Cost challenges for chemical engineers
How much do we need to build a new chemical manufacturing
plant?

estimation of capital investments
How much does it cost to operate a chemical plant?

estimation of total product costs
How can we estimate the economic value of making
modifications to an existing chemical manufacturing plant?
How can we select a “best process” from competing alternatives?

estimation of process profitability
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 1
net profit after taxes
U = (1– t )(R – C’ – d )
income taxes
T = t (R – C’ – d )
t is 35÷45% of U’’
gross profit
U’’ = R – C’ – d
d
depreciation charge
gross profit before
depreciation
U’ = R – C’
R
C’
total product cost
(excluding depreciation)
Process operations
revenues
net cash flow
CF =
= (1– t )(R – C’ – d ) + d
= (1– t )(R – C’ ) + t  d
St,
startup capital
WC,
working capital
FCIL
fixed capital
repayment of
borrowed capital
other
investments
TCIL = FCIL + WC + St
TCI, total capital
investment,
(without land)
Generation of
cash flow from an
industrial process
stockholders’
dividends
Capital source and
sink
bonds & other capital
Progettazione di Processo e di Prodotto
input
common stock
Loans
preferred stock
Trieste, 14/03/2012 - slide 2
1. Capital investment
Total capital investment
When a new plant needs to be built, the required total capital
investment (TCI) does not result only from the cost of equipment
 total capital,

 TCI
  fixed capital,   working capital,   start - up
  
  
  
  FCI
  WC
  costs



Fixed capital investment

direct and indirect costs required to build the plant
Working capital investment

capital required to actually operate the plant
Start-up costs

capital required to startup the the plant for the first time
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 4
Breakdown of total capital investment & startup costs
Total capital investment (TCI)
manufacturin
g
capital inv.
Fixed capital (FCI)
Direct costs
onsite (ISBL)
Working capital
Start-up
Indirect costs
offsite (OSBL)
nonmanufacturing
capital inv.
•process modifications
•start-up labor
•loss in production
8÷10% FCI
• buildings




process buildings
auxiliary buildings
maintenance shops
building services
• yard improvements
 railroad sidings; roads; sidewalks
 fencing; landscaping
• service facilities




utilities
facilities
nonprocess equipment
distribution & packaging
• land
6÷20% FCI
• purchased equipment
• purchased equipment installation
• instrumentation & control
• piping
•Progettazione
electricaldi equipment
& material
Processo e di Prodotto
50÷60% FCI
•engineering & supervision
•construction expenses
temporary facilities
construction tools & equipment
construction supervision
warehaouse personnel and guards
safety, medical, and fringe benefits
permits, field tests, special licenses
taxes, insurance, and interest
•contractor’s fee
•contingencies
15÷30% FCI
•raw materials (~1 month)
•finished products
•accounts receivable
•cash on hand
salaries & wages
raw-material purchases
•accounts payable
•taxes payable
10÷20% TCI
Trieste, 14/03/2012 - slide 5
Project cost & influence of design decisions
As a project proceeds from initial concept through detailed
design to startup:


Costs begin to be accumulated, particularly one procurement and
construction get underway
The ability of the design engineer to influence project cost decreases
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 6
Estimation of the capital investment
Classification and accuracy of capital cost estimates:
1. order-of-magnitude
between +30% and –20%
3. preliminary design
between +25% and –15%
4. definitive
between +15% and –7%
5. detailed
between +6% and –4%
Amount of information
needed to provide the
estimate
2. study
Accuracy of estimate
between +40% and –20%
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 7
The cost of making a cost estimate
Improving a cost esimate is itself a cost!

the man hours required to provide the estimate increase with the accuracy of the
estimate
(Turton et al., 1998)
Type of
estimate
less than
US$ 2×106
between
US$ 2×106 and
US$ 10×106
Order-ofmagnitude
$ 3 200
$ 6 400
Study
$ 21 500
$ 42 900
Preliminary
project
$ 53 700
$ 85 800
Definitive
$ 85 800
$171 700
Detailed
$214 600
558 000- slide 8
Trieste, $
14/03/2012

