36 SFCTION 2.

1 FS11MATING CAPITAL Al'ID OPDATINO C'OSTS

~E<:TIOl'I 21 TOíAL CAPITA.. ll'VESTMfNT ANO TOTAL P~0Dllf., f(XTS J7
where Ci:; = J979 cxchangcr cost; ( 8 = base cost for a carbon-steel, floatmg-hcad
separate íactors for labor aod materials, wh1ch oflen expenence d1fferent mflation
cxchangcr with a 100-psig design pressure and betwccn 150 and 12,000ft 2 of
ary forces. Guthrie's correlations have the advantage that it 1s possible lo updatc
surface arca, F O - a des1gn-type correct1on: f Me = matenals-of-conslruction cor-
the matenal and labor facto~ at differenl rates, or o;ome kind of average factor can
rection factor. and F P = a pressure correction factor. The express1on thcy use for
he used lo account for inflation .
thc base cosl 1s
In C8 = 8.202 + 0.01506 In A+ 0.0681 l(ln A) 2

Equallons for thc c_o rrecuon factors are availablc as well as the cost cxpressiom, for
a vancty of 01her p1eces of cqu1pment S1milarly, thc installat100 factors are given m
the form of equations
Updating Cost Correlarions
Chillon's correlations were published in 1949, Guthrie's were publisbed in 1968.
and the Peters, Timmerhaus, and ASPEN correlations are more recen t. H owcver, 11
takcs about three years Lo build a chemical plant, and so we must be a ble to prcdict
íuture costs. Clcarly the cost of almost everything increases with time, and so we
must be ablc to update the cost correlations. Severa! methods can be used for th,s
purpose, but they are ali s1m1lar in that they involvc multiplyiog the base cost m a
certain year by the ratio of a cost index for sorne o ther ycar to the cost index for the
base ycar
O~e of thc mnst _popular cost indices of this type is published by Marshall
and S~1ft (~&S) and_ 1s updalcd monthly in Chemical Engineering. A plot of the
M&S 1~dcx 1s shown m Fig. 2 2-2 Similar rela t1onships are !he E11g1neermg Ne1n-
~eco,:d mdex.. the Nelson rcfineí) index. the Chem,cal Engmeermg planl cooslruc-
t1on mdex, and lhe maierials-and-labor cost index. Sorne of these 1nd1ces include
800r--------------,:,..,....-,
600
>(
u profitabihty. We devclop a simple model oí this typc as we d1scuss the individual
"O
·=en 400
~
:E
200
l"IJ-HOUSF COST CORRElA I JQ'\;S. Many compames have developed 1heir own
cost correlations and mstallallon factors These are frequently updated hy usin¡!
vendor's quolations and recent coostruct1on costs These company cost correla-
tions should ahrnys be used 1f they are available. Wc use Gu1hrie's correlation,;
beca use they are ava1Jable JO the published hterature.
2.3 TOTAL CAPITAL INVESTMENT ANO
TOTAL PRODUCT COSTS
There are numcrous costs required to build and operate a chcmical plant other
than thc operating costs and the iostalled equipment costs; sce Tables 2 1-2 and
2.1-6. Sorne of thcsc costs add to thc capital investmenl, whereas othcrs are
operatiog expenses. Fortunately, most of thcse costs can be related directly to thc
mstaJJed cquipmcnt costs lhrougb the use of varíous factors. A ver> con cisc
summary of thesc costs was prepared by Pcters by Timmerhaus. • and a modiíied
.,ersion of their lisl for the total capital mvestment is shown in Table 2.3-1 . T hc
corresponding breakdov. n for 1he total product cosls is given in Table 2 ~-2.
lt is common pracllce in the de,clopment of a design firsl to calculate lhe
s11es of ali the equipment and to estimalc the amounis of uuh11es requ,red. Ne>.t.
the equipment costs are determmed, and thc utility costs are calculated Then thc
other cost factors are added. and finally a profitability analys13 is undertaken
However, for preliminary process design, we prefer to look for processs ahemative<;
as sooo as a design appears to be unprofitable. Therefore, wc would like to develop
simplified cost models for total mvestment, total processmg costs. and process
cost items.
