Introduction to Costing

Definition

The establishment of budgets, standard costs and

actual costs of operations, processes, activities or
products; and the analysis of variances,
profitability, or the social use of funds.

ZEH 2
 Costing Methods

A costing method is a method of costing which is
designed to suit the way goods are processed or
manufactured or the way that services are provided.

Each company or establishment will have a costing
method with unique features but there will be common
features of the costing systems of companies who are
broadly in the same line of business.

ZEH 3
 Categories of Costing Methods

There are two broad categories of product costing
methods:
Specific Order Costing
Continuous Operation/Process Costing or Unit Costing

ZEH 4
 Specific Order Costing

The basic cost accounting method applicable where work
consists of separately identifiable contracts, jobs or
batches.

Main sub-divisions are:
Job Costing
Contract Costing
Batch Costing

ZEH 5
 Continuous Operation/Process Costing or Unit Costing

The costing method applicable where goods or services
result from a sequence of continuous or repetitive
operations or processes.

Costs are averaged over the units produced during the
period, being initially charged to the operation or process.

The main sub-divisions are:
Process costing including joint product and by-product
costing.
Service/function costing.

ZEH 6
 Job Costing

A form of specific order costing in which costs are
attributed to individual jobs

The main pre-requisites for job costing are:
A sound system of production control
A comprehensive works documentary
An appropriate time booking system
A well organised basis to the costing system with
clearly defined cost centres, good labour analysis,
appropriate overhead absorption rates and a relevant
materials issue pricing system.

ZEH 7
 Batch Costing

This is a form of costing which applies where a quantity
of identical articles are manufactured as a batch.

Generally the procedures for costing batches are similar
to costing jobs.

ZEH 8
 Contract Costing

Contract costing has many similarities to job costing and
is usually applied to work which are:
Undertaken to customers special requirements
Relatively long duration
Site based, sometimes overseas
Frequently of constructional nature

Certain characteristics are common to most contract
costing systems:
Higher proportion of direct costs
Low indirect costs
Difficulties of cost control
Surplus material
ZEH 9
 Continuous Process Costing

The costing method applicable where goods or services
result from a sequence of continuous or repetitive
operations or processes.

Costs are averaged over the units produced during the
period, being initially charged to the operation or process.

Operation costing is a generic term embracing a group of
costing methods of varying complexity.

ZEH 10
 Output Costing

This is a costing method used where the organisation
produces one product only. The whole production process
is geared to the one product and frequently highly
mechanised.

ZEH 11
 Service/Function Costing

Cost accounting for specific services or functions, e.g.,
canteens, maintenance, personnel.

These may be referred to as service centres, departments
or functions.

The services provided may be for sale, e.g., public
transport, hotel accommodation, restaurants, etc., or they
may be provided within the organisation e.g.,
maintenance, IT, Library, etc.

ZEH 12
 Process Costing

Process costing is a form of operation costing used where
production follows a series of sequential processes.

It is used in variety of industries especially the chemical
and process industries.

ZEH 13
 Process Costing

The common features of process costing systems are:
Clearly defined process cost centres and the
accumulation of all costs by the cost centres.
The maintenance of accurate records of units and part
units produced and the cost incurred by each process.
The averaging of the total costs of each process over the
total production of that process, including partly
completed units.
The charging of the cost of the output of one process as
the raw materials input cost of the following process.
Clearly defined procedures for separate costs where the
process produces two or more products (joint products)
or where by-products arise during production.
ZEH 14
 Joint Product and By-Product Costing

A joint product is the term used when two or more
products arise simultaneously in the course of processing,
each of which has a significant sales value in relation to
each other.

A by-product is a product which arises incidentally in the
production of the main product(s) and which has a
relatively small sales value compared with the main
product(s).

ZEH 15
 Joint Product and By-Product Costing

The various products become identifiable at a point
known as the split-off point.

Up to that stage all costs are joint costs, subsequent to the
split-off point any costs incurred can be identified with
specific products and they are known as subsequent or
additional processing costs.

