project costing and economics
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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
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0 20 40 60 80 100
Time (% of total schedule)
EstimateAccuracy
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%WorkCompleted
Construction
Begins
Equipment
Factored
CapacityFactored
SemiDetailed
D
etailed
Work Completed
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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 %)
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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
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10
20
30
40
50
60
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80
90
100
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 $200, how d o you m ake the m ost m oney in 6 years?
A. Put in Bank B. Lem on ade C. Soap Box Car
A. Put Money in Bank (i=10%)
-200
0 0 0 0 0
354.3122
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-100
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Years
Dollars($)
B. Lemonade Stand (i=10%)
-200
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50 50
100120 130
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Years
Dollars($)
C. Build Soap Box Car (i=10%)
-50 -50
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70
120
220250
-200
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Years
Dollars($)
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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