Chemical Engineering July 2021 - 26

Freezing the overall design is not
meant to imply that all engineering
and design activities are complete,
but that the defining engineering
deliverables, such as the equipment
list, P&IDs, plot plan and so
on, are finalized and approved to
progress to detailed engineering.
One of the goals of the stage-gate
process is to ensure that the engineering
and project deliverables are
evaluated during the gate review
to confirm that they meet the maturity
and quality expected for the
gate decision. If they do not, then
the gate decision should be to not
proceed until the issue is corrected.
When such a review process is followed
well, then changes to the defining
deliverables will not occur in
later stages.
For owner organizations, Gate
3 (at the completion of FEL 3) is
most commonly used to sanction
the project, providing full funding for
detailed engineering through startup
(the completion of the capital project).
The Class 3 estimate will typically
be based on a deterministic estimating
methodology. The individual
components of the project, including
civil engineering, concrete, steel,
buildings, equipment, piping, electrical,
instrumentation and coatings,
are quantified, either through bills of
materials generated from engineering
models or from manual takeoffs
of materials based on review of
engineering drawings. Appropriate
material and labor resources are applied.
Labor productivity and other
pricing adjustments for unique site,
project and market conditions will
be incorporated. Typically, the level
of factoring is minimized in a Class
3 estimate, although costs for some
items may still be factored when
the level of effort to deterministically
quantify and price them is not
worthwhile, and some scope items
will still not be completely defined,
even at Class 3.
Due to its importance in establishing
the final funding authorization
for a project, validating that the
project and technical deliverables
are of sufficient maturity and quality
to support the final project funding
decision is critical. Ensuring that
the deliverables meet their defined
expectations to adequately quantify
the project scope and prepare the
Class 3 estimate is a key responsibility
of the estimator. If there are exceptions
to the expected maturity or
quality of specific deliverables, they
should be mentioned in the basis
of estimate document (that should
accompany every estimate of any
class) and considered during risk
analysis to establish the expected
estimate accuracy range.
The Class 3 estimate will also be
used to establish the cost baseline,
against which both progress
and performance will be measured,
for the remainder of the project.
The estimate will establish control
budgets to support bid or tender
evaluations, monitor procurements,
evaluate detailed engineering and
construction performance and to
monitor changes to scope and
execution strategies.
Estimating and scope definition
As identified above, the transition
Technique
Capacity
factoring
End-product
units estimating
Physicaldimensions
estimating
Parametric
estimating
26
TABLE
2. SELECTED ANALOGY-ESTIMATING TECHNIQUES
Description
Capacity is used as one of the primary characteristic differences between the proposed
new project and the analogous project(s). In the CPI, there is typically a nonlinear
relationship between cost and capacity [4, 5, 6]
Similar to capacity factoring, this method typically relies on developing the estimate
from the analogy based on the end-product capacity units of a project, such as the
barrels per day of production [4, 7]
The physical dimensions (such as length, area or volume) of the estimated item are
used as the primary driver of costs. For example, the estimate for a control building
in a chemical facility may be estimated based on the area of the building [4]
This is typically a more complex estimating technique that may involve multiple
cost-estimating relationships and the identification of multiple independent variables
that will be correlated to cost (the dependent variable). A parametric model could
involve cost-estimating relationships that may be linear or non-linear [4, 8]
from stage to stage in the project development
process results in greater
maturity of the technical deliverables
and improved scope definition of the
project. Accordingly, the methods to
prepare the cost estimates for each
stage will progress from analogy or
highly factored techniques to more
deterministic techniques - a natural
progression to utilize the greater level
of technical detail that become available
over time.
Factored (or stochastic) estimating
techniques use cost estimating
relationships where the independent
variables are something other than a
direct measure of the unit of measure
for the item being estimated. For
example, for a Class 4 equipmentfactored
estimate, instrumentation
costs (the dependent variable) may
be factored from equipment costs
(the independent variable). These
factored estimating methods may
consist of simple or complex modeling
based on either the inferred or
statistical relationship between the
costs of the dependent variable and
the costs (or other measure) of the
independent variable [4].
In deterministic estimating, the
independent variables represent
(more or less) a definitive measure
of the item being estimated. For
example, piping costs will be calculated
from the material and labor
pricing (Figure 4) applied to the linear
measure of pipe (the quantity of the
independent variable). Deterministic
estimates for large projects may
be comprised of tens of thousands
of individual line items (even when
quantities are aggregated for similar
items by work breakdown and other
coding structures).
Class 5 estimates
During FEL 1, scope definition is at
a very high level, often comprised
of overall facility capacity, technology
selection, location and other
key parameters or characteristics
to describe the overall facility. The
corresponding
Class 5 estimates
are often prepared using analogybased
estimating techniques, such
as capacity factoring based upon
historical data from similar projects.
Parametric estimating models based
on regression analysis for key cost
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