(Ulrich & Vasudevan, 2004)
Progettazione di Processo e di Prodotto
Total
project
cost

Which estimate to choose?
When a new process has to be design, one often has to screen
several (tenths of) alternatives

each alternative differs for the number and/or type of pieces of equipment, and/or for
the energy requirements
The selection process is guided by two issues

To proceed with the study of a new process, the process must be:
 technically sound
 economically attractive
When several alternatives are to be screened, quick evaluations
of cost estimates are sought for, in order to be able to provide a
fast and sound evaluation of the alternatives
Order-of-magnitude estimates are usually enough for this purpose
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 9
A model for the estimation of total capital
investment (TCI)
A few sound hypotheses
1988):




(Douglas,
startup costs  10% FCI
working capital  15% TCI
off-site direct costs (OSBL)  45%
on-site direct costs (ISBL)
indirect costs  25% direct costs
(ISBL+OSBL)
 includes contingencies  20% direct
costs
Total capital investment (TCI)
Fixed capital (FCI)
manufacturing
capital inv.
Direct costs
onsite (ISBL)
Working capital
Start-up
Indirect costs
nonmanufacturing
capital inv.
offsite (OSBL)
•process modifications
•start-up labor
•loss in production
8÷10% FCI
• buildings




process buildings
auxiliary buildings
maintenance shops
building services
• yard improvements
 railroad sidings; roads; sidewalks
 fencing; landscaping
• service facilities




utilities
facilities
nonprocess equipment
distribution & packaging
•engineering & supervision
•construction expenses
temporary facilities
construction tools & equipment
construction supervision
warehaouse personnel and guards
safety, medical, and fringe benefits
permits, field tests, special licenses
taxes, insurance, and interest
• land
6÷20% FCI
• purchased equipment
• purchased equipment installation
• instrumentation & control
• piping
• electrical equipment & material
50÷60% FCI
 total capital

 onsite direct 

  2.36 

investment
,
TCI,
$
costs,
ISBL




•contractor’s fee
•contingencies
15÷30% FCI
•raw materials (~1 month)
•finished products
•accounts receivable
•cash on hand
salaries & wages
raw-material purchases
•accounts payable
•taxes payable
10÷20% TCI
Onsite direct costs (ISBL):
• purchased equipment
• purchased equipment installation
• instrumentation & control
• piping
• electrical equipment & material
To get a quick estimate of the total capital need,
it is sufficient to provide an esimate of the
installed equipment costs!
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 10
Estimation of equipment costs
Equipment costs are the major costs
associated with the onsite direct costs
Onsite direct costs (ISBL):
• purchased equipment
• purchased equipment installation
• instrumentation & control
• piping
• electrical equipment & material
An accurate estimate can only be obtained from a vendor’s quote
We do not want to get a vendor’s quote for each process
alternative that we are screening!
Generalized correlations (equations or graphical printouts) are sufficient
for order-of-magnitude estimates

each time we use a generalized correlation, we must update the estimate
to take care of:
 equipment capacity
 time elapased between when the correlation was developed and when it is
used (inflation)
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 11
The effect of capacity on purcahsed cost
The capacity of a piece of equipment affects the
purchased cost, but not in a linear way
It is often
A = cost attribute of the equipment
C = purchased cost
n = cost exponent (n  0.44÷0.70)
a = equipment whose cost is to be estimated
b = equipment with reference capacity
assumed that n = 0.6 (six-tenths rule)
n
Ca  Aa 
   
Cb  Ab 
Ca  K Aan
economy of scale
Example: centrifugal blower
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 12
The effect of time on purcahsed cost
The purchased cost on a certain year
must be updated with respect of the
purchased cost of the same piece of
equimpment in a previous year because
of inflation
Cost indices are available, which
are calculated from a “basket” of
pieces of equipment
Marshall & Swift Process Industry
Cost index (M&S)
 1926 value = 100
 2005 value = ~1250