Total Capital Imeslmeot
According to Table 2.3-1, the total capital investmcnt (T ot. lnv.) is the sum of thc
füed capital investmenl ( Fixed Cap.) and tbe working capital (Work Cap)

o.___ ___.___ _J_ _ _...J__ __¡___ __JL__ _J

1 Ol Inv. = Fixed Cap. + Work. Cap. (2.3-1)
30 40 50 60 70 80 90
Years
FIGU RE 2.2-2
M&S mdcx • M S Pctcrs and K D T11runcrhau\ l'lanl nu,q11 and Ernnnn11cs fo, ( hrm,col Enqmur<, ld ed .
McGraw-H1II, Nrv., York. 1%9 chap ~
 SECTION ll TOTAL CAPITAL INVHTMENT ANO TOTAL flh)OllCT COSTS 39
38 ~H'IIO,._ 2 ¡ TOTAL CAPITAL INVE~'TMENT ANO TOTAl PRODUCT COSTS

TA BLE 1.3-1
Breakdown of total capital imestmeot aod start-up costs
(3) Nonprous, e,¡u,pm~n, compo5ed o( ollice furruture and equipment. wel~ and
Total ,·apita/ mvestm.tnt equals the $Um of lhc lixcd c.ipi1al 111,es1men1 plus lhe worung capn.il mcd1.:al equ1pmcn1, sbop equipmcnL. au1omo11vc equ1pmc-nt. yard matenal-
11 FueJ rnpllal im•estmelll (FCI) 1s thc CO)IS requircJ l<J build tbc procc~, equal 10 tbe sum of the handhng equ1pmcn1, laborawry cqu1pmcn1, shel,cs. bins, pallcts, h.1nd trucks,
dire~I CO>IS and thc and1rccl COSIS fire e~Hnguü.hcrs, ho,c>, tire engincs, loadmg cqu1prnen1
A L>trect costs equal tbc sum of the malc:nal anJ lilbor costs rcqwrcJ lO bu1ld the C4)mplctc Dmnbuuon and parkugml} mduJc rav. malcnal and produc1 s1oragc: .ind
fa~tlny, about 70 85';,'. of FCI hanJ .. ng cqu1pmcn1, produc1 pacl.agmg equ1pmcn1. blcndmg fac1hl1C), load1ng
1. On.Slle costs or ISBL uisuk o/ bo11~y ltm11s ' are the costs of instalhng thc cqwpmcnl s1auons
)hown on the proccss flow)hecl in a spec11íc geograph1cal location (lhc baucry limits), d. Land, about 1 2 ~~ oí F('I or 4 - lS % of purchascd equ1pmen1 costs
aboul 50 60º·• of FCI (1) SurH)S and fecs
a Purchased equtfl""'nl 1ncludcs ali equ1pmcn1 ltsled on a complete llowshcc1; span: (2) Propcrt) costs. .
parts and no0tnstalled cqwpmcnt spares; surplus cqu1pmcnt, suppbcs, and cqwp- B /ndtrect eosu are expenses not J1rcc1ly 111..olvcd wllh matenal and labor of actiul 1nslalla-
ment allowanocs; ,nllauon cost allowanoc, frcight chargcs, taXes, 1nsurancc., and 11on ; aboul 15 30 ~-. oí FCI
du!ÍC), allowance for mod1ficauon dunng start-up. about 20-40% of FCL 1 Engmeermg and s1.1pen:ís1on, aboul 4-21 ¾ of FCI or 5 - 15º1. of duecl cosis
b. PurchasnJ.equipment installation includes inst.allation of aJl equiprnent IJ.S1cd on a a Engmeer1ng costs mdude admuus1ra1ivc, proccss design and general cngmccnng,
complete Oowshcct including struc1ural supports. insulatioo, and paint, aboul drafüng, ~1 enginccnng. processmg, expcditíng. reproduciion. commumcauons.
