Capital Cost Estimating
Q&A
Today
 Suggest you review
 Equipment Costing Folder on CD
 Is this real?
 What do we do?
 How does it work?
 Methods of estimating
 Using CapCost
 What is a “Capital Cost?”
 ‘Dealing’ with CapCost limitations
Is This Real ?
 Question:
We seem to be applying simplifications and
assumptions that this project doesn’t seem
very ‘real.’
Your thoughts?
Question 1: What do we do?
We will use CapCost which integrates
Estimation of equipment costs
Utility costs
Raw material costs and product revenue
Other costs
Profitability analysis
Sensitivity analysis
CapCost
 See the material in the CapCost folder
 Install the program from the CD that came
with the text (run install.html)
 View the movies on the CD (run cost.html)
with a computer that has speakers and
Quicktime (at home or use the TEAM
computer)
 Run Capcost.xls and look through it
How Does It Work?
Equipment Purchase
Price
Equipment
Factors
“Off Sites” Cost
Direct Field Labour (DFL)
0.25 x DFC
Direct Field Cost (DFC)
x Factors
1.0 to 1.6 x DFL
Indirect Field Cost (IFC)
Home Office Engineering
Allowances
Total Project Cost (ITC)
Estimate
•DIRECT FIELD COSTS
•Equipment Cost
•bulk materials (piping, valves,
instruments) & labour to install
•off-sites (pipe racks, rail spurs …)
•INDIRECT FIELD COSTS
•engineering, freight, insurance,
overhead, const supervision
•CONTINGENCY AND FEES
•first fill of plant, taxes, duties
•escalation
TOTAL
PROJECT
(CAPITAL)
COST
Method 1: Lang Factored
Estimate
Total Capital Cost = Flang * (Sum Of Purchased
Cost of Equipment)
Flang = 4.74 for fluid processing plant
Method 2: The CapCost Approach
Equipment Parameters (Pressure, MOC, Size, Hp …)
“Base Cost” = Purchase Cost of Equipment
- in Carbon Steel and 0 barg
Bare Module Factor = f (Factorpressure, Factormaterial)
BARE MODULE COST (Directs and Indirects)
Which
One
Do We
Want?
- installed equipment in actual materials and actual pressure
Module Factor = 1.18
MODULE COST OF PLANT
- for expansion to an existing Plant -contingency 15%, fees 3%
Grass Roots Factor = 1.30
GRASS ROOTS COST OF PLANT
- infrastruction (utilities, off-sites aux. Buildings, product storage,
loading and unloading facilities ...)
CHEE
470 Stops
Here
Determine Equipment Cost
Note: Price for Carbon Steel Construction and 0 Bar(g)
Fixed Tube
exch with
28 m2 =
$6500
Convert To
Today’s $’s
using the
CEPCI
value
Factor to Today’s Cost
$6500 * (1999 CECPI / 1996 CECPI) = today’s cost
$6500 x (390.6 / 381.7) = $6650 in 1999
Pressure Factor (Fp)
Pressure Factor
Fp = 1.14
Material Factor (Fm)
Bare Module Factor FBM
Cost of Equipment Installed
Fp Fm
1.14 x 3
= 3.42
Therefore FBM = 7
Bare Module Cost
= Base Cost x FBM
= $6650 x 7
= $46,550
“Module Cost” Of Plant
Add Contingency and Fees (building permits,
environmental permits etc.)
Module Cost = 1.18
for all equipment)
S (of Bare Module Cost
Module Cost = 1.18 x $46,550 = $ 54,900
Now a Short Demo
 A movie to illustrate the capital cost sections
of CapCost
 One of the sheets in an Excel workbook
 The utilities, raw materials and cash flow
sections will be covered later in the Economic
Analysis workshop
Questions
 What do we do when equipment is larger
than CapCost can cost?
Split it up into equal sized pieces
Get a cost in CapCost and then apply the
capacity factor exponent
new cost=old cost x capacity ratio0.6
Special Equipment
 CapCost has an equipment type “User
Defined”
 If you know the cost of something, you can
supply
A name
Equipment cost
Bare Module Cost
 Set the first factor to 1, ignore the second
User Defined Equipment
Question
 What is a capital cost?
Capital Cost
 What’s “Capital ?”
Capital is the money required to build a
plant or facility
 It’s separated from “Expense” money because
of the Tax implications imposed by Revenue
Canada, IRS, etc.