Chemical Engineering Plant Cost
Index (CEPCI)
 1957 value = 100

Nelson-Farrar Refinery Construction
Index
C = purchased cost
I = cost index
1 = “reference” year at which the cost is known
2 = year at which the estimate is needed
Nelson-Farrar Refinery
Construction Index
(1946 value = 100)
Marshall & Swift
Equipment Cost Index
(1926 value = 100)
1000
cost index

1600
1400
1200
I 
C2  C1  2 
 I1 
800
600
Engineering News
Record Constr. Index
(1967 value = 100)
Chemical Engineering
Plant Constr. Index
(1957 value = 100)
400
 1946 value = 100

Engineering News Record
Construction Index
Progettazione di Processo e di Prodotto
 1967 value= 100
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
year
Trieste, 14/03/2012 - slide 13
Example: estimating the purchased cost of a heat
exchanger (Guthrie’s correlations)
Marshall e Swift
index
M &S
0 .6 5
C in st (US $)  
 101 . 3 A ( 2 . 29  Fc )
 280 
Fc  ( Fd  F P ) Fm
cost exponent:
economy of
scale
cost attribute:
A = exchange area [ft2]
Fc = correction factor (type of equipment; design pressure; materials of
construction)
Type of
equipment
Fd
Design
pressure
[psi]
FP
Shell/
tubes
material
CS/
CS
CS/
brass
CS/
SS
SS/
SS
CS/
monel
monel/
monel
kettle (reboiler)
1.35
up to 150
0.00
Fm
1.00
1.30
2.81
3.75
3.10
4.25
floating head
1.00
300
0.10
U-tubes
0.85
400
0.25
fixed head
0.80
800
0.52
1000
0.55
(example for year 2006: fixed head exchanger, 100 m2, CS, low P:
purch. equipm. cost  130,000 $)
Cinst accounts for all onsite costs
related to the equipment that needs
installing:
• purchase of the equipment
• installation
• instrumentation and conventional
control
• piping: insulation and paint
• auxiliary electrical equipment
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 14
Breakdown of total capital investment & startup costs
Total capital investment (TCI)
manufacturin
g
capital inv.
Fixed capital (FCI)
Direct costs
onsite (ISBL)
Working capital
Start-up
Indirect costs
offsite (OSBL)
nonmanufacturing
capital inv.
•process modifications
•start-up labor
•loss in production
8÷10% FCI
• buildings




process buildings
auxiliary buildings
maintenance shops
building services
• yard improvements
 railroad sidings; roads; sidewalks
 fencing; landscaping
• service facilities




utilities
facilities
nonprocess equipment
distribution & packaging
• land
6÷20% FCI
• purchased equipment
• purchased equipment installation
• instrumentation & control
• piping
•Progettazione
electricaldi equipment
& material
Processo e di Prodotto
50÷60% FCI
•engineering & supervision
•construction expenses
temporary facilities
construction tools & equipment
construction supervision
warehaouse personnel and guards
safety, medical, and fringe benefits
permits, field tests, special licenses
taxes, insurance, and interest
•contractor’s fee
•contingencies
15÷30% FCI
•raw materials (~1 month)
•finished products
•accounts receivable
•cash on hand
salaries & wages
raw-material purchases
•accounts payable
•taxes payable
10÷20% TCI
Trieste, 14/03/2012 - slide 15
2. Total product cost
Breakdown of total product cost
Total product cost (TPC)
manufacturing cost
general expenses (SARE)
(operating or production costs)
direct production costs
fixed charges
(Sales, Administr., Research, Engng)
plant overhead
(variable production costs)
• depreciation
• local taxes
• insurance
• rent
• interest
10÷20% TPC
•administrative costs (2÷5% TPC)
executive salaries
clerical wages
legal fees
office supplies
communication
• raw materials
• utilities
electricity
fuel
refrigeration
steam
waste treatment & disposal
process water
cooling water
• maintenance & repairs
• operating supplies & laboratory charges
• operating labor
• direct supervision & clerical labor
•Progettazione
patents &
royalties
di Processo e di Prodotto
60% TPC
•distribution & selling costs (2÷20% TPC)
•general plant upkeep & overhead
•payroll overhead
social security
retirement plans
•packaging
•medical services
•safety & property protection
•restaurants & recreation facilities
•storage facilities
5÷15% TPC
sales offices
sales staff
shipping
advertising
•research & development (5% TPC)
2.5% revenues
Trieste, 14/03/2012 - slide 17
A model for the estimation of total
product cost (TPC)
Total product cost (TPC)
manufacturing cost
general expenses (SARE)
(operating or production costs)
A few (sound) hypotheses (Douglas, 1988)





