Engineering Practice Updating the CE Plant Changing ways of building plants are reflected as this widely used index is brought into the 21st century jilliam M. Vatavuk Vatavuk Engineering fhe Chemical Engineering Plant Cost Index (CEPCI) is an estab lished institution. Since its intro- duction in 1963 [1], it has been published in each and every issue of (CE. For more than 37 years, chemical- process-industry (CPI) professionals — engineers, managers, and technicians — have used the CEPCI to adjust process plant construction costs from ‘one period to another. This index — rather, indexes, as it consists of a eom- posite index and eleven sub-indexes — has received such wide acceptance that it has even been written into construc tion-contract cost-esealation clauses, ‘The CEPCI has a history of revi- sions, Most of these have been eo3- metic, auch as renaming the “Fabri cated. equipment” subsindex to the more descriptive “Heat exchangers and tanks” sub-index. The most recent, and ‘most significant, revision — more like an overhaul —oceurred in 1982 2] ‘The major changes included reducing the number of components from 110 to 66, replacing many components with more suitable ones, and revising the productivity factor downward from 2.50% to 1.75%. (See next page for an explanation of the productivity facto.) ‘The 1982 changes deliberately ro- tained the structure of the CEPCI. ‘The set of sub-indexes has remained unchanged for nearly four deeades — decades that have seen major changes in the CPI, especially in plant design ‘and operation. We have not changed TABLE 1. STRUCTURE OF THE CECPI ‘A.Equipmentindex, includes the folowing sub-indoxes: * Heot exchangers and tanks + Process machinery + Pipe, valves & tings + Process instruments + Pumps & compressors + Hlechical equipment + Structural supports & miscellaneous 3, Construction Labor index ‘C.Buildings index . Engineering ond Supervision index the data series and the relative weights since 1982. That is a long time to freeze an index, and does not necessarily reflect recent changes, For that reason, we have decided it was time for the CEPCI to be revised again, this time to bring it into the twenty-first century, The structure is not being changed, but many underly. ing details are being updated. ‘The established structure Before describing the latest CEPCI re- vision, we need to review its structure and some history. Table 1 shows that the composite index is built from seven component-indexes and four subvin- dexos, For all of these, values have been reported running back to 1947, ‘Table 2 lists annual values of the four subindexes and the composite index for the years 1963 to 2000. Compo- nent-index data and an extension back to 1947 ean be purchased from CE's editorial department. Each annual index is the arithmetic mean of the monthly indexes Details of computing the values will be discussed helow. For now, we will, stick with an outline, as shown in Table 1. The component-indexes are compiled, and with appropriate weighting factors, are added up to make up the Equipment Index. Inde- pendently, three other sub-indexes fare compiled, and with appropriate weighting and normalizing, the four sub-indexes add up to the CEPCI. While Table 2 is informative, it is a lot easier to see trends and relative changes among the indexes when plot- 62 CHEMICAL ENGINEERING WWW/CHE.COM JANUARY 2002 ted in Figure 1. A cursory look at this figure tells us that none of the five in- dexes increased monotonically during these 37 years. They had their “ups and downs,” but all of them were sig. nificantly higher in 2000 than in 1963, ‘The Equipment subsindex exhibited the most growth (approximately 340%) ver this period, followed by the com- posite CEPCI, and the Buildings, Engineering and Supervision, and Construction Labor sub-indexes, re- spectively. The relatively steep rise in the Equipment subindex was partly due to sharp inereases in fabricated equipment prices, which were driven, in tum, by jumps in the costs of raw materials (for instanee, stainless ste) Because this sub-index contributed so much (61%) to the composite CEPCT, the latter exhibited very similar behav. ior; the two curves are nearly parallel ‘There is another reason for the rela tively modest increases in the other sub-indexes — the CEPCI produetiv: ity factor. This factor, which discounts changes in the labor-cost components in the sub-indexes, tends to dampen inereases in these sub-indexes. An index with large labor components, such as Construction Labor, is more influenced by the produetivity factor than those with less-significant labor cost elements (such as Equipment). ‘The five index curves change slopes downward around the year 1982. This was the year of the last major CEPCT revision This revision involved a change in the productivity factor, as well as major reductions in the num- ber of index components. Taken to-Peretti ad struction wages” [3]. Let us do the math and ‘enter the productivity fac tor into the ealeulation of the CEPCI ‘composite and its sub-indexes, It is tused on every Iabor-cost component within a sub-index, component index, or the