Chemical Engineering July 2021 - 23

and labor resources required by the
project scope, and calculate the associated
costs to provide a cost estimate
for a project that will be completed
in the future.
The estimator attempts to base the
cost estimate on as much fact (or certainty)
as possible, but at the time of
estimate preparation, all of the facts
are never available. The estimator
(and the estimate stakeholders) must
accept that opinion and judgment will
be required to prepare an estimate,
because the scope of the project is
not completely defined at the time of
estimate preparation. In addition, all
estimates are based on assumptions
of future events and conditions.
Obviously, the goal is to reduce the
level of uncertainty given the quality
and maturity of project definition
to support the estimate by using a
disciplined estimating process, applicable
estimating methodologies
and appropriate material and labor
cost references. However, in the end,
as predictions, all cost estimates involve
uncertainty, and the evaluation
and communication of that uncertainty
is another important step of the
estimating process.
Project development process
Most large capital projects will follow
some form of a stage-gate (or
phase-gate) project development
and governance process. The process
defines the incremental development
of the technical and other
project deliverables over time that
lead to project sanction and extends
to project execution and the eventual
startup of the facilities and turnover
to facility operations [2].
The stage-gate process supports
risk management for the project
owner (or financer) by committing
funds incrementally for each stage,
with a review to support a decision
to proceed (called the gate) at the
end of each project development
stage. If the project economics,
schedule or other goal of the project
(for instance, capacity or quality),
evaluated at the end of a stage do
not meet the objectives of the project
stakeholders, then the project
can be canceled before a commitment
of full project funding has occurred.
Alternatively, if project objectives
are not being met, then project
scope or other characteristics may
be modified and the project may be
recycled through an earlier stage
of development.
Figure 2 illustrates a typical stagegate
project development process.
The stages leading up to project
sanction are often referred to as the
front-end loading (FEL) process. This
will typically involve incremental maturity
of technical engineering and
supporting
project
deliverables
to
eventually support a decision to fully
authorize a project.
Much of the chemical industry
has adopted a cost-estimate classification
structure defined by AACE
International (Association for the
Advancement of Cost Engineering;
FIGURE 2. The stage-gate development process provides a standardized framework that engineers can
follow to help shape their cost estimates throughout a project's lifecycle
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Chemical Engineering July 2021

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