ENCH497 Process Management

Economic Evaluation of Processes

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Capital cost
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Up-front investment Expenditure required to begin operations Operational costs of servicing debt/depreciation Regular costs of operation

Operating costs
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Fixed versus variable

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Expenditure required to generate product Subtracted from income to calculate profit or return on original investment

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Financial and accounting approaches to assess value Structures and procedures

to organize and motivate workers to safely and reliably make product(s) to generate satisfactory income

ENCH497 Lecture 1
Capital Cost Estimation
Conan Fee conan.fee@canterbury.ac.nz

Conceptual Design

By-Products Wastes

Further Processing?

Raw Materials Choice

Reactor Choice

Separation Train

Product

Quantify phase, pressure, temperature, kinetics, contacting patterns Consider pre-conditioning ie: remove impurities now or leave until after reaction? Mixture of product by-products wastes original feed impurities

Recycle Streams?

Quantify and characterise properties of components

Also Consider: Control Schemes Materials Requirements Energy Requirements

PFD Batch or Continuous? M & E Balances Short Cut Design Methods Pumps and Heat Exchangers Fixed Capital, Working Capital Operating Costs, Revenues Equipment Sizing Process Economics Proceed to greater accuracy or Abandon Computer Aided Design? Process Simulators? Manual Calculations?

Process Costs
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Capital Costs (Total Capital Investment or TCI)

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Fixed Capital
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Design and Engineering, procurement, construction supervision Equipment and installation Piping and instrumentation, control Sunk Costs Buildings and structures Auxilliary facilities utilities, land, civil engineering works Startup Initial catalyst charges Raw materials and intermediates Finished product inventories Funds to pay the bills

Working Capital
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Costs recovered at the end of the project

Operating Costs (Cost of Manufacture or Cost of Goods)

Cumulative Cash Flow Diagram for a Typical Project

A-B investment required for designing the plant B-C capital required to build and startup plant C-D process comes on stream and income is generated. Net cash flow is positive but cumulative cash flow remains negative until original investment is paid off the payback point or the break-even point D-E Cumulative cash flow is positive and the process is making a return on investment E-F cash flow may fall off towards the end of the project life increased operating costs and falling sales volumes and price or more competition so the slope of the line changes F cumulative cash position at the end of the project life. Sometimes the working capital is paid back at this time and some salvage value (so a small vertical line at point F)

Coulson and Richardson Volume 6, page 237

Accuracy and Purpose of Capital Cost Estimation

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Preliminary (feasibility) Studies -30% to +60%

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PFD and operating costs Major equipment costs Factors to estimate remaining costs Purpose: to test feasibility and decide between design alternatives Authorisation of funds to proceed to more detailed design Funds to cover ordering/cancellation of long-term deliveries Project cost control Contract fixing

Authorisation (budgeting) -15% to +20%

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Detailed (quotation) -3% to +5%

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The Cost Estimation Process itself costs 0.1 to 5% of total project cost

How much does your client want to pay for each stage?
The idea of preliminary estimates is to eliminate wasted investment in poor ideas and to identify ventures worth further investment

Process Design Costs

Typical Design Costs
Cost of Project Order-of-Magnitude estimate Study estimate Preliminary estimate Definitive estimate Detailed estimate < $2M $3,000 $20,000 $50,000 $80,000 $200,000 $2M - $10M $6,000 $40,000 $80,000 $160,000 $520,000 $10M - $100M $13,000 $60,000 $130,000 $320,000 $1,000,000

Sources of Cost Information

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Survey of sources
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Large organizations can gather this data internally Limited life Vary widely Difficult to obtain unless purchase is likely No obligation estimates Not as accurate as detailed quotations but better than most other sources

Suppliers detailed quotations

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Suppliers budget quotations

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Company records and personal cost books Trade literature Technical literature and textbooks

Equipment Costing Methods

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Sources of information
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Process Capital Cost Estimation for New Zealand 2004 by Bouman RW, Jesen SB and Wake ML, Published by SCENZ. Available free to all final-year BE (Chem) students on ENCH497 Learn site as a pdf. Interactive DVD version available from IChemE (NZ Branch). Textbooks:
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Coulson & Richardson Chemical Engineering, Volume 6, 1st Edtn 1983 reprinted several times since, ButterworthHeinemann. Seider, Seader and Lewin, Product & Process Design Principles, 2nd Edtn 2004, Wiley.