composite index. Take the raw change in a labor-cost component and multiply it by the productivity factor to obtain the adjusted change in that component, ‘This adjusted change is then an input to the calculation of the appropriate CEPCI sub-index, and ‘the composite index. ‘The productivity factor is calculated via Equation (1): PR = 1/(1+p/12" where: PF. = productivity factor (<1) p= Annual growth in construction labor productivity fraction) n= Number of months between Janu- Tadene base 1057-50 = 10050 gether, these changes significantly af- fected the next 18 years of the CEPCT land its sub-indexes. There were other maeroeconamie trends that also influ: fence the data; such as a decline in in- terest rates over 20 years from 20 to 2%. The inflationary 1970s have come and gone but left their mark. We have mentioned the CEPCI pro- ductivity factor several times already without explaining what itis or how it is calculated. In 1982 Matley {31 ex. plained that the productivity factor “should be thought of as a technologi- cal productivity factor [that is] pred cated on advances in working tools and techniques.” These advances include such obvious ones as the proliferation a @ Year ]om- | Eauipmen Constuc- Buildings! Enginesing poste ion and super Ceindex abr vision 963] 1024 | roos | 1072) 1021 | 1034 964] 1033.| 1012 | 108.5 | 103.3 | 1042 1965] 1042 | 102.1_| 109.7 | 1045 | 1048 1966] 1072 | 1053 | 1124 1079 | 1068 1967| 109.7 | 1077 | 1158 | 1103 | 1080 i968] 1137 | 1099 | 121.0 | 1157 | 1086 1969| 119.0 | 1166 | 128.3 | 1225 | 1099 1970] 1257 | 138 | 137.3 | 1272 | 1108 tort] 1323 | 1304 | 1462 | 1355 | 1114 1972] 1372 | 1354 | 1522 | 420 | 1119 1973] 1441 | 141.8 | 157.9] 1509 | 1228 wera] 1654 | 1712 | 1633 | 1658 | 1348 1976] 162.4 | 1947 | 168.6 | 177.0 | 1418] FIGURE 4. The majorindexes show an regular rise over 37 years 1976| 192.1 | 205.8 | 1742 | 1873 | 1508 977 204.1 | 209 [178.2 | 199.1 [162.1 | ofpersonal computers and | ary 1947 and the index-update month we7e| 2188 | 2403 | 185.9 [2137 [1619 | other electronic tools, and | ‘The index is calculated monthly. i979| 2367 | 2647 [1949 [2284 [1659 | lessovident (to non-con- | That is why the average productivity 1980] struction professionals, at | increase appears as p72 1981 Teast) innovations as the | For instance, suppose that the raw 1982] implementation of modu. | (unadjusted) inerease in the Engi- 1983] lar construction tech- | neering eost component from Febru- sea] 3207 [344.0 [2645 [3003 [3863 | niques, However, Matley | ary 1963 to August 2000 was 400% (or ses 325.3 | 347.2 | 2453 [3084 [3389 | said that the factor, | 4.00). Here is how to caleulate the ad. tose] 318.4 | 3363 {263.0 [ 3039 [3412] “should not be considered | justed change in this component: Sub- 19e7| 923.8 [343.9 [262.6 [309.1 [3460 | to account for changes in | stitute an annual productivity growth ses] 3425 [9727 | 268.6 [919.2 | 3433 | produetivity arising from | rate of 2.2% or 0.022 this value is ver we9] 3554 [391.0 [270.4 | 3276 [3448 | improvements in the qual- | ified p.69) and the number of months 1990| 967.6 [9922 [71.4 | 309.5 [366.9 | ity of construction work- | from January 1947 to August 2000 63 wear] 3613 | 9969 | 2748 | 9929 [9645 | management... {nor | x 12+8= 644), Equation (2) solves for sea] 3502 [3922 [273.0 | 3346 [9641 | should it] be regarded as | a productivity factor of 1993] 3592 | 391.3 | 2709 | $41.6 | 3523 | reflecting productivit vooal s6e.1 [ane9 [2729 | 3538 [S811 | Changes, due fo advances | PPE =/t/(1+ 02/1200 = 1995] 361.1 | 427.3 | 2743 | 3624 | 347.6 | in the skill, experience or 996| 3017 [4274 [277.5 [365.1 [642 | motivation of the work- | ‘The adjusted increase in the engi- 997 3068 | 4332 [2819 [3714 {3425 | force. Lastly, the factor | neering cost component is 0.3074 x vo9e| 309.5 [4360 | 267.4 | 9742 [3412 | cioes not take into account | 400% = 123% 1999|" 3906 | 435.5 [2925 [3802 [359.9 | regional variations in con- | ‘The exponent n in Equation (1) is ooo] 3941 | 4380 | 299.2 | 3656 | 340.6 caleulated from January 1947 instead of from February 1963, the month and year the CEPCI was introduced, be- ‘cause 1947 is the year that the Mar- shall and Swift (M&S; formerly Mar: shall and Stevens) Equipment Cost Index was started as a regular feature of CE [4], We suspect that Arnold and Chilton derived the productivity fac- tor from this data, but they did not leave a paper trail. Despite the fact that the M&S index is based on used-equipment prices, while the CEPCI is built around new plant-construction costs, trends in the M&S have been comparable to the CEPCI. The quarterly M&S index is published on CE’s Economic Indica: tors page, along with the VAPCCI (see box, p. 69) and other indexes. ‘Two questions of engineering phi losophy intrude here and need ad- dressing. Why do we use a produetiv. CHEMICAL ENGINEERING WHW.CHE.COM JANUARY2002 63Engineering Practice ity factor at all? Why not just leave the labor-cost components unadjusted? ‘According to Arnold and Chilton [5], “All cost indexes that have labor rates ‘as components and that. do not make corrections for labor productivity