cost estimation (18 may 2014)

5/24/2018 Cost Estimation (18 May 2014)

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Cost

Estimationand Indirect

Costs

Diah Agustina P, ST.,MT

Chemical Engineering

University of Brawijaya


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Cash flow for industrial operations


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Factor affecting investment and production cost

Source of equipment : If new equipment must bebought, several independent quotations shouldbe obtained from different manufacturers. Whenthe specifications are given to the manufacturers,the chances for a low cost estimate areincreased if the engineer does not place overlystrict limitations on the design.


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Price fluctuations: prices may vary widely from

one period to another, and this factor must beconsidered when the costs for an industrialprocess are determined.Company policy : Policies of individual

companies have a direct effect on costs



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Operating time and rate production: The ideal plant should operate under a time

schedule which gives the maximum production ratewhile maintaining economic operating methods.

If the production capacity of the process is greaterthan the sales demand, the operation can becarried on at reduced capacity or periodically at fullcapacity.



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Break-even chart for chemical processing plant


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Govermental policy: The national government has many regulations and

restrictions which have a direct effect on industrialcosts.

Some examples of these are import and export tariffregulations, restrictions on permissible depreciationrates, income-tax rules, and environmentalregulations.



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Capital Investment

Fixed capital

investment (FCI)

Manufacturing capitalinvestment

Non manufacturingcapital investment

Equipment

Piping Instrument Insulation Foundation, etc

Land

Processing building Administrative and other

office

Laboartories, etc


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Working capital investment

Rawmaterial

Monthlypayment

Taxespayable

Accountpayable


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Capital Investment

Fixed capitalInvestment

(FCI)

Working capitalinvestment

(WCI)

Total capital investment (TCI) = WCI + FCI


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Direct and Indirect Cost Estimates

2012 by McGraw-Hill All Rights Reserved15-3

Direct cost examples Physical assets

Maintenance and

operating costs (M&O)

Materials

Direct human labor (costs

and benefits)

Scrapped and reworked

product Direct supervision of

personnel

Indirect costexamples Utilities

IT systems and networks

Purchasing

Management

Taxes

Legal functions

Warranty and guarantees

Quality assurance

Accounting functions

Marketing and publicity


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Estimation of capital investment


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Cost Indexes


Definition: Cost Index is ratio of cost today to cost inthe past

Indicates change in cost over time; therefore, theyaccount for theimpact of inflation

Index is dimensionless

CPI (Consumer Price Index) is a good example

Formula for total

cost is


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Cost Indexes as annual average


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The most common cost index

Marshall and swift equipment costindexes

Engineering news record constructioncost indexes

Nelson-farrar construction cost index

Chemical engineering plant cost index


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Finding Cost Indexes


Cost indexes are maintained in areas such as construction,chemical and mechanical industries

Updated monthly and annually; many include regionalizedand international project indexes.

Indexes in these areas are often subdivided into smallercomponents and can be used in preliminary, as well asdetailed design stages

Examples are:Chemical Engineering Plant Cost Index (CEPCI)

www.che.com/pci

McGraw-Hill Construction Indexwww.construction.comUS Department of Labor, Bureau of Labor Statistics

www.bls.gov
http://www.che.com/pcihttp://www.construction.com/http://www.bls.gov/http://www.bls.gov/http://www.construction.com/http://www.che.com/pci


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Example: Cost Index Method


Estimate the total cost of labor today in US dollars for amaritime construction project using data from a similarproject in Europe completed in 1998.

Labor index, 1998: 789.6 Cost in 1998:3.9 millionLabor index, current: 1165.8 Currently, 1= 1.5 US$


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Year Cost index

1999 390.6

2000 394.1

2001 394.3

2002 390.4

2003 401.72004 444.2

2005 468.2

2006 499.5

2007 525.42008 575.4

2009

Estimate the purchased

cost of 100 gal reactor in2009. Use the annualaverage Marshall and swiftequipment cost index.