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Direct from manufacturers Historical data (in-house knowledge)

Examples of Cost Data

Process Capital Cost Estimation for New Zealand 2004 by Bouman RW, Jesen SB and Wake ML, Published by SCENZ.

Adjusting Costs for Changes

Size or Capacity Inflation Currency

Capital Cost Adjustments

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Size or Capacity
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the six tenths rule

Size2 Cost 2 = Cost1 Size 1

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Capital Cost Adjustments

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Inflation
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Cost Indices
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Statistics NZ Marshall & Swift

Cost Indices
CHEMICAL ENGINEERING PLANT COST INDEX (CEPCI) (1957-59 = 100)
Nov.'08 Oct.'08 Nov.'07 Prelim. CE INDEX Equipment Heat exchangers & tanks Process machinery Pipe, valves & fittings Process instruments Pumps & compressors Electrical equipment Structural supports & misc Construction labor Buildings Engineering & supervision 566.1 681.3 655.8 641.1 831.8 415.8 896.5 461.7 718.0 325.5 513.5 350.6 Final 592.2 720.0 711.7 664.7 864.0 439.0 893.0 471.9 771.8 326.2 522.8 351.3 Final 526.0 624.4 593.5 597.9 731.1 416.9 842.9 437.4 660.4 317.9 477.1 357.0

Annual Index: 2000 = 394.1 2001 = 394.3 2002 = 395.6 2003 = 402.0 2004 = 444.2 2005 = 468.2 2006 = 499.6 2007 = 525.4

Chemical Engineering publishes economic indicators every 2 weeks

Capital Cost Adjustments

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Currency

currency2 Cost2 = Cost1 currency 1

Overall

Size2 Cost2 = Cost1 Size 1

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Index2 currency2 Index currency 1 1

Example
Estimate the Total Direct Costs (TDC) in the year 2000 for a plant to produce 90 ton/day of chlorine and 100 ton/day NaOH. Assume continuous 330 days per annum production. The cost in 1995 (Ib = 381) to produce 360 and 400 lb/yr of Cl and NaOH, respectively, was $80M. In 2000, I = 394. Solution Annual production rate of Cl in lb/yr = 90(2000)(330) = 59,400,000 lb/yr

CTDC

59.4 394 = $80 M 360 381 = $28M

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Total Process Cost Estimation

A collection of reactors and separators alone does not constitute a working plant

Seider, Seader and Lewin, Product & Process Design Principles 2nd Edtn 2004, Wiley

Battery Limits

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Seider, Seader and Lewin, Product & Process Design Principles 2nd Edtn 2004, Wiley

Total Capital Investment

Seider, Seader and Lewin, Product & Process Design Principles 2nd Edtn 2004, Wiley

Example Heat Exchanger

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Bare Module Factors

Seider, Seader and Lewin, Product & Process Design Principles 2nd Edtn 2004, Wiley

Seider, Seader and Lewin, Product & Process Design Principles 2nd Edtn 2004, Wiley

Example Ammonia Plant

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Seider, Seader and Lewin, Product & Process Design Principles 2nd Edtn 2004, Wiley

Example Ammonia Plant (cont.)

Total Capital Cost Estimation

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Lang Factors
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Account for
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equipment erection (foundations and structural work) piping (insulation and painting) electrical power and lighting instruments (local and control room) process buildings and structures ancillary buildings, offices, labs, workshops storages (raw materials and finished products) utilities (steam, water, air, firefighting site and site preparation process design M&E balances Equipment sizing free on board (f.o.b.) costs of all major equipment must be known Materials of construction

requires
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The Lang Factor Method

1.

2.

3.

4. 5. 6. 7.

Prepare M&E balances PFDs, size major equipment and select materials of construction Estimate purchase cost of major equipment plus 5% for freight Calculate total physical plant cost using Lang Factors Calculate indirect costs from direct costs Add 3 and 4 to obtain total fixed capital (FC) Estimate working capital (10 to 20% of FC) Add 5 and 6 to get total initial investment in project

Seider, Seader and Lewin, Product & Process Design Principles 2nd Edtn 2004, Wiley

Lang Factors
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Determine the total major equipment cost, allow for freight and then multiply by an appropriate Lang Factor

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Detailed Lang Factors

Seider, Seader and Lewin, Product & Process Design Principles 2nd Edtn 2004, Wiley

Use A Form to Organise Data

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You should use the Lang Factor Method for your Design Projects

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