have built into them what index techni- cians call an upward bias.” They felt that, without labor productivity cor- rections, indexes will, over time, over- state true (a3 opposed to apparent) labor-cost changes. However, we should note that the productivity fae- tor dampens labor-cost decreases, as well as increases. As mentioned ear- lier, Figure 1 displays the effect of labor productivity on index trends. Assembling the CEPCI data ‘The productivity factor is one of 64 in- puts that are used for ealealating the updated CEPCI and sub-indexes. We will discuss accessing the other key in- puts used in their calculations and how this calculation is performed. We said that each index and sub- index is the weighted sum of several ‘components. Most of these components ‘correspond to Producer Price Indexes (PPIs), updated and published monthly by the US. Department of Labor's Bu- reau of Labor Statisties (BLS; Wash- ington, D.C). According to the BLS do- finition, the PPIs, “track the averagechange in net transaction prices that domestie producers in the mining, manufacturing, agriculture, and forestry sectors, as well as selected services industries, receive for the products that they make and sell.” The price quotations that the BLS uses to build these indexes come from a statis- tically chosen sample of representative transactions obtained from a statisti- cally chosen sample of representative producers in each 600 or so industries, “In all, the PPI includes roughly 100,000 price quotations from about 25,000 domestically producing estab- lishments, resulting in the publication ‘of approximately 13,000 indexes” [6]. From these several thousand in- dexes, 41 PPIs have been selected as inputs to the CEPCI and sub-indexes, ‘These PPIs cover products as diverse 1s earbon steel plates, fans and blow- cers, concrete pipe, and lighting fix- tures, All of these items and many more are key elements in a typical Pree eka eee Conporen Conporen groups woigit taco | (elit feo) ici, carbon slo! | peuiS2eai2 | 0.140 Pices, stnion steal |peutsi2eas_ [0-110 Pressure tubing, welded, Carbon soe! putor70426| 0043 Pressure bing, same, Carbon eel puioi70626| 004s | 4» Nonierous milshepes —[wpuio2s [oo | & Pals, aly powsiestforie—| & Hot roled bas, ples, a | endsructual shapes __|peussizea_lono | 9 Storoge lank, 6000 gt 2 one monoroie|oc27 | og Storage ania, over 3 000 al puio72010| 025 3 ‘Metal tanks ‘wpul0720182 0.021 isd ‘Custom tanks, 3/4 in. 3 sndies wpuior20136| 0082 | 2 ‘ner curr Tone, & fetdossembled wpusora0iso|oo0 | Pooleun doroge anis_|woulo7z0i0«| 0010 | Sublofal et exchanger andianiascomponens | —_| 0774 Subjota. eat exchanger indtankssiabor "| eeu 1340006 | 0.226 Total fr Heat Exenangersand tanks | _— | 1.000 _/ icles, carbon see! [pews T2442 [0.105 Sheol, nobvoled. cotbon set poussi2es1 | 0030 Cold-rolled shoals =. sand snp peussi2e7 | o010 \ gs Foundry and forge z 3 shop products wpuiors | 0.060 = 5 Industrial material- S gsc handing equipment __|wouttss loos | 2 £ Fons and blowers, excep 5 potable wou loos | SS ‘Chom. ind machinery —[wputteeba [oso } SS Tntegral-hp motors and gs | generator power _|ooss Crushers, puvetzors and Screeningmachines |wputiv202_| 0.10 Conereieingreionis—[wpuls2_—[o0s0 | © Subota Process mactiney-components |__| 0770 Subotal, Process mmochineylabor___|eeuatss0005 | 0230 Total for Process Machinery — | 1.000 Prosi conduction products wpwra1 | oso tine end senda pipe, ‘carbon ste! sypui0170616 | o4c0 Mechanica biG 2 orbon slel mpuoires2s|or0 | $8 ‘Copper and brass mill ge sopen wows oo \ SES Concrete pipe puss [0050 {5S Mell valves, except #2 fd power mpuruve2_|o200 || & = eta ibe iinos fonget,endunins___|wpuri4s03__| 0.10, Total or pipes, valvee J ind tings — __|1.000 Zonince on adacon pape (@4 CHEMICAL ENGINEERING WHW.CHE.COM JANUARY 2002,one a sree lgrptovel | rnp tae a Hear _|(woigincty | rtgt taco Sheets norroled | —— a | CPI plant. The first columns in Table ‘Sheets, cold-rolled, | 3 list these PPIs and their BLS code atbon sel wpuio170711| 0014 | eee ee ee a cernon fae | mbers. The later begin with the ae aoe | designation pew ar up Seer ee Tee eT | i lin CEEOL apts si ince 12 corns [Te {2 || torent ne Tale 3 Som a | eee indexes are also compiled by r = || BLS. They track changes. in labor Integra hp tor ond | |_gensrato peuss2ie2 | 0.036 3 | rales, for such categories as Fabri eee Zo cated products and General building and accessoums wou |ouo |} 2S || contractors In dition, speial labor Metal valves, except ae | cost indexes are included for technical fluid power wourao2_|ooss || 3 specialties, such as engineers and de- ‘Subtotal, Instrument and g signer-drafters. Except for the last cerise-comewm | — loro || 9 Sor whith ae puSPH1S and Relays a ndueil peub71284, all ofthe labor cost index _controls - labor _2eu31362506 | 0.063 numbers begin with the letters ecu or Process control ew. The large number of entries for tea sent au =e eeeen ‘Subtotal instrument and that sprawls over three pages. onto =o — _|o2s Tn Table 3, alongside each compo- Felal lec presen] nent and BLS index number is a com- snunai meet | Steet et aaa a ee fear ete 2 as revised (or left unchanged) in this up- Atcomereson, satonen/|wouttaios [oot |] 25 _/ | SS || date the name implies, thi actor ‘Gos compressors, ¢ - : sialionery wourse joo _|\ $83 { ag prin proportion tts iporanee Oiner compresions and ges) ¢ Brice in pro a ‘thet compres ene ge the subvindex or composite CEPCL Total lor BURTES! 