Cost in 2008 : $ 4.3 million


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y = 20.51x - 40644

0

100

200

300

400

500

600

700

1998 2000 2002 2004 2006 2008 2010

Cos

tindex

Year


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CHEMICAL ENGINEERING PLANT COST

INDEX (CEPCI)


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Cost factor in capital investment

Capital investment, as

defined earlier, is the totalamount of money neededto supply the necessaryplant and manufacturingfacilities plus the amountof money required asworking capital foroperation of the facilities.


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Purchased equipment

Sources of equipment prices, methods of adjustingequipment prices for capacity, and methods ofestimating auxiliary process equipment.

The various types of equipment can often be dividedconveniently into (1) processing equipment, (2) raw-materials handling and storage equipment, and (3)finished-products handling and storage equipment.


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Cost-Estimating Relationships (CER)


CER equations are used in early design stages toestimate plant, equipment and construction costs

CERs are generically different from index relations,because they estimate based on design variables(weight, thrust, force, pressure, speed, etc.)

Commonly used CERs

Cost-capacity equation (relates cost tocapacity)


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Cost-Capacity Equation


Also called Estimation Equipment Cost by Scalling

Exponent defines relation between capacities


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Typical exponent for equipment cost Vs capacity


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Typical exponent for equipment cost Vs capacity


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Example

A 100 hp air compressor costs $3000 five years agowhen the cost index was 130. Estimate the cost of a300 hp compressor today when the cost index is 255.The exponent for air compressor is 0.9.


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Purchased equipment installation

The installation of equipmentinvolves costs for labor,foundations, supports, platforms,construction expenses, and otherfactors directly related to theerection of purchased equipment.

Installation costs for equipment,therefore, are estimated to vary from25 to 55 percent of the purchased-

equipment cost.


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Insulation cost

The total cost for the labor and materials required for insulatingequipment and piping in ordinary chemical plants is approximately 8 to9 percent of the purchased-equipment cost.

Instrumentation and control

Total instrumentation cost depends on the amount ofcontrol required and may amount to 6 to 30 percent ofthe purchased cost for all equipment.

the normal solid-fluid chemical processing plant, a valueof 13 percent of the purchased equipment is normallyused to estimate the total instrumentation cost.


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Piping


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Electrical installation

The cost for electrical installations consists primarily ofinstallation labor and materials for power and lighting,with building-service lighting usually included under theheading of building-and-services costs.

electrical-installations cost amounts to 10 to 15 percentof the value of all purchased equipment.


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Building

The cost for buildings including services consists ofexpenses for labor, materials, and supplies involved inthe erection of all buildings connected with the plant.


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Yard improvment

Costs for fencing, grading, roads, sidewalks, railroadsidings, landscaping, and similar items constitute theportion of the capital investment included in yardimprovements.

Yard-improvements cost for chemical plantsapproximates 10 to 20 percent of the purchased-equipment cost


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Service facilities

steam, water, power, compressed air, and fuel, wastedisposal, fire protection, and miscellaneous serviceitems, such as shop, first aid, and cafeteria equipmentand facilities, require capital investments which areincluded under the general heading of service-facilitiescost.

The total cost for service facilities in chemical plantsgenerally ranges from 30 to 80 percent of the

purchased-equipment


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Land

land costs for industrial plants amount to 4 to 8 percent ofthe purchased-equipment

Engineering and supervision

The costs for construction design and engineering, drafting,

purchasing, accounting, construction and cost engineering,

travel, reproductions, communications, and home office

expense including overhead constitute the capital investmentfor engineering and supervision

The cost is 30 percent of the purchased equipment


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Contruction expense

Another expense which is included under indirect plantcost is the item of construction or field expense andincludes temporary construction and operation,construction tools and rentals, home office personnel

located at the construction site, construction payroll,travel and living, taxes and insurance, and otherconstruction overhead.