SARE  2.5% of revenues
maintenance  4% FCI each year
cost of operating labor:  105
$/(operator×year)
no borrowed capital; no expenses for land
no depreciation allowance (so far)
direct production costs
fixed charges
(Sales, Administr., Research, Engng)
plant overhead
(variable production costs)
• depreciation
• local taxes
• insurance
• rent
• interest
10÷20% TPC
•administrative costs (2÷5% TPC)
executive salaries
clerical wages
legal fees
office supplies
communication
• raw materials
• utilities
electricity
fuel
refrigeration
steam
waste treatment & disposal
process water
cooling water
• maintenance & repairs
• operating supplies & laboratory charges
• operating labor
• direct supervision & clerical labor
• patents & royalties
60% TPC
 total product 
 raw materials costs


 1.03 
excluding
 cost, TPC; $/yr  depreciation
  utilities costs
•distribution & selling costs (2÷20% TPC)
•general plant upkeep & overhead
•payroll overhead
social security
retirement plans
•packaging
•medical services
•safety & property protection
•restaurants & recreation facilities
•storage facilities
5÷15% TPC
sales offices
sales staff
shipping
advertising
•research & development (5% TPC)
2.5% revenues

 onsite direct 
  0.186 
 

 costs, ISBL 
 2.13 105 no. of operators   0.025 revenues 
All numeric
coefficients have
proper unit dimension
To be able to provide and estimate of the total
product cost, we need to determine:




Progettazione di Processo e di Prodotto

amount of raw materials needed
utilities consumption
installed costs for all the pieces of equipment
total number of operators needed to run the plant
revenues from product sales
Trieste, 14/03/2012 - slide 18
Evaluation of utility costs
Utilities are service streams (material and energy) required to run
the plant


most of the utility streams are used to exchange energy (heat) with the
process streams
therefore one needs to evaluate the energy requirements and costs
9
Utility costs are affected by
fuel costs, hence by oil costs
CEPCI/50
8
fuel oil n°2
energy cost ($/GJ)
7
6
5
gas naturale
fuel oil n°6
4
3
2
Fuel oil costs vary in a much
erratic way than inflation
(e.g. CEPCI index)
Coal has the lower cost and
the most stable trend

coal
however, it may be very polluting
1
0
1990
1992
Progettazione di Processo e di Prodotto
1994
1996
1998
year
2000
2002
2004
2006
Trieste, 14/03/2012 - slide 19
Typical costs of utilities in Italy
Tmin process
Cost for 1000 m3
Air
50÷70 °C
~15 €
Cooling tower water
40÷50 °C
~30 €
Sea water
30÷40 °C
16 €
Demi water
40÷50 °C
743 €
Cold water
20÷30 °C
32 €
Ammonia
10 °C
~300 %
-5 °C
~400 %
-30 °C
~500 %
Cold utility
side
Propylene
-30 °C
Ethylene
-75 °C
Methane
-150 °C
(2007)
Relative
cost
100 %
~550 €/ton
Hot utility
Tmax process
side
Cost for 103 kg
(2007)
Relative
cost
Steam
exhaust
Progettazione di Processo e di Prodotto
90 °C
~50 %
low P (5÷7 bar)
140 °C
12.7 €
medium P (12÷18 bar)
170 °C
16.0 €
high P (30 bar)
200 °C
16.0 €
Dowtherm oil
300 °C
~3000 €
Dowtherm oil (sinth.)
400 °C
100 %
~150%
Trieste, 14/03/2012 - slide 20
3. Process profitability
Depreciation of capital investment
The value of a plant decreases with time