2 | Consider the first entry: Plates, carbon Total fo pope a a 8 Steel, "This component. ts given Nonferous wie and abi wpuloa6 | 0057 weight of 0.40, This, means that ee oe changes in the price of earbon-stoe Laity arse cate ueitueginceee ee ae coll | ere the “Heat exchangers and tanks” com: aes aaa 82 ponent-index. The subtotal of weight |_genereior ses wots loos | SES factors equals 0.774. The balance ‘Transtormers and power ose (0.226) is contributed by the labor for regulator wourt74 | 0.146 ge fabricating these components. ‘switchgeer, ewitehboard aS ‘Moving one column to the right, squpment wpun7s | 0240 ‘leat exchangers and tanks? is listed Total fr elochical under the enlumn heading Component equipment —_|r000 Groop — Level 1 The weight factor in Prepared pat wpa [a2 Fi that enlum is 0.598 This weight factor Hotoled bas, pales, aes denotes the contribution of “Heat Ex- cond stuctual shapes _| peu3312¥4 | 0406 238 changers and Tanks” tothe Equipment ‘Concrete renoreng Bar 226 inden, which is listed in the ealowa cosbon steel pou 33124425} 0.089 Bog Component Group —Level I. Finally ‘Concrete ingredients | wpul32_ 0.129, B23 notice that the weight-factor for Equip: Ingulation materiale wput3s92 | 0.353 3e2\| ‘ment is 0.507, meaning that it con- Total fr shuctural Bee tributes 50.7% tothe compete CEPCL supports and 2} ‘The other three major sub-indexes do miscelioncour = 1.000 not have a Component Group — Level seo sera = = 1.000 Buildings has just two components: Gpecainded|wpusorz011 | asso | — a | ee ae conrtoar 90120180006 | 0470 a3 ewe 8 Ga Sw: ain es olson 20, 3 inde, which, in tur, contributes 4 aire | 9 he CEPCL Tear opens of ses gineering and Supervision su CHEMICAL ENGINEERING WW.CHE.COM JANUARY2002 65‘uleoF thumb limit for cost excoaton is five years. Ths op” pes al exagsccapl x operting costs. Tae cre und reasons fortis parfcuor time limit. ver periods of up to five years, the diflerences between acti prices oF equipment cand labor ond hose predicted by costindex have been found to be smal relative fo the inherent error in most budgetevel es mates (220 fo +302] 10], Over longer periods, these devitions on become much larger. Tho implies thal the CEPC! can (ord should) be used to adjust costs — but only ihe adjusment period islmited to five years ‘An example wil be used © 0s background fr discussion. et us sey that a 700+/¢ liquid oxygen (LOx) plant wos bul in 1970 for $10 millon. How much would it cos in 2000 fe construct @ 700- 7d LOx plan? Fis, read the annual average composite CEPCTs for 1970 and 2000 from Table |. These values are 125.7 (1970| cand 394.1 (2000). Then multiply the 1970 cost by the rato of these two CEPCIs to cbain the plant cos! in 2000. nfltionary changes in the buying power ofthe dollar ae bul into he index, $0 don't moke unnecessary currency corrections Cost = $10,000,000 (384.1/ 125.7) = $31,300,000 (8) Tis costs no likely fo be accurate. To begin with, during the in tervening tity yeors.« hos of changes occured. Some ofthese changes involred the lquieronygen prodection process. There cre Steps made more efficient, stops omied and steps added. The net resutwas.on improvement inthe producion effclency, esting in OBSERVING THE FIVE-YEAR RULE «lower dollar perton production cos ‘Other changes were due to ouside faces. Among the mest in fental of hese were he mony heat sfey, and environment ‘equations that were imposed onthe CP. These included rules of fetng such diverse matters os the height of catwalk ralings, the monitoring of wastewater pH, and the contol of five VOC (volatile organic compound) emissions from relief valves. To com: aly wih these, reauaons, CM plas had to mel ther processes, install monitoring and control equipment, ond hire ad- tonal professional and suppor personnel. Fortis reason clone, { comparison of the 1970 and 2000 LOx plans would fll inthe “eed eget caony Titles go bypahotical ore moment soppot tha th 1970 and 2000 10x plone were abs idencl in al espects ren thn, the CEPCLecelated cod woud not be accirae Eventhough ese two plans would contin exndly the some number and types ofa pats, the prices ofthis equipment ond, thors import, mbar reared tall Rov esc Gf diferent role. The mojr change fo he composition of he EEC isto increase he weft he costo labor ond cl he sigiceleleter ay eeaticeeearett ecco Escpiient Sanibel 61s to he coraeate eva widen the tow CEPCL ft coniroves ual 515, AV te sae Yne,lbor’ ‘eight fador ceased Rom 22% in the index to 45% in he new CEPI 5 Petree ncn Pine Component BLS index PRS umber ndexor component | Normalan Fact ‘Administive supped, Ps Hect exchanger andienis_| 4.550 ineluging clerical ecu loos | —— |] 28 _| [Process machinery 5264 Engineering peusriivt_ [0.325 22 | [Pives.vaives. on tings | 5.486 Designor/drafier (peus71204 | 0.395 