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Contractorsfee

2 to 8 percent of direct plant costItsvaries for different situation

Contingencies

A contingency factor is usually included in an

estimate of capital investment to compensate for

unpredictable events (storm, floods, strikes etc) Its ranging from 5 to 15 percent of the direct and

indirect plant cos


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Ratio factor estimating capital invesment


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Example

Prepare a study estimate of the FCI and TCI for theprocess plant (solid-fluid) if the delivered-equipmentcost is $800,000.


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Estimation of total production cost

1

Manufacturing cost Operating cost Production cost

2

General expense


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Manufacturing cost

Direct production cost

Fixed charged

Plant over head cost


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Raw materials (including transportation, unloading,etc.,)

Direct operating labor Plant maintenance and repairs

Operating supplies Laboratories charges Power Utilities Patent and royalties Catalysts.


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Fixed charged

Fixed charges are expenses which remain practicallyconstant from year to year and do not vary widely withchanges in production rate.

Depreciation : 10 % of the FCI Local taxes : 2 % of FCI Insurance : 1 % of FCI


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Plant over head

Costs are for hospital and medical services; general plantmaintenance and overhead; safety services; payrolloverhead including pensions, vacation allowances, social

security, and life insurance; packaging, restaurant andrecreation facilities, salvage services, control laboratories,property protection, plant superintendence, warehouseand storage facilities, and special employee benefits.


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General expense

Administrative

expense

Distributingandmarketing

Researchanddevelopment

Grossearningexpense


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Administrative expenses

executive and clerical wagesoffice suppliesengineering and legal expenses

upkeep on office buildingsgeneral communications


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Distribution and marketing expenses

costs incurred in the process of selling and distributingthe various products : Expenditures for materials handling Containers Shipping sales offices Salesmen Technical sales service, and advertising


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Research and development expenses

These costs are for salaries Wages Special equipment Research facilities and consultant fees related to

developing new ideas or improved processes.

Financ ing expenses include the extra costs involved inprocuring the money necessary for the capitalinvestment. Financing expense is usually limited tointerest on borrowed money, and this expense issometimes listed as a fixed charge.


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Raw Material : Material balance Chemical marketing reporter Freight or transportation charges should be included

in the raw-material costs, and these charges shouldbe based on the form in which the raw materials areto be purchased for use in the final plant.


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Operating Labor :

Operating labor may be divided into skilled andunskilled labor.

Bureau of Labor Month ly Labor Review. If a flow sheet and drawings of the process are

available, the operating labor may be estimated froman analysis of the work to be done.

Another method of estimating labor requirements asa function of plant capacity is based on adding up thevarious principal processing steps


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Direct Supervisory and Clerical Labor : The cost for direct supervisory and clerical labor

averages about 15 percent of the cost for operatinglabor.

A certain amount of direct supervisory and clericallabor is always required for a manufacturingoperation


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Utilities :

Electrical power must be supplied for lighting,motors, and various process equipment demands.

Maintenance and Repairs : In the process industries, the total plant cost peryear for maintenance and repairs is roughly equal toan average of 6 percent of the fixed-capitalinvestment


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Operating Supplies :

In any manufacturing operation, many miscellaneoussupplies are needed to keep the process functioningefficiently.

The annual cost for this type of supplies is about 15

percent of the total cost for maintenance and repairs.Laboratory Charges :

The cost of laboratory tests for control of operationsand for product-quality control is covered in this

manufacturing cost. 10 to 20 percent of the operating labor


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Patents and Royalties :

Many manufacturing processes are covered bypatents.

6 percent of the total product cost

Catalysts and Solvents : Costs for catalysts and solvents can be significant and

depend upon the specific manufacturing processeschosen


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Fixed charged

These include costs for :

Depreciation

Local property taxes

Insurancerent.

10 to 20 percent of the total product cost


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Depreciation :

Machinery and equipment : 10 percent of the fixedcapital investment

Buildings : 3 percent of the initial cost.Local taxes:

in highly populated : 2 to 4 percent of the fixed-capitalinvestment.

