2. CAPITAL
• “ a stock of accumulated wealth”
• Savings that may be used as the owner decides
• One use of savings – investment – to use the savings to
promote the production of other goods – to obtain an
income or profit
3. CAPITAL REQUIRED
• Land
• Machinery & Equipment
• Service Facilities
• Plant erection with complete with all piping, controls and
services
• Expenses involved in plant operation before sales revenues
are available
4. ESTIMATION OF CAPITAL INVESTMENT
• Generally based on cost of equipment
• Errors due to omission of equipments, spares,
services or facilities – not because of gross errors in
costing
• Varies from a predesign estimate based on little info
to detailed estimate prepared from complete
drawings and specs
5. TYPES OF ESTIMATES
• Order of magnitude estimate – ratio estimate –
based on similar previous data (± 30%)
• Study estimate – factored estimate – based on major
equipments (± 30%)
• Preliminary estimate – scope estimate – based on
sufficient data to permit the estimate to be budgeted
(± 20%)
6. •Definitive estimate – project control
estimate – based on complete data but
before completion of drawings and specs
(± 10%)
•Detailed estimate – based on complete
engineering drawings, specifications and
site surveys (± 5%)
7. COST INDEXES
• Cost data available for making preliminary estimate are
valid at the time they were developed
• Prices change with time – update the cost
• Cost indexes are used for updating cost data applicable at
a past date to costs that are representative of conditions
at a later date
9. • Cost indexes can be used to give a general
estimate
• No index can take into account all factors –
special technological advancements, local
conditions or obsolescence
• Fairly accurate estimates for < 10 years
• Frequently used to extrapolate costs into the
near future
10. TYPES
• Different cost indexes published regularly
• Some for estimating equipment costs, others
specifically for labor, construction materials, or other
specialized fields
• Most common –
Marshall and Swift all industry and process- industry
equipment indexes
Engineering news-Record construction index
18. SCALING
• To estimate the cost of a piece of equipment when
cost data are not available for the particular size or
capacity involved
• Power relationship known as the six-tenth factor
rule, if the new piece of equipment is similar to one
of another capacity for which cost data is available
19. • If cost of a given unit b at one capacity is
known, the cost of a similar unit a with X
times the capacity of the first is X
0.6
times the
cost of the initial unit
• Cost of equipment a = (cost of equipment b)
X0.6