ZEH 16
 Joint Costs Subsequent Costs
Subsequent
processes
incurring Product A
material +
labour +
overhead
costs
Joint
Transferred processes
units + costs incurring Split- Product B
from material + off Ditto
previous labour + point
processes overhead
costs
Product C
Ditto

ZEH 17
 Unit Costs in the Public Sector

In public sector there is rarely a profit figure to provide a
measure of performance so most financial measures of
performance tend to be cost-based

Unit costs are mainly used as:
Indicators of relative efficiency
Measures of efficiency over time
An aid to cost control

The main limitations of unit costs are:
Quality of performance is ignored
The throughput mix is likely to differ
Throughputs are used rather than outcomes
There are significant inter-regional and inter-authority
ZEH
differences. 18
 Unit Costs in the Public Sector

The main limitations of unit costs are:
Quality of performance is ignored
The throughput mix is likely to differ
Throughputs are used rather than outcomes
There are significant inter-regional and inter-authority
differences

ZEH 19
Capital Cost Estimation
in the
Process Industry
 Sources for Information

There are very good sources such as:
Gerrard, Guide to Capital Cost Estimating, 2000
Turton et al, Analysis, Synthesis, and Design of
Chemical Processes), Prentice-Hall, 2002 (Appendix A
is particularly useful)
Sinnott, Chemical Engineering Volume 6, 2005
Towler and Sinnott, Chemical Engineering Design, 2012
Peters and Timmerhaus, Plant Design and Economics for
Chemical Engineering, 2003.
Page, Conceptual Cost Estimating Manual, 1996
Navarrete, Pablo F., Planning, estimating, and control of
chemical construction projects, Marcel Dekker, 2001
ZEH 21
 Note on Costing Chem Eng Design Study

You are expected to provide evidence when doing the
costing for the project that you did additional work and
you went beyond what is discussed in these lectures.
The list of references provided on the previous slide
could provide you with a starting point.

ZEH 22
 Capital Costs

Capital Costs and Operating Costs are required before a

decision is made on the progress/authorisation of any
project.

ZEH 23
Capital Costs:What Is Included?

24
Capital Costs: What Is Included?

25
Capital Costs: What Is Included?

26
Capital Costs: What Is Included?

27
 Purchased Equipment

All equipment listed on a complete flow sheet

Spare parts and non installed equipment spares

Surplus equipment, supplies, and equipment allowance

Inflation cost allowance

Freight charges

Taxes, insurance, duties

Allowance for modifications during startup

ZEH 28
 Purchased-Equipment Installation

Installation of all equipment listed on complete flow
sheet

Structural supports, insulation, paint

ZEH 29
 Instrumentation and Controls

Purchase, installation, calibration, computer tie-in

ZEH 30
 Piping

Process piping, carbon steel, alloy, cast iron, lead, lined,
aluminum, copper, ceramic, plastic, rubber, reinforced
concrete

Pipe hangers, fittings, valves

Insulation, piping, equipment

ZEH 31
 Electrical Equipment and Materials

Electrical equipment, switches, motors, conduit, wire,
fittings, feeders, grounding, instrument and control
wiring, lighting, panels

Electrical materials and labor

ZEH 32
 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, instrument Building
services, plumbing, heating, ventilation, dust collection,
air conditioning, building lighting, elevators, escalators,
telephones, intercommunication systems, painting,
sprinkler systems, fire alarm
ZEH 33
 Yard Improvements

Site developmentsite clearing, grading, roads,
walkways, railroads, fences, parking areas, wharves and
piers, recreational facilities, landscaping

ZEH
 Service Facilities - Utilities

Steam

Water

Power

Refrigeration

Compressed air

Fuel

Waste disposal facilities

Boiler plant incinerator

Wells

ZEH 35
 Service Facilities - Utilities

River intake

Water treatment

Cooling towers

Water storage

Electric substation

Air plant

Fuel storage

Waste disposal plant

Environmental controls

Fire protection

ZEH 36
 Service Facilities - Others

Non-process 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

ZEH 37
 Service Facilities - Others

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

ZEH 38
 Land Surveys and fees

Property cost

ZEH 39
 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

ZEH 40
 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

ZEH 41
 Contractors Fees

This depends on the type of plant/pressure and variety of
other factors.