In less populated areas : 1 to 2percent of the fixed

capital investment.


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Insurance :

o Itsdepend on the type of process being carried out inthe manufacturing operation and on the extent of

available protection facilities.o 1 percent of the fixed-capital investment.Rent :

Annual costs for rented land and buildings amount to

about 8 to 12 percent of the value of the rentedproperty


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Plant overhead cost

50 to 70 percent of the total expense for operatinglabor, supervision, and maintenance.

Hospital and medical service General engineering Safety service

Cafetaria and recreation facilities General plant maintenance Shop Interpalnt communications and transportation


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Administrative cost

Salaries and wages for :

Administrators

Secretaries

Accountants Stenographers

Typists, and similar workers are part of the

administrative expenses.


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Distribution and Marketing Cost

salaries, wages, supplies, and other expenses for salesoffices; salaries, commissions, and traveling expenses forsalesmen; shipping expenses; cost of containers;advertising expenses; and technical sales service.

The cost for chemical plants are in the range of 2 to 20percent of the total product cost


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Research and Development

Research and development costs include salariesand wages for all personnel directly connected with thistype of work, fixed and operating expenses for allmachinery and equipment involved, costs for materials

and supplies, direct overhead expenses, andmiscellaneous costs.

The cost amount to about 2 to 5 percent of everysales dollar.


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ANALISIS PROFITABILITAS TRADITIONAL

Indeksprofitabilitas

Rate of return,Paybackperiod, BEP


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Rate of return on investment (ROI)

Profit tahunan yang dihasilkan oleh satu unit kapitalyang diinvestasikan,

Kapital yang diinvestasikan: original total capitalinvestment, fixed-capital, depreciated investment,average investment, dll;

Disebut juga engineers method, du Pont method,

capitalized earning rate.


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Sebagai pembanding (investasi pabrik atau disimpan??).ROI setelah pajak = 15-20%

ROI sebelum pajak = 30-40%.

Digunakan untuk menilai proyek kecil.


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PAYBACK PERIOD

Waktu minimum untuk merekoveri investasi kapitalawal

Berdasarkan profit rata-rata dan depresiasi rata-rata;

Profit rata-rata = income - operating cost (tidaktermasuk depresiasi)

Investasi kapital awal = biaya kapital tetap awal yangmengalami depresiasi;

Disebut juga payback time, payout period, payoffperiod, cash recovery period dan years to pay out.


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Minimum pay out priod (POP)

Payback period < 5 tahun


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Break event point (BEP)

Hasil penjualan = ongkos yang dikeluarkanOngkos terdiri dari :

Pengeluaran tetap (fixed cost)

Biaya variabel (V) :

Bahan baku

Packing

Utilitas

Royaliti

shipping


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Biaya semi variabel (SV):

Biaya umum

Opertaing suplies

Biaya overhead pabrik

Dapat ditentukan dengan grafik

BEP Ch t


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BEP Chart


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Example 1

Sebuah pabrik didirikan dengan FCI Rp. 220,000,000dimana setiap tahun dapat menghasilkan 9,000,000 lbproduk. Informasi biaya produksi sebagai berikut :

Bahan baku : Rp. 16,- / lb produk

Utilitas :

Steam : 50 lb/lb produk dengan harga Rp. 50/1000 lb

Listrik : kwh/lb produk dengan harga Rp. 1,50/kwh

Air : 10 gallon/lb produk dengan harga Rp 15/1000

gallon


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Hasil produksi dijual dalam kantong @ 50 lb seharga Rp.70/lb. Pabrik beroperasi secara kontinyu 350 hari dalam 1tahun dan 24 jam/hari. Didalam 1 group bekerja 30 orangburuh pabrik dengan upah rata-rata Rp. 100/jam kerja.Besar pajak penghasilan pabrik adalah 48 %.

Hitunglah :

a. Rate dalam keadaan break even point

b. ROI & POP

c. Pada kapasitas produksi berapakah tiik BEP tercapai?


