Project Costing and Economics

7/31/2019 Project Costing and Economics

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Pro ject Co st ing & Econ o m ics

AN D... LIFE

Dave M ody

Engineer ing Design


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Example

Citr ic Acid Extract ion Plant

Cit r ic Acid Ext ractio n Plant

http://www.lemonadegame.com/
http://www.lemonadegame.com/http://www.lemonadegame.com/


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Just A Lem o nad e St and

W HO W HEN W HY


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Th e Tim e Accu racy o f Est im ates

% Time vs Estimate Accuracy & % Completion

0

10

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100

0 20 40 60 80 100

Time (% of total schedule)

EstimateAccuracy

0

10

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%WorkCompleted

Construction

Begins

Equipment

Factored

CapacityFactored

SemiDetailed

D

etailed

Work Completed

32

Capacit y Facto r

1000 lb / h r

$10 M i ll ion

5000 lb / h r

? M i ll ion

$ ? Mi l l ion = $10 M i l l ion5000 lb / h r1000 lb / h r

0. 7


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Capacit y Facto r

The expon ent (0.7)

Product Process Route ExponentEthylene Refinery Gases 0.85

Acetaldehyde Ethylene 0.70

Ammonia Steam Reforming 0.70Phosphoric Acid Calcium Phosphate/H2SO4 0.60

Formaldehyde Methanol 0.55

Perrrys

TIM E! HEY ! W hat Chan ged?


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Capacit y Fact o r - Co st Indices

Chem ical Enginee ring M agazine

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Lang Facto r Est im ate

Plant Cost = Lang Facto r x Equ ipm ent Costs

Plant Type Lang Factor

Fluid Processing Plant 4.74, usually rounded to 5.0Solid-Fluid Processing Plant 3.63Solid Processing Plant 3.10


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Big Box Sh o p p ing

For Ch em ical Plant s

Equ ipm ent Co stGarage Cost

# Cars

$


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EQUIPMENTFACTOR

INSTALLEDCOSTPURCHASE COST

Equipm ent Fact ored Est im at es

36-37

Equipm ent Fact ored Est im at es DIRECT FIELD COSTS (50 %)

Eq uip m e nt (20%)

Fie ld Labour & M ater ia l to insta l l equip. (30%)

INDIRECT FIELD COSTS (32 %)

CONTINGENCY AN D FEES (15% + 3 %)

35


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Equipm ent Fact ored Est im at es

Tan ks and Vessels

Colu m ns and Trays

Pum ps and Com pressors

Exchangers

Heaters

Direct FieldCost

x

Factor=

36-37

Equipment Factors

Sho p Fab . Vessels

Compressors

Exchangers

Fired Heate rs

Pumps

M ater ia l HandlingEquipment

2 .0 - 2 .5

1 .5 - 2 .5

1 .7 - 2 .5

1 .7 - 2 .5

2 .5 - 3 .5

1 .5 - 3 .0

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Heat & M ater ial Balance (simu lat ion ) Prel im inary Equ ipm ent Sizing M aterials Select ion Equ ipm ent List 1st Draf t P& IDs - recom m ended

Process Hazards Analysis - recom m end ed Pre lim inary Layout - recom m ended

Facto red Est im ateEngineer ing Requ irem ent s

Det ai led Est im ates


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Detai led Est im ate

% Time vs Estimate Accuracy & % Completion

0

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0 20 40 60 80 100

Time (% of total schedule)

EstimateAccuracy

0

10

20

30

40

50

60

70

80

90

100

%WorkCompleted

Construction

Begins

Equipment

Factored

CapacityFactored

SemiDetailed

D

etailed

Work Completed

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W hat s Eco no m ics?


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Angkor Wat Built by a series of kings at huge cost

Bankrupt the K hmers

Lucky For Us, No Project Econ om ic Evaluat io n W as Used


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BEFORE YOU BUY!

DECISION M AKING $$

Econ om ics & Pro ject Decision M aking

$

Compound Interest

Discounted

To day The Fu t u re

$

$


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Econ om ics & Pro ject Decision M aking

$

$

Discounted

i

PV = FV / (1+i)n

To day The Fu t u re

$$$?

To day 2 YEARS 3YEARS 4 YEARS

PV = FV / (1+i)n


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Tim e M at ters!

$$$

To day 2 YEARS 3YEARS 4 YEARS

$

Net Present Value

PV = FV / (1+i)n

$$$

$Our Init ial Cost

Revenue


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$$$

$

Our Init ial Cost

Revenue

$$$

PV = FV / (1+i)n

$

$=

$

Net Present Value


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Discou nt Rate M atters !

$$$

$

Our Init ial Cost

Revenue

PV = FV / (1+i)n

$$$

Net Present Value

W ith Larger Discou nt Interest Rate

$Our Init ial Cost

PV = FV / (1+i)n

$

$

=


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Disco un t Rate

Large Discou nt Rate Valu es = LOW ER NPVS

Industry Low-Risk Projects

AverageProjects

High RiskProjects

Industrial Chemicals 11 25 44

Petroleum 16 25 39

Pulp and Paper 18 28 40

Pharmaceuticals 24 40 56

Metals 8 15 24Paints 21 30 44

Fermentation Products 10 30 49

Adapted from Aries and Newton (1995)

Typical MARR or Hurd le Rates in Industry

Intern al Rate o f Ret urn (IRR)i w hen NPV = 0

$

PV = FV / (1+i)n

$

=


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Net Present Value A $ am ount exceeding thehu rdle interest rate

Internal Rate of Retu rn Equ ivalent InterestRate o f You r In it ial Cost

Invest m ent Com par ison

You have $200, how d o you m ake the m ost m oney in 6 years?

A. Put in Bank B. Lem on ade C. Soap Box Car

A. Put Money in Bank (i=10%)

-200

0 0 0 0 0

354.3122

-200

-100

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400

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Years

Dollars($)

B. Lemonade Stand (i=10%)

-200

100

50 50

100120 130

-200

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-50

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Years

Dollars($)

C. Build Soap Box Car (i=10%)

-50 -50

-100

70

120

220250

-200

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-50

0

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250

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Years

Dollars($)

Slide by Dean Latham


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Investm ent Com parison : Net Present Value (NPV)

Risk AnalysisUnd erstand t he r isk and effects to t he pro ject

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Risk Analysis

Test on e value (Tor nad o Plot s)

Develop 3 scenar ios

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Risk AnalysisM onte Car lo

Probability

-50% -10% +10% +50%

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So This is Engin eer ing Econo m ics

Conversion o f Br i t ish Colum bia M oun tain PineBeet le Wo od to Natu ral Gas via Syngas

Ut i l ize a Tur bine t o red uce pressure and p rod uceelectr ic i ty

The des ign of a W ater For In ject ion Ut i l i ty for ab io / pha rm a p lan t

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Project Costing and Economics