ZEH 42
 Contingencies

Covers costs added by unforeseen circumstances and
delays such as costs of natural phenomena (storms, heavy
wind, heavy snow), personnel (strikes, illness, etc.),
changes in design, additional equipment, unexpected
price increases, etc.

ZEH 43
 Working Capital

Depends on the type of process and varies from 10% to
50% of total capital investment.

Usually covers a month cost of:
Raw materials and supplies carried in stock
Finished products in stock and semi-finished products
in the process of being manufactured.
Accounts receivable
Cash kept on hand for monthly payment of operating
expenses, such as salaries, wages, and raw-material
purchases
Accounts payable
Taxes payable
ZEH 44
Direct Fixed Capital: Typical Ratios
Component Range (%)
Purchased equipment 15-40
Purchased-equipment installation 6-14
Instrumentation and controls 2-8
(installed)
Piping (installed) 3-20
Electrical (installed) 2-10
Buildings (including services) 3-18
Yard improvements 2-5
Service facilities (installed) 8-20
Land 1-2 45
 Indirect Fixed Capital: Typical Ratios

Component Range (%)

Engineering & Supervision 4-21

Construction Expense 4-16

Contractors fee 2-6

Contingency 5-15

46
 Types of Capital Cost Estimates

Order of Magnitude Estimate

Study Estimate

Preliminary Estimate

Definitive Estimate

Detailed Estimate

ZEH 47
 Order of Magnitude Estimate
(Ratio estimate or Ballpark estimate)

A very crude type of estimate that utilises data from a
similar process, but not necessary of the same scale.

The estimate may be obtained without the necessity of
developing the process flowsheet.

If no similar process is available then an outline
flowsheet is needed (normally a basic block diagram).

Little efforts and cost are involved in preparing such an
estimate.

Step counting methods of cost estimation may be used to
obtain a preliminary estimate.

Accuracy 30% to 50% (40% - 100% according to
AACE)
ZEH 48
 Study Estimate
(Evaluation estimate or Pre-design estimate)

Requires the development of the preliminary flowsheets
and the capacity/duty of major plant items.

Order of magnitude techniques are used to estimate the
cost of the individual or groups of major plant items.

Incorporates other items such as electrical, piping, and
building works.

More efforts are required to produce the estimate.
Depending on the nature and size of the project, the cost
of the study estimate may vary between 0.1 and 0.2 of
the total project cost.

ZEH 49
 Study Estimate
(Evaluation estimate or Pre-design estimate)

Accuracy 20% to 30% (30% - 50% according to
AACE)

A re-evaluation of the project will take place at this stage
and decisions to continue or abandon the venture will be
taken.

Needs a PFD

Costs are normally obtained from generalised curves or
correlations.

Most individual student design studies fall in this
category.

ZEH 50
 Preliminary Design (or Scope) Estimate
(Sanction, Funding, or Authorization Estimate)

An estimate carried out after initial work by engineers
that present information about preliminary mass and
energy balances, piping and instrument diagrams,
equipment lists and material specifications, duty rating
and sizing of all major process equipment (and some
instrumentation and control devices).

Factors are used to estimate several items such as pipe
work, insulation, electrical and instrumentation, etc.

Most large group student design studies fall in this
category.

ZEH 51
 Definitive Estimate (Control Estimate)

Following authorisation to proceed after a preliminary
estimate, further refinement of the design and better
estimates are made after talking to vendors and obtaining
more accurate estimates.

A key cost control document used by the project manager
to monitor all future expenditure against the authorised
funds.

Uses the final PFD and preliminary P&ID.

ZEH 52
 Detailed Estimate
(Tender/Contractors Final Cost Estimate)

Prepared after considerable engineering work.

Uses detailed design information, plant layout, piping,
electrics, vendors quotations, etc.

Very expensive

Vendors quotes for all expensive items are obtained.