ZS | [Process instruments “4499 Executive, aiisvation 2G | [Pumpsondcompreson | 6.665 and managerial eoutit121 _|0.220 SBS | | techicol equipment 3393 ‘olal for engineering & ‘Siuctual supports fond supervision 1.000 = ‘anaimisceleneous 2a General bulding 58 Fquipment 4917 contractors cousnisoms|oas _ —— |) 6&8 | [eauene 2EE Heavy consnuction z26| Hw concen 0.20 60005| 0317 BS | [Egneewgaaapenan [1.0 rs coniiectons | 00u20170006 [0.217 228 spacial 88 ‘Composile CEFCI 6369 constuction abor___|———_| 1,000 = ‘GRAND TOTAL™CE PLANT COST INDEX: 1.000 | | is the base value ofthe Producer Price Index. This base value is the arith ee metic mean ofthe twelve monthly val Compenes Base Jeurent anes tues of this PPI for 2000, Thus, we ean pet PP TUnadh. | Aa. | Welahiad] | say that the base date of the revised - Brotuet_| | CHPCT is Year-2000. On Table 2 this ‘Gonsiuction material [0590 [iaat [a3 1988 | 988 18234 || f'the tast line augmented with the General bid values for the eomponent-indexes. We contraclor oa _|vv22 _|rso lors | s09_|rase_|| san or she somponentindenes Me Total — before normalization 16526 | | data allows for a broader base than a aaa single month normalization normalization factor» 5.768 354 _|| At this point, the data entry is cor index contribute to that eategary, while ‘the Construction Labor sub-index has three components. The “Engineering fand supervision” and “Construction Tabor” sub-indexes account for 15.8% and 29.0% of the composite CEPCI, re- spectively. These weight factors are en- and sub-indexes. (66 CHEMICAL ENGINEERING WHW.CHE.COM JANUARY 2002, tered into an Excel spreadsheet that is used to caleulate the composite CEPCL Normalizing the index ‘Also entered into this spreadsheet, in protected squares, for each component rect, but the results make no sense, unless the data are normalized. The PPIs do not all start at 100 in 1959-1961, which is the historical base of the index. (PPIs are given a value of 100 on the month that the se- ries begins.) Also, labor costs are given in units of dollars per hour.Potent rts Paes Discontinuee Produce Price infer ‘Replacement Producer Price Inéex [Fatumber Tame Number me ‘wpul0170611) Standard pipe, carbon | wpul0170616 ine and std. pipe and of [country tubular goods, ete ‘WpulDT70622 Pressure tubing, welded] wpul01/0626 [Pressure tubing, carbon ‘carbon ‘wpui0170624| Mechanical ubing, __| wpui0170629 |Mechanical ubing, welded, carbon lcorbon WpulT4I05 (Other compressors | wpull4111_ [Other compressors and \vocuum pumps ‘wpul0720112 Bulk storage Tank, 6000 | wpul0720108| storage and other “gallons orless Inon-pressure tanks WpulO720113 Bulk storage tank, over | wpul0720104|storage and other 6,000 gallons Inon-pressure tanks ‘WwpuTO720158 Custom fanks, 3/4 mn. | wpul0720136/All other tanks and ‘ond less \vessels,custom-fabricated lat Tactory Wwpui0720147 Pelroleum storage tanks) wpui0720104|storage and other Inon-pressure tanks ‘Wwpuld720148| Allcther cusiomized | wpul0720162|Metal tanks ond vessel, ‘ons, fold essembled [custom fabricated and fold erected ‘wpul 1660812 Chemical mixers wpul 16604 [Chemical industry Imachinery [PeUBSTAHATSTI Structural steel shapes | peuS3T2#4 _|Hot rolled bars, piales, land structural shapes wpui14904 Pars & allachments or | woul 14903 |Metol pipe ftings, langes| valves &ftings land unions. "peu8312F483 Stainless steel plates | peu8312#45 [Plates ana structural snopes, stainless EZ fier ‘Component or component group Prine. Weight facto original Revi Prepared paint wpwoe2i | 0028 | 0.028 Hol-rolled bors, plates & structural shapes | peussi2e4 [0.362 [0.406 ‘Concrete reinforcing bors, carbon steel_| peus312#425] 0077 [0.089 ‘Concrete ingredients wpuls2 [0.17 10.129. Insulation materils ‘wpuls92 [0396 | 0.383, Engineering pous7iti [0330 | 0.325, Designer-drcfier peus7i2e4 | 0.470 | 0.395, Executive, adminisictive, ond management | ecullti2i_[0.140__| 0.220. ‘General bulding contactors ‘ecu20150006) 0.334 | 0.467 Heavy construction contiociors “ecu20160006) 0.333 | 0317 ‘Special ade contractors ‘2cu20170006] 0.333 | 0.217, Heal exchangers and tanks grouping [0.370 | 0.338, Process machinery grouping [0.140 [0.128 Pipes, vaives and fings “grouping [0200 [0.190 Process instruments grouping | 0.070__| 0.105, Pumps and compressors grouping | 0.070 | 0.064. Electrical equipment grouping | 0.050 [0.070 ‘Structural supports and miscellaneous, ‘grouping 0.100 | 0.105, Equipment grouping [0610 | 0.507, Buildings ‘grouping | 0.070 [0.046 Engineering and aupanision ‘grouping [0.100 0.158, ‘Construction Iabot ‘grouping [0220 [0.290 There has to be some computational adjusting to make the series continue. Every month, the latest values of the component PPIs are entered into the spreadsheet. Far each component, the ratio of the current PPI and the base PPI is multiplied by the weight factor. When this ealeulation has been ‘made for all the components of a sub- index, the results are added. This sum becomes the eurrent value of the sub- index. Lastly, each of the sub-indexes is multiplied in the spreadsheet by a “normalization factor” that has heen selected such that the resulting value