7.3-26"10 of FCI or 35 45•,. of purchascd eqwpment cosl scale model~ consultan, fecs. 1ravel
e Jnscrun~ntauon and eonuol mcludes purchase, JD.Stallauoo. and calibrauon, about b Engmuru,g superns,on and mJpec11on
2-5-10°10 of FCI or 6 30¾ of purcbascd equipmcnt cos1 2. Cunstrucllon txpenses; aboul 4.8 22 0% oí FCI.
d Pipíng ancludes cosl of pipe. pipe hangers, fittings, valvcs, msulalion, and equipment, a Temporary /ac1l11ies composed of construcuon. opcrauon, and mainienance of
about 3 15 % oí FCI or 10-80% of purcha.sed equipment COSl. tcmporar) faohucs; officcs, roads. parking lots, railroa~. elec1rical, piping.
e Eleecrieal eq11ipment and ma1er1als mcludc Lbc purchasc and installauon oí the commum.:auons, fencng
rcquircd clectn.:al equ1pmcn1 includmg ~witchcs. motors, conduit, wuc, fiuings, b Consirucw,n cool.s aNl equ1pmrnt.
íccders. grounding. tnstrumcnt and control wiñng. lighting pancls, and a.ssocia1cd e Cons1nu:11on rupenLS1on involvmg accounung. timel.ccping. purchasing. c-xpcditm~
labor costs; abou1 2 5 9.0% of FCI or 8 20'1/0 of purchased equipmcnt cost. d Warehouse personnel and guards
2. Offsi1e co1u or OSBL cow (uuwde o/ ba11er)' lirmu) includc costs directly rclated to e Safet1•. mrd1ral. and frinqe bml'/ilS
1hc proccss but bwh in separ,tc locations from thc mam prOCCSSJDg cqu1rmcnt f Permw firld teses. SJH'rtul lturues
a Bu,ldmg <(includmg sen-1<.e!.). aboul 6 - 20~., of FCJ or 10- 70¾ oí purcba.scd cc¡u,p- g Taxes. m.n,rance, and m1,·res1
mcnt COSI 3 Con1racwr's fu abour 15 5 0°. of FCI
( 1) Pror~SJ bu,ldmgJ mclude substructurcs. supcrs1ruc1urcs. s131n,,ays. laddcrs, 4 Conrrngenq to compensatc íor unprcd1ctablc e,cn1s such J> slonns. Hood,. sml.es,
a=s ways, crancs, monorails, ho,sts, clcvators. (Sorne comparues include pncc chang~ small des1gn changcs. error, in es1ima1cs. etc, abou1 5 20º,. oí FCI
th= íactors as pan of 1he ISBL costs, and nol the OSBL coslS.) C Alterna/e breal,,du"n o( FCI
(2) Au.ultarJ bwldmgs mcludc adrrurus1ra1ion and ollicc mc<fical or dJ~pcnsary, 1 !,farw/ac1urllliJ cap11al 11t<<'Stmen1-same a,
on\llcs.
caJe1cna. garage, produc1 warchousc., parts warchousc, guard and wety, tire 2 Notrman11/aettulllfl capual 1111,es1men1 is off~11e plus md1rcc1 costs
s1a11on, change housc, pcrsonncl building. sbipping ollice and platform, 111. Workmg cap11al is 1hc capaal requircd 10 actually opcralc lhe plant. aboul 10-20",. of the 101al
rescarch labora1ory, control laboralory capital mvesuncn1
(3) Mamtenana :shops mcludc elcclncal. pipmg. sheet metal. maclune, welding, A Rak' material for a one-monlh supply. (Thc supply dcpcnds on ava1labtl11y, seasonal
carpcntry, ms1rumen1s demands. ele.)