physical depreciation: : deterioration due to usage, corrosion, accidents,…
functional depreciation : technological obsolescence, change in legislation,
insufficient capacity
land does not depreciate (usually)
When the plant is closed, the plant equipment can be salvaged and
sold, but for only a fraction of the original cost

capital depreciation is the difference between the original cost and the
salvage value
Tax legislation allows only a fraction of the capital depreciation to be
charged as an operating expense each year, until the total
depreciation has been charged

this yearly amount is the depreciation expense (depreciation charge)
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 22
Depreciation methods
Straight line method, SL:

an equal amount of depreciation is charged each year over the depreciation
period allowed
FCI L  S
d kSL 
n
Double declining balance method, DDB:
k 1
an accelerated method 
d kDDB  2
FCI L   d j
j 0
n
Modified accelerated cost recovery system, MACRS
Generally speaking, it is convenient to depreciate an invested capital as soos as
possible


the sooner we can save on tax expenses, the earlier we can start to re-invest this money we have
saved
a typical assumption for screening calculations: SL depreciation method, with a 10-year plant life
Depreciation plans are strictly regulated by taxation legislation
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 23
net profit after taxes
U = (1– t )(R – C’ – d )
income taxes
T = t (R – C’ – d )
t is 35÷45% of U’’
gross profit
U’’ = R – C’ – d
d
depreciation charge
gross profit before
depreciation
U’ = R – C’
R
C’
total product cost
(excluding depreciation)
Process operations
revenues
net cash flow
CF =
= (1– t )(R – C’ – d ) + d
= (1– t )(R – C’ ) + td
St,
startup capital
WC,
working capital
FCIL
fixed capital
repayment of
borrowed capital
other
investments
TCIL = FCIL + WC + St
TCI, total capital
investment,
(without land)
Generation of
cash flow from an
industrial process
stockholders’
dividends
Capital source and
sink
bonds & other capital
Progettazione di Processo e di Prodotto
input
common stock
Loans
preferred stock
Trieste, 14/03/2012 - slide 24
Profitability analysis
fsfdsfs
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 25
Profitability analysis
Some issues need attention in order to carry out a profitability
analysis on an existing process (or on a process to be designed anew)
Capital investment is done once and for all at “time zero” (or
possibly on in the first 2-3 years), while manufacturing costs appear on
a yearly basis


Regardless of inflation, does the “value” attributed to investments and
costs change as time progresses?
How can we compare costs and revenues, which are expressed in ($/yr), to
investments, which are expressed in ($)?
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 26
The time value of money
For an investor, a certain amount of money, owned “now”, has a
value that is different from the one that the same amount will have
“in the future”



the time going from “now” to “the future” can be used to invest the sum, so as
to have a larger sum in “the future”
(money ) + (time )  (more money )
therefore, the present value (or “principal”) P has, now, a higher value than the
one that the same sum P of money has n years ahead from now
this is know as the time value of money
 the capability of money to generate profit decreases with time

this is independent of inflation, which decreases the purchasing power of
money, but not the capability to generate profit
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 27
Discounting and compounding
Cash flows appear at

(the end of) different years during the life
they can be negative (investments; expenses) or positive (revenues)
of a plant
dollars
To compare these cash flows, they must be put on the same basis, i.e.
they must be referred to the same year in time (forward or backward)
The concept of interest is used
to move forth and back in time


compounding
discounting
Interest represents the
earnings on money loaned
(and invested)

also the cost of borrowed money
is called interest
The interest rate is the amount
of money earned on 1 $ in 1 year