of each revised sub-index for January CHEMICAL ENGINEERING WHW.CHE,COM JANUARY2002 2001 is exactly equal to the value of the corresponding old index for Janu- ary 2001. This normalization process ensures that the old and revised in- dexes will have a seamless transition. If that was a litte hard to under: stand, we present a simple example to illustrate the CEPCI calculation process. Consider the Buildings sub- index for the March 2001. The compo. nents, their weight factors, and their PPIs are showin in Table 4. The weight factors are in Table 3 and the base PPI values for 2000 have been stored. The current PPI data were read from the BLS website: www.bls.gov‘datalhome hhtm. The unadjusted ratio is (current PPI\(base PPD) General Building Con- tractors is a labor cost, so it is multi plied by a productivity factor (0.3040 in ‘March 2001), ‘The Weighted Product is the ad- justed PPI ratio multiplied by the weight factor. The sum of these weighted products is shown both be- fore and after normalization. Again, the normalization (splicing) factor is the ratio of the Buildings sub-index calculated via the old CBPCI to the re- vised sub-index. Finally, the post-nor- malization value, 385.4, is the Build: ings sub-index for March 2001. The splicing factors are stored in the spreadsheet and they were worked bout to make sure that the index con- tinues without a discontinuity. Table 5 isa list of normalization factors What wasrevised? ‘There are more compelling reasons to revise the CEPCT than the centennial of this magazine in 2002 or the start of| new century. Progress over the last 18 years is the main impetus for a fresh look. Here are some of the rea- sons for an update, and some ofthe ac- tions put into the revised index. 1) The BLS no longer reports 14 of the PPI inputs to the old CEPCI. Con- sequently, each of these inputs had to be frozen at the value last reported by BLS, Needless to say, a frozen PPI contributes nothing to the index-up. dating process. We were able to find suitable replacements for these dis- continued PPIs, Those replacements are listed in Table 6, 2) Two of the labor categories in the old CEPCI (Draftsman and Typist) are orEngineering Practice eee eee ee Hor dan [Feb Max. [ap Way_[oun Yau." [Sep" Pint cost 395.4] 365.694. 999.932] 3959] 3958 37/3907 Equipment 239.6 497.0 4979497] 64365436] 43682861 “Heat exchangers | 577] as. 365.7] 3403] 3613361. 26.4 262.0 2645 = Focess machinery | 14] a4. a2] a3] 4az1| 4033]. 0.991. Rene 951.2] 544.1 545.2] 551.6] 549.0] 47.8] 547.0|540.4|542.4 [Process insiomenls_| 368.1 3658] 3650] sous sen 34293610 36023571 ‘fumpsond | 724) e703] 673.0] 4733) 6750 740|6733] 6% |6753 + lectical equipment | $40.2| 340.8] 341.7] 3421] 342.6] 342.0] 341 8|347.1[341.1 + Stustural suppers | 416.3) 414.2] 414.3] 413.4] 413.6] 416.9|415.7|415.8|416.6| FIGURE 2. The revised CEPC! shows 2 ‘end mise. slight tendency to dectine while the od ‘Construction labor | 30054] 300.0] 307.1] 299-1] 300.6] 307.5]3012] 3083/3087] index is rising during 200% Buildings 385.4] 385.6] 385.6 385.2] 380.1] 389.1] 386.6] 367.8] 3874] Engineering inghescra a 341.3] 341.1] 34265] 343.7) 343.4] 342.8] 342.2] sa2.2|341.5| "The index value for this vain ave pralinnary eta ml Mont [CE Index| Equipment [Const Lanor enge and Supv revised] older revised] older|revsed|oder_|revisedl older revised) older Jon. [395.4 | 395.4 [439.6 [439.6 [300.6 | 300.6 | 365.4 | 385.4 [341.3 | 341.3 jorent revised Feb. [393.6 | 395.1 | 437.0 | 4388 [3000 |301.4| 345.6] 365.7 [341.1 341.0] fo SCE Equipment sieer Mor. [394.4 | 3943 | 437.7 | 438.1 [301.1 |300.0 [386.6 | 3639 |342.5 | 341.7 ‘Apr. [393.2 [394.5 [4965 | 499.6 [209.1 |297.6 | 305.2 | 302.7 [343.7 | 341.4 ‘May [393.8 [395.4 | 4365 [430.7 [300.8 |209.8 | 309.1 | 386.6 (343.4 3420 June [393.9 [396.1 | 436.5 | 439.0 |301.5 |3002 | 369.1 | 3862 (342.8 341.7 “July [393.8 [395.3 | 436.8 | 439.1 [301.2 |301.6 | 366.6 | 385.2 [342.2 [3415] FIGURE 9. The revised Equipment ‘Aug.°)|394.2 [396.3 | 436.1 [439.7 [305.3 |303.9 387.8 | 3867 1342.2 3421] subindex shows a steady decline while the old Equipment subindox is nearly Sopt.|393.7 | 396.8 | 435.7 [439.9 [304.7 [306.4 [307.4] 387.4 ]2415 sare | ect naulpmentsy no longer relevant. These days, draft- | Table 7 displays the weight factors | creases from 0.22 to 0.29. The rela- ing is typically done via CAD (com- | that were changed, showing both the | tively slow growth in equipment puter-assisted drafting) programs, not | old and revised values. We had to ad- | prices (as tracked by the PPIs) over ‘on blueprints, and today’s engineering- | just components (such as Prepared | the past few decades account for much design firms employ hardly any typ- | Paint), Level I component groups | of the drop in the equipment compo- . POs on everyone’s desk have re- | (Heat Exchangers and Tanks), and | nent weight factors. This slow price placed most typists. Hence, we | Level II component groups (Equip- | growth is due to improvements in do- replaced these labor categories with | ment). The new weight factors for | mestic fabrication processes, the im- those that more accurately