che_december-2024 - 24

R2 values calculated in linear regression
analyses are indicators of
how closely a linear regression line
approximates a given set of data.
The closer the R2 value is to 1, the
better the regression line estimates
the data set. By visual inspection,
the linear regression equation appears
to closely match the set of
data. Furthermore, the R2 shown in
Figure 2 is 0.9722, indicating that the
linear regression equation is a good
approximate for the data set [3].
Scale factor considerations
The previously presented scalefactor
derivation for the cost and
capacity data for the horizontal
centrifugal pump is a simplified example
in that one scale factor was
derived for a range of horsepower
capacities. Depending on the type
of technology of the particular facility,
production unit, or piece of
equipment, the scale factor could
increase at certain ranges of capacity
due to fixed increases in costs
for larger capacities [3, 10]. In many
cases, if a set of cost and capacity
data are broken down into subsets
and a scale-factor derivation is
performed, the resultant scale factors
for the larger-capacity subsets
could be greater than the smaller
capacity subsets. Thus, caution
should be used when deriving a
single scale factor based on broad
ranges of capacities for a particular
facility, production unit, or piece
of equipment. Understanding that
scale factors may vary over ranges
of capacities should cause a level
of caution to be taken when applying
a single scale factor in cost-tocapacity
analyses for a broad range
of facility, production unit, or equipment
capacity.
Utilizing
a
scale
factor that is not appropriate for a
given range of capacities will lead
to less reliable conceptual capital
cost estimate results [3].
For illustrative purposes, assume
a conceptual capital cost estimate
is undertaken for a development
project and the appropriate scale
factor to apply for the given facility
of a certain technology and capacity
is 0.70. Table 2 presents the potential
percent error inherent in the
24
capital cost estimate if the scale
factor applied in the analysis deviates
from 0.70.
Table 2 shows that the use of an
inappropriate scale factor can introduce
significant error. Thus, it is critical
that the scale factor applied in
the cost-to-capacity method should
be supported by publications or
derivations and should apply to the
technology and range of capacities
applicable to the capital cost estimate
in order to yield a reliable capital
cost estimation [11].
Concluding remarks
Conceptual capital-cost estimates
can be useful tools when making
decisions early on in the planning
process for a development project
when only a limited project scope
exists. In order to arrive at reasonable
capital cost estimates, cost
engineers must be aware of the
various conceptual cost-estimating
methods that exist and certain considerations
associated with each.
The cost-to-capacity method is
one tool that can allow cost engineers
to develop conceptual capital-cost
estimates for entire facilities,
production units, or pieces of
equipment based on known capital
costs for similar assets with different
capacities. While mathematically,
the cost-to-capacity method
is fairly simplistic, it must be applied
in a consistent and appropriate
manner in order to produce
meaningful results. Analyzing and
utilizing cost data for facilities, production
units, or equipment that
are not adequately similar to the
subject of the cost estimate, or applying
a scale factor that is arbitrary
or not appropriate, can result in a
significant under- or overstatement
of the capital cost estimate. However,
when applied appropriately,
the cost-to-capacity method can
yield fairly quick and reliable conceptual
capital-cost
estimates,
which
can be critical in determining
the ultimate economic feasibility of
a development project.
n
Edited by Scott Jenkins
Acknowledgment
Graphs supplied by evcValuation
CHEMICAL ENGINEERING WWW.CHEMENGONLINE.COM
DECEMBER 2024
References
1. AACE International Recommended Practice No. 17R-97, " Cost
Estimate Classification System, " AACE International, Morgantown,
W. Va., August 7, 2020, pp. 2-3.
2. AACE International Recommended Practice No. 10S-90, " Cost
Engineering Terminology, " AACE International, Morgantown,
W.Va., July 24, 2024, pp. 36-37.
3. Baumann, Clayton T., Cost-to-Capacity Method: Applications and
Considerations, The Journal of the International Machinery &
Technical Specialties Committee of the American Society of
Appraisers, vol. 30, Issue 1 (1st Quarter 2014), pp. 49-56.
4. Dysert, L. R. and Elliott, B. G., Early Conceptual Estimating Methodologies,
Cost Engineering, vol. 63, no. 01, AACE International,
Morgantown, W. Va., January/February 2021, pp. 30-39.
5. Remer, D. S., Design Cost Factors for Scaling-up Engineering
Equipment, Chemical Engineering Progress, August 1990, p.
77.
6. Humphreys, Kenneth K., " Jelen's Cost and Optimization Engineering, "
McGraw-Hill, Inc., New York, N.Y., 1991, pp. 383-387.
7. U.S. Department of Energy, National Energy Technology Laboratory,
Systems Engineering & Analysis Directorate,
Quality
Guidelines for Energy Systems Studies, Capital Cost Scaling
Methodology: Revision 3 Reports and Prior, April 1, 2019, pp.
12-16. Retrieved from www.netl.doe.gov/energy-analysis/
details?id=3741.
8. Ellsworth, R. K., Cost to Capacity Factor Development for Facility
Projects, Cost Engineering, vol. 49, no. 9, Sept. 2007, p. 27.
9. ATO Inc., Centrifugal Pump Price List, 2024, inverter.com, Retrieved
from www.inverter.com/centrifugal-pump-price-list.
10. Chase, David J., " Plant Cost vs. Capacity: New Way to Use Exponents " ,
Modern Cost Engineering: Methods and Data, McGrawHill
Publishing Co., New York, N.Y., 1979, pp. 228-229.
11. Baumann, Clayton T. and Lopatnikov, Alexander, Scaling Laws:
Uses and Misuses in Industrial Plant and Equipment Replacement
Cost Estimates, The Journal of the International Machinery
& Technical Specialties Committee of the American Society of
Appraisers, Vol. 33, Issue 2 (2nd Quarter 2017), pp. 38-44.
Authors
Clayton T. Baumann, PE, CCP,
ASA is a Principal with evcValuation
LLC (16655 West Bluemound
Rd., Suite 240, Brookfield, WI
53005; Phone: 262-788-9331;
Email:
cbaumann@evcvaluation.
com). In this capacity, he executes
and manages engagements related
to the valuation of complex
income-producing properties, including
the development of capital cost estimates for
insurance purposes. His primary industries of focus include
oil and gas, power generation, chemical and public
utilities. He has experience in the valuation and development
of capital cost estimates for power plants using
all technologies, as well as petrochemical facilities, petroleum
refineries, petroleum product terminals, pipelines,
natural-gas storage facilities, paper mills, cement
plants and water distribution facilities.
Christopher
Rigo,
ASA, CVA
serves as a manager for evcValuation
LLC (same address as above).
In this capacity, he manages and
conducts valuation analysis and
support related to the valuation of
complex income-producing properties.
Rigo has experience in ad
valorem tax, allocation of purchase/sale
price, and insurable
value and has appraised property throughout the U.S.
His primary industries of focus include oil and gas,
power generation, chemical and public utilities. Properties
appraised include petroleum refineries, all types of
power plants, petrochemical facilities and chemical processing
plants.
http://www.netl.doe.gov/energy-analysis/details?id=3741 http://www.inverter.com http://www.inverter.com/centrifugal-pump-price-list http://WWW.CHEMENGONLINE.COM
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