module cost Spares, storage, instrumentation, etc. TBM Site development Auxiliary facilities, etc. Contingency & fees TDC Land Royalties Startup Total permanent investment (TPI) Total bare-module cost (or investment TBM)

(This is not the total module cost used in other texts.)

Total direct permanent cost (or investment DPI)

Total depreciable capital (TDC) (~ the grass root)

the Fixed Capital (per SSL&W only)

(See Table 22.11 for the bare-module factors)

Why is the install cost so high? This example is taken from Ulrich, pp. 272-275, which shows how the Guthrie module factor is derived. Example: Typical costs associated with purchase and installation of a carbon steel heat exchanger Cost Item Direct Project Expenses Purchase price (f.o.b.), C Materials used for installation, C Labor Total direct materials and labor B Indirect Project Expenses Freight, insurance, taxes Construction overhead Contractor engineering expenses Total indirect project costs > Bare module capital cost, C C Contingency and Fee Contingency Fee Total contingency and fee Approximation Cost Factor

CM CP price

=$D$12 =$D$11 =$F$11

Example $10,000 $7,100 $6,327 $23,427

71% of C 37% of (C = 63% of C

1.00 C 0.71 C 0.63 C 2.34 C

8% of (CP + CM) 70% of Labor 15% of (CP + CM)

0.14 C 0.44 C 0.26 C 0.84 C 3.18 C

$1,368 $4,429 $2,565 $8,362 $31,789

Sample spreadsheet
15% of C 3% of C

0.48 C 0.10 C 0.57 C 3.75 C

$4,768 $954 $5,722 $37,511

> Total module capital cost, C D Auxiliary Facilities Site development (range 4 to 6% of C Auxiliary buildings (2 to 6%) Offsite facilities (17 to 25%)

5% of C 4% of C 21% of C

0.19 C 0.15 C 0.79 C 1.13 C

$1,876 $1,500 $7,877 $11,253

We use the so-called cost models. Or really, based on experience, use some multiplying factors to relate the various expenses to the purchased price. This is the illustration in Table 22.10 The key is to appreciate and understand that the installed cost is easily 3 to 5 times the purchased cost. (We dont actually do the calculations in this course! Aspen Icarus does that.)

PFD Equipment sizing & costing Onsite Capital Offsite Capital Reminder: there are different ways to do the accounting.
(Total permanent investment in SSL&W, capital cost in TBW&S)

Direct Cost

Fixed Capital

Total Capital Investment

Construction Overhead Contingency & Fees

Indirect Cost Working Capital Start-up Cost