reflect the | each entry (whether revised or let un- | porting of foreign-made equipment, 2ist-century labor mix. These new jab | changed) are listed with their position | and other factors, On the other hand, ‘categories aren Table 3 under the En- | on Table 3. For instance, the revised | the relatively lange increases in labor sgineering and Supervision sub-index. | weight factor for Heat ‘Exchangers | costs (both technical and non-techni- 3) Another area needing moderniza-| and Tanks (0.838) tells us that this | cal) are attributable to the usual influ- tion was the set of component-weight | component group accounts for 33.8% | ences — inflation, skilled personnel factors. For the most part, these re- | of the Equipment sub-index, not | shortages, and labor-management flected the composition of the typical | 33.89% of the composite CEPCL bargaining agreements. CPI plant circa 1960 or 1970. We sur- | The differences between the origi- | 4) _ Lastly, the annual productivity ‘veyed roughly twenty CPT companies, | nal (1962) and revised (2001) weight | growth rate was revised to better re ‘engineering firms, indox publishors | factors are not large. Still, there is a | flect both short- and long term changes and technical organizations to obtain | definite trend away from equipment: | in eonstruction-labor productivity. As the information necessary to update | oriented components and toward | this growth rate is the key input to the ‘these weight factors. Asa result of their | labor-cost-oriented components. The | productivity factor, it had tobe selected ‘responses, we modified all ofthe Level | Equipment sub-index weight factor | with care. Unfortunately, while the ‘and Level I weight factors, and several | decreases from 0.61 to 0.507, while | BLS compiles labor-productivity data fof the component weight factors [7]. | the factor for Construction Labor in- | for 100% of the manufacturing sector, 68 CHEMICAL ENGINEERING WHYW.CHE.COM JANUARY 2002THE VAPCCI INDEXES Sorrel cou ids opps ne Eaac ekce fore poge of this mogisne, One se of tht rales fou on BLS inputs sons ofthe Volar Ait Pol Lion Control Cost indexes (VAPCCL}. These ae cus tended for cahaing he equipment cots of aml Teste aeariey eee 1994 ond fs publthed in CE mle 1998 [11] 1h int nde ty ot 1 cnt ripmentclsgres The fist quarr of 1994 he et da forte VAPCCH, Al edocs hee been or Winery esigned ave of 100.0 fo hat bore de Tobe 10 ss he anual VAPFs for 1994 trough 2000, Each onnua index isthe overage of he quar tel indevas.Yeor 2001 con be furl one eee tlie eres (Tet tsi Sow che.com/CEEXTRA 5 ‘TABLE 10. VATAVUK AIR POLLUTION CONTROL COST INDEXES ‘Year palatal {1904 [7005 [1006 [1907 [7098 fa99 2000 ‘Carbon adsorbers 101.2 [110.7 [106.4 1047 103.6 100.6 |108.0, Catalytic incinerators [102.0 [107.1 [107.0 107.7 106.5 102.9 (114.3 Beectrostatie precipitoors| 102.8 |108.2|108.0|108.8|109.2/101.2 101.1 Fabri filers 100 [102.7 [104.5 ]1062]109.5 111.7 13.0, Flores 100 [107.5 |104.9|108.6|103.6| 99.4 104.3 ‘Gos absorben 1008 [105.6 |107.8]107.6]109.7 110.9 112.9, ‘Mechanical collectors [100.3 [103.0 103.3 103.9[111.0]119.6 121.8 ‘Refigeration systems | 100.5 [103.0 [104.4 106.1 |107.6 105.7 |106.1 Regenerative thermal onidizers 101.4 | 104.4 106.3 |107.9 1089 |108.1 |109.0 Thermal incineraiors [101.3 108.9 |108.2109.4 110.5 [108.1 1107.9 Wel scrubbers 101.3 /112.5]109.8[109.0) 109.7 108.8113. + Construction labar revised “Buildings revised “Buildings cider FIGURE 4. Thoro is no discarnable dif. FIGURE 5. There is no significant dit: FIGURE 6. Thoro is ano systematic dif- ference in Construction Labor eu ference Buildings Cost subindox ference in Engineering and Supervision in2001 between the revised andthe 2001 between the revieed and the older Cost subindex in 2001 between the re- ‘older version ‘version vised and the older version it does not compile constructionabor | places the 1.75% rate used in the old | While its a bit risky to draw infer- productivity data. Qur efforts to obtain | CEPCI computation, (Coineidentally, | ences from preliminary results, we can ‘these data from other sources, govern: | the 2.2% rate is close to the arithmetic | indicate some trends, or lack thereat, mental and private, failed. ‘mean of 1982's 1.75% and the original | The CEPCT composite decreases from However, based on BLS's recom- | 2.5% rate used [1963 to 1981] in the | a January high of 395.4 to 998.7 in mendation, we have decided to use the | CEPCI ealeulation.) September, But in the meantime it os- labor produetivity for the Total Non- cillates within that range. The Equip- farm Business sector. According to | Something old, something new | ment sub-index shows a modest de- BLS, this sector, “represents changes | In this ending section, we present the | cline while Construction Labor in the productive efficiency of a sector | new indexes and display them side- | increases. Meanwhile, the Buildings, that includes service-producing indus- | by-side with the indexes they've re- | and Engineering and Supervision sub- tries and the construction and mining | placed, ‘The achieved objective has | indexes stay almost constant