Plant ready to go to the construction stage.

All diagrams are required to complete the construction of
the plant.

ZEH 53
 Types of Estimates
Type Level of Project Typical Purpose of
Definition Estimate
Order of
0-2% Screening or feasibility
Magnitude
Concept Study or
Study Estimate 1-15%
feasibility
Preliminary Budget, authorization, or
10-40%
Estimate control
Definitive
30-70% Control or bid/tender
Estimate
Detailed Check estimate or
50-100%
Estimate bid/tender

54
 Types of Estimates
Type Accuracy Cost (% of Project)

Order of Magnitude 30 to 50 % 0 0.1 %

Study Estimate 20 to 30 % 0.1 0.2 %

Preliminary Estimate 10 to 25 % 0.4 0.8 %

Definitive Estimate 5 to 15 % 13%

Detailed Estimate 2 to 5 % 5 10 %
55
 Sources for Cost Data

Suppliers Detailed Quotations

Suppliers Budget Quotation

Company Records

Trade literature

Unit Pricing Literature (Equations, Correlations, etc.)

Technical Literature and Textbooks

Personal cost Books

Government Departments

Computer Packages (Costing)

Specialised Data Sources (e.g Process Engineering)

Online from technical web sites

ZEH 56
 Format of Cost Data

Tables

Graphs

Individual quotes

etc

ZEH 57
 Vessels (Distillation and Absorbers)
Base Year (1990)

ZEH 58
 Mixers

ZEH 59
 Large Tanks

ZEH 60
 Shell and Tube Heat Exchangers (Gerrard)

ZEH 61
 Shell and Tube Heat Exchangers (Turton)

ZEH 62
 Compressors

ZEH 63
 Stainless Steel Pressure Vessel

ZEH 64
 Columns

ZEH 65
 Sieve Trays

ZEH 66
 High Pressure Reactor

ZEH 67
 Cost Indices

Most cost data which are available for immediate use in a
preliminary or pre-design estimate are historical.

As prices may change considerably with time due to
changes in economic conditions, a method must be used
for updating historic cost data to use at a different time.

Adjustments can be done by the use of cost indices.

A cost index is merely an index value for a given point in
time showing the cost at that time relative to a certain
base time.

If the cost at some time in the past is known, the
equivalent cost at the present time can be determined by
multiplying the original cost by the ratio of the present
index value to the index value applicable when the
original cost was obtained.
ZEH 68
 Cost Indices

C Present Cost
Cr Reference cost
I Present Cost index
Ir Reference Cost Index
ZEH 69
 Cost Indices

Cost indexes can be used to give a general estimate, but
no index can take into account all factors, such as special
technological advancements or local conditions.

The common indexes permit fairly accurate estimates if
the time period involved is less than 10 years.

Many different types of cost indexes are published
regularly.

Some of these can be used for estimating equipment
costs; others apply specifically to labour, construction,
materials, or other specialized fields.

ZEH 70
 Cost Indices: Components of a Cost Index

Most published indices are multi-component indices
consisting of about 4 to 6 main cost categories such as:
Equipment Cost
Mechanical Engineering
Electrical Engineering
Civil Engineering
Site Engineering
Overheads

The Weighing of the different components follows the
known historic trends

Some cost indices concentrate on a typical industry,
service, or equipment

Understanding the components of a certain cost index is a
pre-requisite for accurate estimates.
ZEH 71
 Example of the Components of a Cost Index

The table below shows the basis for the Chemical
Engineering Plant Cost Index (CEPCI)
Weighting of
Components of the Index
Component (%)
Equipment, Machinery and Supports 61
Erection and Installation Labour 22
Buildings, Materials and Labour 7
Engineering and Supervision 10
Total 100
ZEH 72
 Example of the Components of a Cost Index

The details for Equipment, Machinery and Supports (61%
of the total) are:
Fabricated equipment 37
Process machinery 14
Pipes, valves and fittings 20
Process instruments and controls 7
Pumps and compressors 7
Electrical equipment and materials 5
Structural supports, insulation and paint 10
Total 100
ZEH 73
 Cost Indices - UK

