This document provides an overview of a lecture on plant design and project engineering. It discusses the course objectives to combine technical and economic principles for chemical plant design. It also outlines several key aspects of engineering economic analysis, types of capital cost estimates, methods for estimating capital investment, and terminology used in asset accounting and cost analysis for chemical process plants.
2. Department of Chemical
Engineering, GCET
2
Text and Reference Books
Plant Design and Economics for Chemical
Engineers – Peters, Timmerhaus, West, McGraw Hill
Chemical Engineering Plant Design – Vilbrandt &
Dryden, McGraw Hill
Process Plant & Equipment cost estimation – O P
Kharbanda, Sevak Publications
Chemical Engineering Economics and Decision
Analysis – G S Davies, CEEDC, IIT, Madras
3. Department of Chemical
Engineering, GCET
3
Course objective
This course is intended to challenge chemical engineer
to combine basic technical principles learned in other
courses in the general curriculum with practical
elements of economics, business practices and
organization along with principles of safety,
environmental and sociological issues to design an
integrated chemical process plant.
4. Department of Chemical
Engineering, GCET
4
Elements of engineering-
economic analysis
Modern engineering economic analysis involves three elements
(1) cost engineering
(2) optimization engineering
(3) management and decision analysis.
Cost and optimization engineering are basic in the study of
engineering economy. Management science is a relatively new
area and is aimed in decision making. It attempts to inject
analysis and rationale into decision making process that were
formerly decided by intuition.
5. Department of Chemical
Engineering, GCET
5
Chemical Engineering Plant
design
A successful chemical Engineer should apply the
knowledge of basic science in practical situation.
That would be 1) Benefit of the society
2) To make profit
Designing a New Plant
Expansion of Plant
Retrofit or Revamping of Plant
6. Department of Chemical
Engineering, GCET
6
Types of Design
(in context with design-project procedure)
Types of Designs
Preliminary
Or quick estimate design
Detailed estimate
design
Firm process design or
Detailed design
8. Department of Chemical
Engineering, GCET
8
A few important terminologies
Pilot Plant: Small scale replica of a full scale
plant/miniature form.
Guesstimation: Evaluation of costs in the preliminary
design phases. (predesign cost estimation)
Asset : Anything of value such as cash, land,
equipment, raw materials , finished products
or any type of property.
9. Department of Chemical
Engineering, GCET
9
Cost and Price
The Oxford Dictionary defines cost as “price
paid for something”. In management language,
cost refers to expenditure and not to revenue.
Cost and price are not the same. Cost may be
less or more than price resulting respectively
in profit or loss. Price is determined by supply
and demand, and not by cost.
A loaf of bread is priceless in a famine but worthless at
a feast, yet the cost in both cases is the same.
10. Department of Chemical
Engineering, GCET
10
Productivity
Productivity = output/input,
in fact, a measure of efficiency. Ideally, it can approach
1.0. Obviously, the output and input should be
expressed
in the same unit.
Comment: Productivity is an abstract concept and a controversial
subject. There is no mathematically correct way of measuring
productivity. Even its definition projects bias of the definer.
Economist, accountant, engineer and trade union leader each
have their own definition designed to suit/prove their point.
11. Department of Chemical
Engineering, GCET
11
Feasibility analysis
The term feasible means ‘capable of being dealt
successfully’.
In an engineering sense, feasibility means that the
project is technically possible and that it can be
implemented safely without polluting the
environment.
An engineer’s feasibility analysis report is the document for
Government’s approval and sanction and also for obtaining
funds from financial institutions. It must provide in a readily
understandable form all data needed for decision making, by
the management and Government
√ Techno-economic
√ Techno-socio-economic
12. Department of Chemical
Engineering, GCET
12
Feasibility Survey
Raw materials (availability, quantity, quality, cost)
Thermodynamics and kinetic of chemical reactions involved
Facilities and equipment available at present
Facilities and equipment which must be purchased
Estimation of production cost and total investment
Profits (probable and optimum)
Materials of construction
Safety considerations
Markets
Competition (over all production statistics and comparison)
Properties of products (specifications, purities, effects of
storage
Sales and sale services
Shipping restrictions and containers
Patent situation and legal restrictions
13. Department of Chemical
Engineering, GCET
13
Basic terminology in asset
accounting
Asset
Current Fixed Miscellaneous
Current Asset: accounts receivable, inventories, cash and
marketable securities
Fixed asset: land, building, equipment
Miscellaneous: deferred charges, other investments, notes
and accounts due after 1 year.
