Chemical Engineering July 2021 - 22

Cover Story
Project Development: The
Importance of Cost Estimating
Following a standardized project-development process, in combination with a robust
cost-estimate classification system, can help to ensure that projects meet their
financial goals
Larry Dysert
Conquest Consulting
Group
IN BRIEF
CAPITAL PROJECT COST
ESTIMATES
PROJECT DEVELOPMENT
PROCESS
FEL 0: IDENTIFY
OPPORTUNITY
FEL 1: BUSINESS CASE
FEL 2: SELECT
FEL 3: DEFINE
ESTIMATING AND SCOPE
DEFINITION
CLASS 5 ESTIMATES
CLASS 4 ESTIMATES
CLASS 3 ESTIMATES
C
ost estimating
is critical
to support decision-making
during
the project development
process
for
projects in the chemical
process industries
(CPI). During the early
phases of the project
development lifecycle,
cost estimating supports
value-based decisions
on project capacity, technology
selection,
locaFIGURE
1. There are numerous project-development steps leading up to final approval
and commencement of construction for capital projects in the CPI
tion, execution strategies
and many other factors. Eventually, cost
estimating is a driver - if not the primary
driver - to the final approval and funding
authorizations that allow a proposed chemical
project to proceed to construction and
eventual startup.
Most CPI projects are approved based on
the economic analysis of potential returns
on the capital project investment cost. The
basis for the investment cost is the capital
project estimate. Until final sanction of the
project (project authorization), it is important
to realize that all the engineering and design
efforts (expended over perhaps months, if
not years) to support project authorization
have been completed for a proposed project.
Unless the project economic analysis,
based on the cost estimate, meets targeted
or acceptable rates of return, the project
will not be approved and constructed. The
technical deliverables defined during the
early stages of the project development
lifecycle must support effective estimating
of the capital project cost to ensure that
the resulting economic analysis is comprehensive,
robust and sufficiently accurate to
support the decision for final approval of the
project (and the commitment to authorize
the funds to complete the project through
detailed design, construction and startup).
22
Capital project cost estimates
In its most general terms, a cost estimate is
a prediction of probable costs. For capital
projects, a cost estimate is defined as " the
prediction of the probable costs for a project
or effort, for a given and documented
scope, a defined location, and a point of time
in the future [1]. "
A capital project is the undertaking to
develop, build or improve a capital asset
(such as a chemical plant). These are typically
long-term projects that involve various
stages of project development, leading to
eventual project approval and construction
of the asset facilities (Figure 1). Thus, capital
projects are temporary efforts with a defined
beginning and end. They take resources
and time to accomplish, and every individual
project is a unique undertaking of interrelated
tasks. Even when the physical and technical
scope is essentially the same (such as for repeat
projects of similar facilities), differences
in location, time of construction and other
issues, such as contracting strategy, may
cause cost variability between the projects.
As a predictive process used to quantify,
cost and price the resources required by the
scope of a capital project, cost estimating is
a challenging exercise. The estimator must
evaluate the unique combination of materials
CHEMICAL ENGINEERING WWW.CHEMENGONLINE.COM JULY 2021
http://WWW.CHEMENGONLINE.COM
Chemical Engineering July 2021

Table of Contents for the Digital Edition of Chemical Engineering July 2021