The Association of cost Engineers:
Published in The Cost Engineer

The weighing for the components is as follows:
Mech & Elec Material & Equipment 50%
Erection Labour 25%
Eng Design & Administration 15%
Civil & Building Materials 5%
Civil Labour 5%

ZEH 74
 Cost Indices - UK

The PREDICT Plant Cost index is published monthly in
Process Engineering

Weighing for the components is as follows:
Mechanical 37%
Project Overheads 26%
Site Engineering 19%
Civil 5%
Electrical 8%

ZEH 75
 Cost Indices - US

The most common of these indexes are:
The Marshall and Swift all-industry and process-
industry equipment indices
The Engineering News-Record construction index.
The Nelson -Farrar refinery construction index.
The Chemical Engineering plant cost index.

ZEH 76
 Cost Indices - Other Countries

Cost engineers in different countries normally develop
indices that take into account the local conditions.
Germany:
Kolb and Schulz Index
Canada:
Chemical and Mineral Plant Price Index
Chemical and Petrochemical Plant Price Index

ZEH 77
 Currency Translation

When data sources or contract location- are different
from your home country, currency translation is used in
addition to cost indices.

When the inflationary trends are similar in both countries,
the order in which currency translation and cost index are
applied does not matter.

When inflationary trends are different, the cost index
must be applied first in order to remove the inflationary
effect from the calculations

ZEH 78
 Location Factors

Location factors relate costs of similar plants in two
different locations.

They reflect differences in wages and other costs.

Care should be taken when using location factors.

ZEH 79
 Methods of Capital Costing

Power Law or Exponential Estimate

Step Counting

Factorial

Detailed

ZEH 80
 Power Law - Exponential Estimating

Permits cost estimates to be made rapidly by
extrapolating cost data from one scale to another.

The total cost of a proposed plant can be derived from
historical cost data by using:
The total cost of a similar reference plant;
A comparatively simple breakdown of the costs of a
similar plant;
Costs for parts of the related plants that can be
assembled to represent the proposed plant.

ZEH 81
 Power Law - Exponential Estimating

C Cost of the item at size or scale S

Cr Cost of the reference item at size or scale Sr
n Scale exponent
K A constant equalling the nominal cost of the item
at unit size or scale
ZEH 82
 Power Law - Exponential Estimating

The values of k and n depend upon the type of item and
characteristic dimension used. They can be derived from
historic data.

This type of correlations is only applicable over a limited
range of size.

Scale exponents n are usually between 0.3 and 1.0,
typically 0.6; for this reason the exponential method is
often dubbed the 6/10 rule

ZEH 83
 Step Count Estimating

This approach is based on establishing a model which
relates basic process parameters, such as capacity or
throughput, temperature, pressure and materials of
construction, to total erected cost and taking into account
either the number of main plant items or the number of
functional units involved.

ZEH 84
 Step Count Estimating: Main Plant Items Basis

The original equation was derived by G T Wilson in
1971and it was of the form:
C = f N (AUC) FM FP FT

An adjusted UK version for 2000 is given by:
C2000 = 20.75 f N (AUC) FM FP FT
C : Capital cost of plant, , in 1971
f : Investment factor (Lang factor) depends on dominant
phase and AUC and is obtained graphically.
N : Number of all main plant items except pumps
AUC : Average unit cost of main plant items = 21V0.675 (where V
is the average capacity in the original work, but works
well when plant output, tons per year, is used)
ZEH 85
 Step Count Estimating: Main Plant Items Basis
FM Factor for materials of construction. Ranges from
1.0 for mild steel to 2.0 for titanium. A weighted
mean value may be used
FP Factor for design pressure, which is applicable
only outside the range 1-7 bar, and is obtained
graphically.
FT Factor for design temperature outside the range 0-
100C and is obtained graphically.

