W9_BUD_ Estimate of Capital Investment

1.    Problem Definition

Based on equipment list and specification, we already done doing cost estimate for every single equipment with result as follow:

Equipment	Total Equipment Cost
Heat Exchanger	$                      200,000
Pressure Vessel	$                      600,000
Pump	$                      120,000
Total	$                      920,000

Next step, to make feasibility study of the project we must estimate the capital investment based on equipment cost.

2.    Feasible Alternatives

There are 2 alternatives method to estimate capital investment, as follows:

a. Using Lang Factor

b. Using Capital Cost Breakdown

3.    Develop the Outcomes for each Alternative

a. Lang Factor

This method used to approximate the capital investment by multiplying the basic equipment cost by some factor.

Type of Plant	Lang Factor for Fixed Capital Investment
Solid processing plant	3.9
Solid-fluid processing plant	4.1
Fluid processing plant	4.8

Fixed Capital Investment         = Equipment Cost x Lang Factor

                                                  = $ 920,000 x 4.8

                                                  = $ 4,416,000;

Note:  Fixed Capital Investment also called as Total Plant Cost in AACE Recommended Practice which consists of: process capital, general facilities, overhead & fee, and contingencies.

b. Capital Cost Breakdown

Plant costs are built up by first establishing the cost of each equipment item delivered to the plant site. Material and labor costs to set and install equipment are next estimated using recommended factors.  Total plant costs are established by adding field indirect engineering costs, overhead and administration based on recommended factors.

4.    Selection Criteria

Selection of preferable alternatives would be based on:

1. Accuracy

2. Flexibility

2. Verifiability

5.    Analysis and Comparison of the Alternatives

Attributes	Lang Factor	Capital Cost Breakdown
Accuracy	+50% to -50%	+30% to -15%
Flexibility	Lang factor available only for three types of plant: (1) solid, (2) solid-fluid, and (3) fluid processing plant	- Installation cost available for various types of equipment - Distributive percentage factors available for six specific types of installations and for four different generic plant types:  (1) solids, (2) solids-gas, (3) gas processes, (4) liquid and liquid-solids.
Verifiability	Unknown contingency	The contingency factors used documented in the report and based on clear assumption.

Attribute	Rank	Alternative Rank
Accuracy	1	Capital Cost Breakdown > Lang Factor
Verifiability	2	Capital Cost Breakdown > Lang Factor
Flexibility	3	Capital Cost Breakdown > Lang Factor

All the three attributes shown that Capital Cost Breakdown better than Fang Factor.

6.    Select the Preferred Alternative

Based on comparison, the preferred method to estimate capital investment is Capital Cost Breakdown.

7.    Performance Monitoring & Post Evaluation of Result

Both methods applied only for Class 5 AACE Cost Estimate Classification System for feasibility study purpose. To ensure the accuracy of cost estimate, the result will be compared with Class 3 Cost Estimate after we get higher percentage of project definition.

References:

1.    AACE International (2003). Recommended Practice No. 16R-90: Conducting Technical and Economic Evaluations – As Applied for the Process and Utility Industries.

2.    AACE International (2003). Recommended Practice No. 19R-97: Estimate Preparation Costs – As Applied for the Process Industries.

3.    Peter, M.S., Timmerhaus, K.D. (1991). Plant Design and Economics for Chemical Engineer 4^th Edition: Chapter 6, p. 150-215