0
Progettazione di Processo e di Prodotto
n
this is the investor point of view
years
Trieste, 14/03/2012 - slide 28
Discounting and compounding
/cont.
To put all the sums on the same time basis:


at the end of each year in the life of a plant, the relavant cash flow is
evaluated
then this cash flow is either discounted back to “year zero” or compounded
forth to the “end of life” of the project
 discounting is more frequent than compounding for evaluation of process
profitability
This procedure has two advantages:


all the sums of money are referred to the same year, i.e. to the same
capability to generate profit  the comparison is fair
we can analize investments together with revenues/expenses, because all
the sums of money are expressed in [$-at-the-end-of-a-certain-year]
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 29
Example: cumulative discounted cash flow calculations
Year
Cash flow
(M$)
Discounted
cash flow
(M$)
= 90/(1.1)1= 81.82
i = 10 %
0
1
2
3
4
5
6
7
8
9
10
11
12
-10.00
-90.00
-60.00
-30.00
44.04
38.53
34.59
31.78
29.77
28.34
29.21
24.75
24.75
-$10.00
-$81.82
-$49.59
-$24.79
$33.08
$26.31
$21.48
$17.94
$15.28
$13.22
$12.39
$9.54
$8.67
Cumulative
discounted
cash flow
(M$)
-10.00
-91.82
-141.40
-166.20
-133.11
-106.80
-85.32
-67.38
-52.11
-38.89
-26.50
-16.96
-8.28
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 30
Cumulative discounted cash flow diagrams
Building a new plant ususally requires 6 months to 3 years (e.g. 2 years, in the diagram below)




most of the capital is invested in the first year
at the end of the 2nd year the plant is started up
working capital is required to float the few months of operation (startup costs not accounted
for)
the project life is 10 years (in the example below)
construction ends
+
plant startup
land
+
working capital
+
salvage value
dollars
construction
starts
0
1
2
3
4
5
6
7
8
9
10
land
fixed capital
(excluded land)
depreciation
allowance ceases
11
12
project life ends
working capital
project life (for profitability evaluation)
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 31
How to evaluate profitability
Three different bases:



time
cash
interest rate
For each of these bases, we can consider discounted or
non-discounted criteria

non-discounted criteria are NOT recommended
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 32
Discounted criteria
Time : discounted payback period

time required, after startup, to recover the fixed capital investment without land
(FCIL), with all cash flows discounted back to “time zero”
Cash : net present value

cumulative cash position at the end of the project, discounted back to “time zero”
Interest rate : discounted-cash-flow rate of return; internal rate
of return


interest rate at which all the cash flows must be discounted in order for the net
present value of the project to be equal to zero
in practice, the internal rate of return represents the highest, after-tax interest rate at
which the project can just break even
 a Company will define a minimum internal rate of return for a given project to decide
whether or not it is worth venturing in that project
All of these (rigorous) criteria require evaluating positive and negative cash
flows each year, and discounting each of them to (say) year zero
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 33
Approximated evaluation of profitability
The profitability of a process can be evaluated rigorously
from the annual cash flows


generally, the CF are not constant, because investments, depreciation and revenues
change throughout the years
however, for a quick evaluation of the profitability of processe alternatives, it may be
convenient to assume that the CF are constant through the years (apart from the time value of
money)
A capital charge factor (CCF) is defined as:
gross profit   CCF  total capital investment 
revenues  
total product


excluding
 cost
 depreciation

CCF is the “speed” at which the TCI becomes a (gross) profit
 CCF is expressed in [yr–1]

CCF is the fraction of TCI that each year turns into a (gross) profit
 the less uncertain the process is, the lower the value of CCF that can be tolerated: it is
sufficient to turn a “small” fraction of TCI into profit if the process is not risky

CCF–1
is the “time-scale” on which an invested sum should be distributed to allow it to
be compared with annual incomes/outcomes
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 34
Approximated evaluation of profitability
/cont.
gross profit   CCF  total capital investment 
revenues  
total product


excluding
cost

 depreciation
Therefore, if we are designing a new process we must guarantee
a “good” value of CCF in order for the process to be profitable