86
 Step Count Estimating: Investment Factors

ZEH 87
 Step Count Estimating: Materials of Construction Factors

1.0 Mild steel 1.55 Hastelloy C

Aluminium and
1.07 1.65 Monel
bronze
1.1 Cast steel 1.7 Nickel and iconel
1.3 Stainless steel 2.0 Titanium
1.5 Higher Grades of stainless steel

ZEH 88
 Pressure Factor

ZEH 89
 Temperature Factor

ZEH 90
 Step Count Estimating: Functional Unit Basis

A functional unit is a significant step in a chemical
process which includes all equipment fully installed and
ready for that step to operate.

As illustration, consider the flowsheet for the production
of acetic anhydride

ZEH 91
 Step Count Estimating: Functional Unit Basis

ZEH 92
 Step Count Estimating: Functional Unit Basis

The functional units of

this process are:
Reactor
Quench
Absorber
Acetone Still
Acetic anhydride still

ZEH 93
 Step Count Estimating: Functional Unit Basis

A functional unit is a significant step in a process and
includes all equipment and ancillaries necessary for
operation of that unit.
Thus, the sum of the costs of all functional units in a
process gives the total capital cost.

Generally, a functional unit may be characterized as a
unit operation, unit process, or separation method that has
energy transfer, moving parts and/or a high level of
internals

Pumping and heat exchange are ignored as they are
considered as part of a functional unit unless substantial
special loads such as refrigeration are involved.
ZEH 94
 Step Count Estimating: Functional Unit Basis

Storage in process is ignored, unless mechanical
handling is involved that is, for solids - as the cost of
storage is relatively low and tends to be a constant
function of the process.
Large storages of raw materials, intermediates or
products are usually treated separately from the process
in the estimate.

Multi-stream operation is taken as one unit.

Simple mechanical separation where there are no
moving parts is ignored - that is, cyclone, gravity settler -
as the cost is usually relatively insignificant.

ZEH 95
 Step Count Estimating: Functional Unit Basis

The principle of the step count functional unit estimating
method is that the average cost of a functional unit in a
process is a function of various process parameters:

Capital cost per functional unit =f(Q,T,P,M)
where:
Q: capacity or throughput
T: temperature
P: pressure
M: material of construction

ZEH 96
 Step Count Estimating: Functional Unit Basis

Although there may be major differences between
different units, for example, a distillation unit and a
compressor, these differences are averaged out over the
process as a whole.

The advantages and justification for the approach are:
with the information available at this stage of
estimating, there is no indication of relative costs of
different items;
the costs of the items in any case are immaterial as it is
the overall capital cost being estimated;
justification may be claimed on grounds of
equi-probability;
it appears to work for the preparation of order-of-
magnitude estimates.
ZEH 97
 Zevnik and Buchanans Method

A method used for Gas Phase Processes

One of the earliest applications of the functional unit
method of capital cost estimation

The method is essentially a graphical technique for
obtaining the cost of one functional unit based on plant
capacity, maximum pressure, maximum temperature and
materials of construction.

The cost per functional unit (CPF) is then multiplied by
the number of functional units, a utilities factor of 1.33
and a cost index based on the Engineering News Record
(ENR) construction cost index.

ZEH 98
 Zevnik and Buchanans Method

The CPF is read from a graph of CPF versus plant
capacity for a range of complexity factors (CF) calculated
from the following expression:

FT: temperature factor, read from a graph of F1 versus
maximum (or minimum) process temperature;
FP: pressure factor, read from a graph of Fp versus
maximum (or minimum) process pressure;
FM: materials of construction factor read from a table of
factors from 0 for mild steel and wood to 0.4 for
precious metals.
ZEH 99
 Zevnik and Buchanans Method

The overall procedure can be expressed as a series of
equations depending on plant capacity, temperature,
pressure, and number of functional units.

The original work has been updated to 2000 with an
adjusted ENR construction cost index.

While this index is inappropriate for process plant,
comprising costs of steel, cement and building
construction labour, it was used in the original work, so it
is retained here.