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INDEKS PROFITABILITAS MODERN

Menggunakan cash flow di seluruh lifecycle proyek;

Net present value (NPV)

Discounted cash flow rate of return (DCFRR)


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NET PRESENT VALUE

Untuk menilai profitabilitas jangka panjang; Merupakan profit sesungguhnya setiap tahun;

Cash flow CFnyang diterima di tahun ndibawa ke presentvalue CFn,o:

Cumulative cash flow dalam net present value (NPV):


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NET PRESENT VALUE

Analisis net present value Objektif: memaksimalkan NPV,

Merekoveri initial investment,

Menghasilkan nilai tambah setelah break-even point,

Tergantung pada asumsi suku bunga. Proyek profitable:

NPV positif dengan suku bunga cukup tinggi (misal10%);

Proyek terbaik: NPVpaling tinggi

Evolusi NPV dapat mengusulkan proyek retrofit ataupenghentian proyek.


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DISCOUNTED CASH FLOW RATE OF RETURN (DCFRR)

Perhitungan NPV pada berbagai suku bungamemungkinkan diperolehnya suku bunga dimana netpresent value akumulatif di akhir proyek bernilai nol

DCFRR: ukuran suku bunga maksimum yang dibayarsebuah proyek dan masih break even di akhir umur

proyek; Disebut pula internal rate of return (IRR), investorsreturn on investment, profitability index, interest rateof return, atau discounted cashflow.


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DISCOUNTED CASH FLOW RATE OF RETURN (DCFRR)

DCFRR dihitung sebagai suku bunga dimana net presentvalue di akhir proyek menjadi nol:

i= DCFRR

Menggunakan nilai setelah pajak yang dikoreksi denganinflasi;

Untuk membandingkan kinerja kapital berbagai proyek; Ukuran profitabilitas maksimum;

Proyek dengan DCFRR terbesar paling disukai.


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Pajak


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Worksheet for calculating present value

Tahun ke

Kapasitas INVESTASIProduksi Modal Sendiri Modal Pinjaman Investasi Total

(4) + (6)Jumlah Akumulasi Jumlah Akumulasi(1) (2) (3) (4) (5) (6) (7)-2-101 60%2 80%3 100%4 100%5 100%6 100%7 100%8 100%9 100%10 100%


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Pengembalian Sisa Hasil PRODUCTION COST (Rp)Pinjaman Pinjaman Penjualan Biaya Operasi Depresiasi Bunga dari(9) - (8) sisa pinjaman

(8) (9) (10) (11) (12) (13)


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LABA (Rp) Actual Net Cumulative

Sebelum Pajak Pajak Sesudah Pajak Cash Flow (Rp) Cash Flow (Rp)Net Cash Flow

(Rp)(10)-(11)-(12)-(13) (14)-(15) (16)+(12) (17)-(8)(14) (15) (16) (17) (18) (19)


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Pay out time (POT)

Tahun Net Cash Flow Cummulative Cash Flow12

3

DataTCI

456789

10

POT dapat terlihat pada tahun ke n


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BEP


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Example 2

Berdasarkan data example 1 lakukan analisa ekonomimenggunakan metode discounted cash flow denganinformasi berikut :

a. Modal 60 % milik sendiri dan 40 % pinjaman bank

b. Bunga pinjaman bank 17 %c. Pengembalian pinjaman selama 10 tahun sebesar

10%/tahun

d. Pembayaran modal selama masa konstruksi dilakukan

secara diskrit yaitu sebesar 50%.e. Pajak penghasilan mengikuti aturan pemerintah

f. Umur pabrik 10 tahun


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g. Kapasitas produksi :

- Tahun ke-1 = 60%- Tahun ke-2 = 80 %

- Tahun ke-3 = 100%

cost estimation (18 may 2014)

Documents

etc5242018 cost estimation

cost indexes

ratio of cost

indirect cost estimates

low cost estimate

production capacity

direct effect

rate production