What is a “good” value?
Some sound approximations for the development of a new “good”
process (Douglas, 1988):
 time needed to build the plant: 3 years
 startup costs  15% TCI
 total capital investment  130% FCI
 straight-line depreciation  10% FCI (per year)
 working capital  20% FCI
 salvage value  3% FCI
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 35
The capital charge factor (CCF)
It turns out that (i = internal rate of return; N = project life):
[ 0 .25 (1  i ) 4  0 .295 i  0 .298 ](1  i ) N  0 .225 i  0 .048
CCF 
0 .676 [(1  i ) N  1]
Therefore, there is a direct relationship between CCF and i
• For a process not risky (known
technology; stable market), a reasonable
internal rate of return should be ~15%
on a ~10-year life
 CCF  0.33 yr–1  1/3 yr–1
0.70
0.65
i = 25%
-1
CCF (anni )
0.60
0.55
• For a risky process, a higher internal rate
of return is required (25÷40%) and the
project life could also be shorter
 CCF  0.5÷1 yr ̶ 1  1/2 ÷ 1/1 yr ̶ 1
0.50
i = 20%
0.45
0.40
0.35
i = 15%
0.30
8
Progettazione di Processo e di Prodotto
10
12
14
project life (years)
16
18
Trieste, 14/03/2012 - slide 36
A model for the estimation cash flow (CF)
For a 10-year plant life with SL depreciation and approximated
evaluation of the toal product cost (Douglas, 1988):
 cash flow, CF; 
 raw material cost 

  0.507 revenues   0.536 
 
$/yr

utility
costs




 onsite direct 
  1.108 105 no. of operators 
 0.0098 
 costs, ISBL 
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 38
Final recommendations
The approximated models for the evaluation of costs and
profitability can be used only for preliminary screening of
process alternatives

rigorous economic evaluations must be carried out by the Company
specialists
The cost and profitability models have been developed on the
basis of processes for the production of commodities
(petrochemical industries)

for other types of industries different models are obtained
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 39
Useful references
The “Process economics” Chapters of the following textbooks
contain very useful material




Turton, R., R.C. Bailie, W.B. Whiting and J.A. Shaeiwitz (2003). Analysis,
Synthesis and Design of Chemical Processes (2nd ed.). Prentice Hall, Upper
Saddle River (U.S.A.)
Douglas, J. M. (1988). Conceptual Design of Chemical Processes. McGrawHill Book Co., New York (U.S.A.)
Seider, W.D., J.D. Seader and D.R. Lewin (2004). Product & Process Design
Principles. Synthesis, Analysis and Evaluation (2nd ed.). Wiley, New York
(U.S.A.)
Peters, M.S., K.D. Timmerhaus and R.W. West (2003). Plant Design and
Economics for Chemical Engineers (5th ed.). McGraw-Hill, New York
(U.S.A.)
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 40
Esempio di applicazione CAPCOST
Produzione di DME
Il DME è miscibile con la maggior parte dei solventi organici,
ha un’alta solubilità in acqua
Grazie al suo alto numero di cetano e all’alta volatilità viene
impiegato come additivo per le benzine
Viene prodotto tramite deidratazione catalitica del metanolo
su un catalizzatore zeolitico
La reazione principale è:
Non ci sono reazioni secondarie importanti nel range di
temperatura del processo
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 41
Schema di impianto
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 42
Specifiche delle correnti
In ingresso:
In uscita:
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 43
CAPCOST
Sviluppare una lista di tutte le apparecchiature e le utility selezionando il materiale di costruzione di ognuna;
Fare una lista delle portate delle stream in ingresso, delle stream dei prodotti e delle correnti di scarico (le correnti devono essere al di sopra
di 1 atm e nel caso di portate di liquido queste devono essere al di sopra del freezing point e al di sotto del limite di infiammabilità);
Trovare il CEPCI;
Trovare i costi industriali delle materie prime, dei prodotti, dell’elettricità, dei combustibili utilizzati e dei salari per gli addetti.
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 44
Equipment Summary
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 45
Equipment Summary
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 46
User Options
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 47
Utilities Summary
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 48
COM Summary
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 49
COM Summary
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 50
Cash Flow Analysis
Cash Flow Diagram
Project Value (millions of dollars)
12.0
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
Project Life (Years)
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 51
Cash Flow Analysis
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 52
Cash Flow Analysis
Progettazione di Processo e di Prodotto
Trieste, 14/03/2012 - slide 53