ZEH 100
 Zevnik and Buchanans (2000)

For plant capacity above 10 million lb/year (4536
tons/y) and temperature and pressure above ambient:

For plant capacities below 10 million lb/year (4536

tons/y), the equation becomes:

ZEH 101
 Zevnik and Buchanans (2000)
where:
C: capital cost in UK 2000, battery limits
N: number of functional units
Q: plant capacity (t/y)
Pmax: maximum process pressure (atms)
Tmax: maximum process temperature (K)
Fm: materials of construction factor:
0 for mild steel and wood
0.1 for aluminium, brass, lower grade stainless steel
0.2 for monel, nickel, higher grade stainless steel
0.3 for hastelloy
0.4 for precious metals
ZEH 102
 Zevnik and Buchanans (2000)

For subambient temperatures, the temperature factor
becomes (0.57-1.9x10-2Tmin) in place of
(1.8x10-4(Tmax-300))

For subambient pressures, the pressure factor becomes

(0.1 log(1/Pmin)) in place of
(0.1 log(Pmax))

ZEH 103
 Timms Method (2000)

Applicable to Gas phase processes only
Simplified equation:

With materials of construction, temperature and

pressure effects:

ZEH 104
 Timms Method (2000)
where:
C: Capital cost in UK 2000, battery limits
N: Number of functional units
Q: Plant capacity (t/y)
Pmax: Maximum process pressure (bars)
Tmax: Maximum process temperature (K)
Fm: Materials of construction factor:
1.0 for carbon steel
1.15 for low grade stainless steel
1.2 for medium grade stainless steel
1.3 for high grade stainless steel
ZEH 105
 Bridgewaters (2000)

Applicable to processes with predominantly liquid
and/or solid handling phases.
Plant capacities above 60,000 tons/y

Plant capacities below 60,000 tons/y

ZEH 106
 Bridgewaters (2000)
where:
C: Capital cost in UK 2000, battery limits
N: Number of functional units
Q: Plant capacity (t/y)
s: Reactor conversion

Q/s represents process throughput (tons/y)

ZEH 107
 Step Count Estimating: Functional Unit Basis

The principle that capital cost is a function of a number of
steps and basic process parameters, particularly capacity
or throughput, can be applied to any special situation to
derive a model for that industry or group of processes.

ZEH 108
 Factorial Estimating

Factorial methods can be used to produce study and
preliminary estimates earlier and at far less expense than
that incurred for definitive and detailed estimates.

The methods are based on a historical knowledge of the
relative cost of the various purchases and activities that
are necessary to build a plant.

The total capital employed (TCE) can be broken down
into various categories of expenditure and related to
purchased equipment cost - the MPI cost.

The percentages are given in tabulated form for typical
chemical plant installed as an addition to the production
of existing products on existing sites.

In general, they will depend on several factors, including
process type and plant location.
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 Factorial Estimating

For example, the total erected cost for similar plants on
undeveloped sites might be twice the numbers indicated.

It is important to know the scope of a quoted capital cost
- that is, does it represent total direct plant cost, total
capital employed or some intermediate figure?

All factorial methods start by listing and sizing the main
plant items then their purchased cost is then obtained and
multiplied by installation factors to give a total erected
cost.

It is obvious that there must be a clear definition of what
constitutes a main plant item and in what state it is
assumed to be purchased such as complete or incomplete,
delivered or awaiting transportation.
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 Factorial Estimating

Main plant items are usually defined as all the vessels,
columns, other fabricated equipment, heat exchangers
and machinery that are needed for the project.

They are usually costed as if delivered to the site and all
the other costs that are necessary to convert them to a
working plant must be accounted for by the installation
factors.

There are two main sources of error:
incomplete listing or incorrect costing of the main plant
items;
incorrect installation factors.
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 Factorial Estimating: The Lang Factor Method

In this application, the main plant items are listed, sized,
costed and summed to obtain the total main plant item
cost (MPIC); the total installed cost C is then given by:
C=L( MPIC)
Or
C= ( MPIC)+(L-1) ( MPIC)
That is,
Total cost=equipment cost + installation cost

If the main plant items have been estimated correctly,
their costs will take account of their scale; for early
estimates, the exponential methods described earlier
could be used.
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 Factorial Estimating: The Lang Factor Method

Installation costs are also a function of scale but not
necessarily to the same exponent as main plant item costs.