during industries, as well as manufacturing” | been to improve and update the | these nine months. [8], The annual productivity growth | CEPCI but not change its basis. ‘This is interesting, especially when (measured in output per hour) for the | For this comparison we prepared | we remember that these last three sub- Private Nonfarm Business sector was | Table 8. This table lists the CEPCI | indexes are heavily weighted with 2.3% for the 1995-98 period and 2.2% | composite, along with its sub-indexes | labor-cost components. ‘That is, any for the 1947-98 period (9), (The most | and component-indexes for the | changes — increases or decreases — in ‘recent year for which these produetiv- | months of January through Septem- | these labor components have been dis ity data are available is 1998.) Thus, | ber 2001. Note that the indexes for | counted by the productivity factor. De- the short and long term compound | July and August and September are | spite that dampening effect, the sub-in- ‘growth rates for this sector are virtu- | still preliminary. That is, at the time | dexes have grown, while the composite ally equal. We have selected the 2.2% | of the writing of this article (mid-De- | CEPCT and Equipment sub-index have ‘annual growth rate to use in the pro- | cember) the BLS inputs for the | decreased. A good part of that decrease ductivity factor ealeulation. This re- | months following June were not final. | is due to the steep drop during this pe- CHEMICAL ENGINEERING WAV.CHE.COM JANUARY2002 69Ener riod in some of the steel-related PPIs that are key inputs to the Equipment components. These include such com- ponents as stainless steel plates (dipped 7.4%) and carbon steel sheet (declined by 67). Because the Build- ings, Engineering and Supervision, ‘and ‘Construction Labor sub-indexes are influenced much more by changes in labor ensts than in basic steel prices, they usually increase over time. Finally the revised and old (previous) CEPCIs for January through Soptem- ber 2001 are compared in Table 9. This table, along with Figures 2 through 6, displays the respective CEPCI compos. sand the four major sub-indexes. No toe that the January entries in Table 8 ‘are identical. This is not mere coinei- dence. As explained earlier, the revised CEPCI composite and sub-indexes for January have been purposely equated ‘with the their counterparts in the old CEPCI. This normalization has been done to effect a seamless transition be- tween the two CEPCIs. While there isn't space inthis article to compare all five indexes, we can focus on one, the CEPCI composite. From equality in January-March, the ‘respective composites begin to diverge. By September, the composites have drifted away from each other by 2.9 points. The revised index shows a little te inflation. We ean allow one obser- vation: The old and new CEPCIs are responding to the same economic in- puts — for instanee, the PPIs and pro- ductivity factor. But, because of the re- visions we've made, the indexes are ‘responding to them differently. Some final thoughts ‘We hope that the revised CEPCI is « much better fit than the previous ver- sion, with respect to how accurately it tracks changes in CPI plant-construc- tion costs. Nevertheless, the CEPCI cannot be applied unthinkingly; there are limitations to its use, In general, the CEPCI can be used confidently, to escalate plant costs, but only for periods no greater than five -years (See box p. 66). Such limitations merely remind us of the true nature of indexes. That is, like all other indexes, ‘the CEPCT is merely a model — a rep- resentation of equipment and labor pricing schemes. Over one extended pe- riod, the CEPCI might track these prices quite closely. But over the very next period, it might deviate from them significantly. Needless to say, do not es- calate plant costs blindly via the CPCI (or any other index) if you ean access ‘current costs, Stil, when there is not ‘enough time or resources to obtain the latest costs, the CECI and its compo nents — eaay to use, easy to under: stand, and custom-designed for the CPI — provide an excellent substitute, — il Edited by Peter M. Silverberg References Shem Plant Coot Trend Settee Gs ii 2 Mey eG oe, ee, Sere ae Se ae 2 1 pe 2 aia nt Sep Aglaia gerber feat rk Nog anchson Oc reps oot kr in ooking ete a 1 Me oer nee ey re Sari senison ae “tn nen en antran tet + gh Da aon eit Ba +r tt nal & Sit Lo 4. eB, ee ake Sig Sista eric Sa siete a 9. Ube at Satis 4.8 Duma la Sa Sigaapetne es nee Panett pea hn he OMe SO ss tn Cnn =e eek att EWR cco ape oir peed ni ule. i Author ‘ating M. Vatawae pre TaaiVataval Bagineseag (512 Angus oad Durban NC. bivb 404 Phone: O10. {eo-eo Fe 41058 1595, Bail wiliatratarak@vses om) anslig mape trol technology anda pala le rtd fom the USUERAEAT Programs OF coin 100 alr etic poar ‘carer, Vatavu she author of re bout ‘Goons of tednielaniles en cot ‘ana for ition ctr Te created and relay up Bits te Vatavu Air Palladian Catal Ca Ines! snich Sppeare moat fac Vataak ‘Youngstown State University an ina reisered professnal engineerin Now Caraian TO CHEMICALENGINEERING WWWLCHE,COM JANUARY 2002