(4) Buddmg serlf1us mdudc plumbing. bcaun!- ,cnulauoo.. dusl c.ollecuon, 3JJ' B FmuW produc/J 10 ,tocl. and scm1fuibbcd pmJu.:ls, approumatc product1on co)Js for one
conJ111orung. building bgbung. clevators. c:scalators, telephoncs. mlcrcommuni• montb (Agam, tbc amount may vaf) )
ca11on systcm, painung, spnnkler sysiems.. ñre alann C. Accaunt:s recl'tvoble 10 gi,c cusiomcrs 30 days 10 pay for goods , about thc proJucuon
b Yard 1mpro1oements involvc sllc dcvclopmeot iocluding s11c clearing, grading. roads, COSIS Cor ooc monib
walkways. r.ulroads, fcnces_ parking aras. wha.I'CS and ptcrs.. rccrcauonal factlmcs .. O Cash on hand 10 mcct opcraung expenses - salan~ and wag~ raw-material purchascs
landscap1ng; about IS SOº~ oí FCI E. Accow,ts payabl, and ltLUS payal>le.
t S¿,n;1ee faci/11~:s (inslallcd), aboul g O 3S Oº;. o( FCI IV. Start·up costs, aboul 8 IO o/0 of FCI.
(1) { '11/111es indudc ~,eam. water, power. refn~rallon comprcssed a1r fucl, was1c- A Prou,ss modifrcat,uns occdcd 10 mcc1 tlcs1gn spc"1h.:a11ons
d1,posaL B Swr1,up labor more pcoplc are necdcd 10 s1ar1 up planl 1han lO kcep 11 runnmg
(2) Fac1/111es mclude bo1lcr plant, mctneralor, .. c11s, n•cr mi.ale, water 1rea1men1, C /,<Jss ur produa, ..n 1n, ohc:, loss ol re,enue,, dunng dcbuggmg uf lhc proccs,
coohng towc-rs, wa1cr ;,toragc, ckctnc substauon, rcfngcrauon planl. air plant ,
"'ª"e
íucl )lorage. J1,po.al plan!, ftre pro1cc11on . Tuca Ílum M ~ Pc1cr, • ..., J..: o Tunmcrh•u•. n.,,., llu111n """ 1:.,..,,,.,,,,,,,.,.,, C lt<mico/ V,j/1,U,UJ. McGra ..•lhll.
N,,. Yorl, 1116~

40 SECl101' U TOTAL CAPITAL INVESTMENT ANO TOTAL PROOUCT COST~
TABLE Ll-2
Gross carnings and tolal product cosL<;
l. Gros.~ eammg.~ = total iocome - total production cosL
11 Total product cost = manufac1uriog cosl + general expenses
A Manufacturi ng cost = direct production costs + lixod char¡zes + plant ovcrhcad
1 Dm:ct produclJoo cosls (about 60º'• oí the total product cosl)
a Raw matenals (abou1 10 50% of101al produCI cost)
b Ut11í1tes (about 10 20·~ oí total product cost).
c. Maintcnancc and repairs (about 2- IO % of FCI).
d. Opera11n¡z supphes (about 10 20 % of cosi for maintenancc and rcpatrs or 0.5- 1 % of
FCI).
e Operaung labor (about IO 20 % oí total product cost).
/. Direct supe,..is1on aod clerical labor (about 10-25 % oí operatíng labor).
g. LaboratO() charges (about 10-20% oí operating labor).
h. Patents and royalties (aboul 0-6 % of total product cost).
2 Fixcd charges (about 10-20 % oí total product cost).
a. Dcprectation (about 10% of FCl).
b Local taxes (about 1-4 % oí FCI)
c. lnsurancc (about 0.4 1% oí FCI).
d. Reot (about 10% oí value of rcnted land aod buildings)
e. lntcre.s1 (aboul 0-7% oí total capital investmenl).
3. Plan! ovcrhead (about 50-70% of the cost for opcrating labor. supe,..ision, and main1enance
or 5 15 o/0 of 1otal produCI cost); costs includc go,oeral plant upkeo,p and overhead, payroU
ovcrhead. packaging, medica! services, saícty aod prolccuon, restaorants. recrcaúoo, sah·agc,
laboratories. and storagc faciliúes.