14. Department of Chemical
Engineering, GCET
14
Basic terminology in asset
accounting
Asset
Tangible Intangible
What are the examples of intangible assets?
15. Department of Chemical
Engineering, GCET
15
Basic terminology in asset
accounting
Equities
Proprietorship Liabilities
At the same instant, many different persons may have just a claim or
equity to ownership of concern’s assets.
Under these conditions, a fundamental relationship of accounting can be
written as:
Assets = Equities … (1)
Proprietorship: The claims of the concern or person who owns the asset.
Liabilities: The claim of anyone other than the owner.
16. Department of Chemical
Engineering, GCET
16
Basic terminology in asset
accounting
Eqn (1) becomes
Assets = liabilities + Proprietorship …(2)
An example: Five students have got together and purchased a
computer of $1000. Because they did not have $ 1000, they
borrowed from one of their parents $400.
So as far as students are concerned
The value of their asset: ?
Their Proprietorship: ?
Liability: ?
18. Department of Chemical
Engineering, GCET
18
Factors for Site Selection
Availability of raw materials
Markets
Energy sources
Climatic conditions
Transportation facility
Water supply
Waste disposal
Labor supply
Taxation and legal restriction
19. Department of Chemical
Engineering, GCET
19
Break up of total capital
investment
Total Capital
investment
Fixed capital Working capital
Fixed capital
Manufacturing Non-manufacturing
20. Department of Chemical
Engineering, GCET
20
Breakdown of fixed capital investment
items for a chemical process
A: Direct Cost
1. Purchased equipment
2. Purchased equipment installation
3. Instrumentation & control
4. Piping
5. Electrical equipment & materials
6. Buildings
7. Yard improvements
8. Service facilities
9. Land
B Indirect Cost
• Engineering and supervision
• Construction expenses
• Contractor’s fee
• Contingency
21. Department of Chemical
Engineering, GCET
21
Cost Indices
A cost index is merely an index value for a given point in time
showing the cost at that time
Present cost = )
obtained
was
t
cos
original
time
at
value
index
time
present
at
value
index
(
t
cos
Original
Some examples
Marshall & Swift equipment cost index
Nelson-Farrar refinery construction cost index.
Chemical Engineering plant cost index.
22. Department of Chemical
Engineering, GCET
22
Types of Capital cost estimates
1. Order-of magnitude estimate (ratio estimate) based on similar
previous cost data; probable accuracy of estimate over ±30%.
2. Study estimate (factored estimate) based on knowledge of major
items of equipment; probable accuracy of estimate over ±30%.
3. Preliminary estimate (budget authorization estimate; scope
estimate) based on sufficient data to permit the estimate to be
budgeted. Probable accuracy of estimate ±20%.
4. Definitive estimate (project control estimate) based on almost
complete data but before completion of drawings and
specifications. Probable accuracy of estimate within ±10%.
5. Detailed estimate (contractor’s estimate) based on complete
engineering drawings specifications and site surveys; probable
accuracy of estimate within ±5%.
23. Department of Chemical
Engineering, GCET
23
Estimating equipment costs by
Scaling
Six-tenth factor rule
Predictions can be made by using the power relationship known as
the six-tenths factor rule, if the new piece of equipment is similar to
one of another capacity for which cost data are available.
According to this rule, if the 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 X0.6 times the cost of the initial unit.
Cost of equipment of a = (cost of equipment b) X0.6
The preceding equation indicates that a log-log plot of capacity versus
cost for a given type of equipment should be a straight line with a slope
equal to 0.6.
24. Department of Chemical
Engineering, GCET
24
Methods for estimating capital
investment
1. Detailed-item estimate
2. Unit cost estimate
3. Percentage of delivered equipment cost.
4. Lang factors for approximation of capital
investment
5. Power factor applied to Plant/capacity ratio.
6. Investment cost per unit of capacity.
7. Turnover ratio