Facility Timeline
Facility Creation
Conceptual
Engineering
Expense $
Detailed Engineering
& Construction
Capital $
Capital Cost
Facility Operation
Start-up
Expense $
Expense $
- Operating
Expenses
-Depreciation
Capital vs Expense
Once the plant is running ‘Expenses’ are small items or costs
which are incurred yearly, or have about a 1 year life.
i.e. Software, Office supplies, wages, advertising, heat,
lighting, ...
When Calculating Yearly Income Subtract your Expenses
From Your Income
Capital vs Expense
 ‘Capital’ are expensive items or items which
have more than a year of life.
i.e. House, lawnmower, TV, computer,
chemical plant equip, first fill of chemicals
 Revenue Canada etc. only allow you to
subtract a % of the Capital every year to
account for the wearing out of the facility
(depreciation).
This is called the “Capital Cost Allowance”
Capital vs Expense
 Capital Cost Allowance ( CCA )
Works Like a Bank Account
Revenue Canada allow a % of the
remaining asset value to be claimed
Remaining
Asset
Value
Time (years)
CCA Classes
Capital vs Expense
 Revenue Canada Treat Depreciation per
above
 More common (?) to treat Depreciation with a
straight line for the economic analysis
10 year depreciation, therefore 10% of
capital is ‘expensed’ per year
Taxable Income
 Income That’s Taxable (Net Income)
Taxable Income = Income - Expenses
- CCA
 Can’t use CCA if Expenses are greater than
Income (can’t use CCA to claim a loss)
 CCA can be ‘banked’ for later years where
profit is occurring
Small Business Tax- Revenue
Small Business Tax - Expenses
CCA
Capital - The Point
 Capital is only allowed to be ‘depreciated’
over years and thus it’s ability to minimize
taxable income is limited.
 Expenses are claimed in the year they’re
paid. They’re better for minimizing your
taxes.
 The Games People play
The Capital Cost Estimate
 The tax implications of Capital money
requires that you know how much Capital
was spent on any asset.
 The business financial analysis (NPV etc.)
requires that you know the Capital Cost and
the Operating Cost well ahead of actually
spending any significant amounts of money.
Capital Cost Estimate
 Summary:
The cost to initially build the facility which will
be depreciated over time.
Question: CapCost - arrggh!
 CapCost does not change price when we
change the maximum pressure. What’s
wrong?
Off The Shelf Items
 Piping, Valves, Pumps and most equipment
have been standarized in design pressures of
the connecting Flange
 Standards are called 150, 300, 600, 900,
1500, 2500 “lb” flange ratings.
A 150lb rating  150 psig rating,
temperature is important in the ultimate
strength of the item
Along with standard flanges are standard
pipe wall thickness (Sch 40, Sch 80 etc.)
Flange Rating
Max Pressure vs Temp
1600
Pressure (psig)
1400
1200
150 lb Rating
1000
300 lb Rating
800
600 lb Rating
600
300 lb 304 SS
400
600 lb 304 SS
200
0
0
500
Temp (°F)
1000
Heat Exchanger Standards
 TEMA - Tubular Exchanger Manufacturers
Association
dictates minimum requirements for
exchanger mechanical design
 Legislation does not require TEMA standards
be used.
ASME- Pressure Vessel
Standards
 ASME Code
It started in Chicago after a major
explosion in a shoe factory that had a
boiler. The boiler explosion caused the
government to start regulating pressure
vessels (including boilers).
A tool for regulating manufacturers of
pressure vessels, heating exchangers, and
piping, not pumps, not compressors (no
rotating equipment)
ASME- Pressure Vessel
Standards
Since the explosion in Chicago codes were
developed for the guidance in the
calculation of pressure vessels, tables of
metal strength vs temp
Safety factor of 4 has historically been
applied to the mechanical strength of
metal, recently (year 2000) it was reduced
to 3.5
ASME Code Sections
I - Power Boilers
II - Materials (properties i.e. allowable stresses)
III - Nuclear Power Plants
IV - Heating Boilers
V - Non Destructive Examination
VII - Guidelines for the Care and Operation of
Heating Boilers
IX - Welding and Brazing Qualifications
X - Fiber-Reinforced Plastic Pressure Vessels
XI - Rules for Inservice Inspection of Nuclear Power
Plant Components
Minimum Design and CapCost
 Allowing CapCost to choose a minimum
makes sense since the manufacturer would
do the same.
The Final Screen