Chemical Engineering July 2021 - 25

deterministic
estimating
methods.
Using equipment as the factoring
basis for the Class 4 cost estimate
(at least for the battery-limit process
units of the facility) stresses the importance
that the FEL 2 equipment
list is comprehensive. Identification
of required minor and auxiliary
equipment (even if key design parameters
have not yet been identified)
will be important to the estimator,
as well as the equipment spare
philosophy (for both installed and
non-installed spares).
The Class 4 cost estimate supports
an updated business case,
and along with the other, betterdefined
project deliverables (such as
project plans and schedules), forms
the basis of the Gate 2 decision on
whether to provide the incremental
funding to further expand the project
team to complete FEL 3.
If a single design alternative was
not selected during FEL 1, then a
single alternative should be decided
upon by the end of FEL 2. Moving
to FEL 3 with more than one potential
design alternative can be an
expensive proposition for the project
owner and should be avoided.
The FEL 1 and FEL 2 stages are
especially important due to the decision
to select a single project alternative
to carry forward to FEL 3.
By the end of FEL 2, the goal is to
select the most preferred design
alternative
(considering
capacity,
technology, location and so on) in
the interest of cost and schedule to
best meet the project objectives established
by the owner. The decision
to move forward based on the Class
4 estimate and its impact on project
economics often have the largest
influence on the eventual return
on investment.
Deciding on the preferred option
may involve choosing between an
alternative that provides a 9% rate
of return on investment versus an
alternative with a 12% rate of return
on investment. After selection
of the preferred alternative (in terms
of capacity, technology, location
and other
characteristics), FEL 3
and subsequent project-execution
decisions will be largely based on
attempting to preserve the planned
rate of return on investment. During
FEL 3 and project
execution, it unfortunately
becomes
easy to negatively
impact the rate of return
on investment,
but almost impossible
to substantially
improve upon the
planned rate of return
on investment.
FEL 3: Define
The
FEL
3
stage
is often referred to
as front-end engineering
and design
(FEED). The goal of this stage is to
expand the project team to complete
the required engineering and
scope development that " freezes "
the overall design. Completion of the
final equipment list (identifying all
design parameters), all process and
utility piping and instrumentation
diagrams (P&IDs), final plot plans
and arrangement drawings provide
the required technical scope definition
to support preparation of a
FIGURE 4. In an example of deterministic estimation, material and labor
costs over the linear pipe measure are used to calculate overall piping
costs
Class 3 estimate that is sufficiently
accurate to allow the project owner
to make a final decision to fully authorize
project funds to complete
the project through commissioning
and startup. Ensuring the Class 3
estimate is sufficiently accurate will
also depend on the non-technical
project deliverable (integrated project
plans, project schedule and so
on) meeting maturity and quality expectations
as defined in the AACE
recommended practice [2].
For details visit adlinks.chemengonline.com/80071-07
CHEMICAL ENGINEERING WWW.CHEMENGONLINE.COM JULY 2021
25
http://adlinks.chemengonline.com/80071-07 http://WWW.CHEMENGONLINE.COM
Chemical Engineering July 2021

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