che_december-2024 - 19

Part 1
Cover Story
Methods for
Conceptual CapitalCost
Estimation
Conceptual capital-cost estimates are important for assessing the economic viability of
proposed projects, but their usefulness depends on understanding how to appropriately apply
the estimates
C
apital cost estimates are a crucial
step in order to make prudent
decisions regarding any development
project. Specifically, the
economic viability of a development project
must be sufficiently supported in order
to move forward in the planning process. In
the early phases of a development project,
cost engineers are often engaged in developing
conceptual capital-cost estimates for
various types of industrial assets, including
full chemical plants, production units, or
even individual pieces of equipment. A major
hurdle cost engineers can encounter comes
when seeking to identify facilities or production
units that are similar to the proposed
project to serve as benchmarks or pricing
reference points. Even when other existing
facilities or production units are similar in
many aspects, it is very common that the facility
or production unit being considered for
development differs materially in technology,
capacity, location or time of construction. In
such instances, an understanding of how to
appropriately apply conceptual capital-cost
estimating methods is critical.
This article briefly discusses various conceptual
capital-cost
estimating
methods.
It then presents a detailed discussion and
example on one method for conceptual
capital-cost estimating: the cost-to-capacity
method, also commonly referred to as the
capacity-factored estimating technique. Further,
the appropriate application of scale factors
utilized in the cost-to-capacity method
is presented, along with applicable methodology
for scale-factor derivations. Scale factors
are also commonly referred to as scaling
exponents, scaleup exponents, cost-capacity
factors, cost-to-capacity factors and capacity
factors.
Conceptual cost-estimating methods
As identified by the Association for the Advancement
of Cost Engineering (AACE International;
Morgantown, W.Va.; www.aacei.
org), there are five classes of cost estimates,
Class 1 through Class 5. A Class 1 cost estimate
is the most detailed and is based on
a fully defined project scope, while a Class
4 or Class 5 estimate is more conceptual in
nature and is based on more limited information
and a project scope that is not fully
defined [1, 2, 3].
There are multiple commonly utilized conceptual
capital-cost estimating methods
which would be considered a Class 4 or
Class 5 estimate, including but not limited
to, the following [4]:
Cost-to-capacity estimating method (also
referred to as capacity factored method).
Historical or current capital cost data for a
similar project, but with a different capacity,
is utilized with a non-linear scaling exponent
as the primary basis for the cost estimate of
the proposed project.
End-product units estimating method.
Historical capital cost data for similar projects
are utilized in conjunction with units
of capacity to apply a linear relationship as
the primary basis for the estimate of a proposed
project.
Physical dimensions estimating method.
Historical capital cost data for similar projects
are utilized in conjunction with physical
dimensions to apply a linear relationship as
the primary basis for the estimate of a proposed
project.
Analogy
estimating
method.
Historical
capital cost data for similar projects with
similar capacities are utilized as the primary
basis for the estimate of a proposed project.
Expert judgment estimating method.
CHEMICAL ENGINEERING WWW.CHEMENGONLINE.COM
DECEMBER 2024
19
Clayton
Baumann and
Chris Rigo
evcValuation LLC
IN BRIEF
CONCEPTUAL COSTESTIIMATING
METHODS
COST-TO-CAPACITY
METHODOLOGY
APPLICATION
CONSIDERATIONS
COST-TO-CAPACITY
EXAMPLE
SCALE-FACTOR
DERIVATION METHOD
SCALE-FACTOR
DERIVATION EXAMPLE
SCALE-FACTOR
CONSIDERATIONS

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