If they were both to the same exponent, L would be
constant for a specific type of plant.

When costing a proposed plant, using data from very
similar plant, accuracy may be improved by noting that L
is inversely proportional to the tenth root of scale
(approximately), L 1/Q0.1.

Lang factors can be used as derived from tabulated data
or from historical cost data.

The approach is quite reliable if data is available for a
plant that is very similar to the proposed plant.
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 Factorial Estimating: The Lang Factor Method

It is necessary to know the basis of the historical cost for
example, is it an achieved cost or an estimate, battery
limits or green-field?

Lang factors, L, varies from about 2 to 10 depending on
the process, scale, materials of construction and location.

For UK projects, L varies from about 2.5 to about 5.5 and
is typically 4.0, although much depends on whether the
plant is solids, solids/fluids or fluids processing.

It should be noted that transportation and management
costs can be a high proportion of total cost for overseas
locations in the developing world, so Lang factors will be
greater in these cases.
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 The Lang Factor Method: Different Factors

The installation factors for different main plant items
(MPI) are not identical, so an improvement in accuracy
could be obtained by applying individual installation
factors F to individual MPIs - that is, the erected cost of
one main plant item c is given by:
c=F(MPIC)=(MPIC)+(F-1)(MPIC)
what is called the modular approach
The installed cost of all the MPIs is then given by:
C=c

A variety of engineering activities are necessary to install
a specific MIPI and they can be assessed separately.
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 The Lang Factor Method: Installation Sub-Factors

For an item made of carbon steel:
F = 1 + ferection + fpiping + finstruments + felectrical + fcivil +
fstructures and buildings + flagging
and the total installed cost (c) of this carbon steel MPI is
given by:
c = (MPIC) (F)
c = (MPIC) [1+fer + fp + fi + fel + fc + fsb + fl]

It is important to consider the effect of type materials
used as well as pressure and temperature effects.

It is necessary to clearly identify the scope of the factor
used: Use of a fancy material for a reactor and associated
piping does not necessarily mean all other equipment
must be made of exquisite material.
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 Detailed Estimating

Detailed estimates are usually required to enable a
contractor to make a firm commitment to the client and
for a company to give approval to a project. Therefore,
they have to be carried out to a greater accuracy than that
required in other types or methods of estimates.

As pointed out earlier, a considerable amount of
engineering design work is necessary to prepare this type
of estimate and very significant costs can be incurred in
the preparation of the required information.

The plan, topography and soil-bearing properties of the
site must be established and a plot plan developed to
show the size and location of buildings, structures, roads,
railways, main service runs, drains and fences.
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 Detailed Estimating

Drawings are also prepared to show architectural and
construction details of buildings and structures.

Flow sheets and heat balances must be developed fully,
utilities specified and decisions made as to how they will
be provided.

Piping and instrumentation drawings are made to
illustrate the proposed control philosophies.

Engineering specifications are required for all standard
equipment items and detailed drawings must be made for
any special items.

Arrangement drawings are required to show the location
of equipment within buildings or structures and also in
relation to other equipment.
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 Detailed Estimating

Pipe sizes, materials of construction and jointing are
specified, pipe runs worked out and arrangement
drawings prepared.

Specifications are made for all instruments, electric
drives, substations and so on, and drawings produced to
show their general arrangement and individual runs.

Lagging such as insulation and painting specifications is
also prepared.

Material take-offs are carried out for electrics,
instrumentation, piping and valves, structures, insulation
and paint, and all will be individually priced.

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 Detailed Estimating

Bills of quantities are prepared for civil work,
foundations and buildings and sent to suitable sub-
contractors for competitive bids.

Construction in the field, which represents a significant
proportion of the total installed cost, is considered in
detail.

Whenever possible, quantities, equipment, weights and
locations, heavy lifts and site fabrication necessary are
defined to allow construction specialists to be invited to
bid on a sub-contractor basis.

When all of the cost data has been coordinated an
estimate may be summarize.
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