B. General expenses = admioistrauve costs + dislriborioo and sdling costs + research and dcvcl·
opmenl costs (also called SARE (sales, adm.in.istraúoo, research. and cngineo,ring)]
l. Administrative coslS (about 15% ofcosLS for operaliog labor. supcrvis100, and maintenancc
or 2 - 5 % oí total product cost); includes costs for executive salaries, clerical wages, legal fees.
oflicc supplies. aod commurucatioos.
2 Distributioo and selliog costs (about 2-20% of total product cost), includes costs for sales
officcs, sales staff, shipping, aod adYcnismg.
3. Rcsearch and developmcnt coslS (about 2-5 % of every sales dollar or about 5 % of total
product cosl).
Talcm from M. S. Peten and K.. D. Timmcrhaus, P/anJ Du4¡n an.d ÚONlmJQ for C"-ka/ Eng111urs, Mc:Graw-Hill
Ne" York. 1968
Starc-ap Coses
M any companies also include the start-up costs as part of the capital investmenL
Other companies consider the fraction of the start-up coslS that is allocated to
equipment modifications as part of the capital iovestment, whereas the funds used
for additiooal workforce and materiaJs needed to s ta rt up tbe plant are considered
operating expenses. The choice amoog lbese various possibilüies depends on the
tax situation oí the company. However, for our purposes we include the start-up
costs (Start-up) as part of the investment. Hence, Eq. 2.3-1 becornes
Tot. lnv. = Fixed Cap. + Work. Cap. + Start-up
From Table 2.3-1, item IV, we see tbat
Start-up - O.l{Fixed Cap.)
SECTION U TOTAL CAPITAL INVESTMENT AhO TOTAL PROOUCT COSTS 41
Working Capital
The working capital represenls the funds required to actuaJly operate the plant, i.e.,
to pay for raw malerials, to pay salaries. etc. We atternpt lo replace the working
capital each month out of product revenues. Nevertheless. we must have mone}
available before we commence operations to fill up the lanks and to meet the initial
payroll. For this rcason the working capital is considered to be part of the total
mvestmenl.
A breakdo" n of the working capital is given in Table 2.J-1, anda reasonahle
first estímate of this cost can be taken as a 3-monlh supply of ra\11 materials. or
products. Wc can greatly simplify the ioitial investmeol analysis. however, if we
assume that working capital is related to the investrnenl. For this reason, we let
Work_ Cap.~ 0.15(Tot. lnv.) (2.3-4)
Fixed Capital lnvestment
From Table 2.3-1 we see that the fixed capital investment is the sum of the direct
cost and the indirect costs:
Fixed Cap. = Direct Cost + Ind.irect Cost (2.3-5)
Toe direct costs include the onsite coslS (Onsite) or ISBL costs (inside battery
limits), and the offsite costs, or OSB L costs (outside bauery limits):
(2.3-6)
Direct Cost = Onsite + Offsite
Toe onsite costs correspond to the installed equipment costs for the items shown
oo the process fiowsbeet. Ali tbese items are built in a specific geograph1cal area.
caUed the battery limits. We can estímate the onsite costs directly from Guthrie·s
correlations.
Tbe offsíte costs, or OSBL costs, reíer to the steam plant, cooling towers, and
other items listed in Table 2.3-1 that are oeeded Ior the operation oí tbe process but
are built in a differeot geograpbical area. Il is comm on practice to have central
areas for cooling towers. steam generation equípment, etc. We note from the table
that the variation in the individual offsite costs is much larger· than thal in the
onsite costs. In fact, the offsite costs may vary from as little as 40 to 50% of the
oosite costs for an expansion of an existing facifüy, up to 200 or 400 % of the onsíte
costs for the construction of a grass-roots plan! (a brand new facility starting from
scratch) o r a maJor planl expaosion. This situation is aoalogous to building an
addition to a house versus building a new home. In our studies, we consider only
plant expansions, aod we assume that
(2.3- 7)
Offsite - 0.45 Onsite
(2-3-2)
The indirect costs described in the table ofteo are lumped in two categories:
(l) the owoer's costs, which include the engineering, supervision, and coostruction
(2.3-3) expenses; and (2) contiogencies and íees (Conting.) which account both for items