Process Evaluation 265

28. “Construction and Building Indexes,” Engineering 32. Guthrie, K. M., “Capital and Operating Costs,”
News-Record, continuing. Chemical Engineering, June 15, 1970, pp. 140–156.
29. “Economic Indicators,” Chemical Engineering, 33. Page, J., Conceptual Estimating Manual for Process
continuing. Plant Design and Construction, Gulf Publishing Co.,
30. Bridgwater, A. V., “International Construction Cost Houston, Texas, 1984.
Location Factors,” Chemical Engineering, Nov. 5, 34. Branan, C. and Mills, J., The Process Engineer’s
1979, pp. 119–121. Pocket Handbook, Vol. 3, Gulf Publishing Co.,
31. Miller, C. A., “Converting Construction Cost From 1984.
One Country to Another,” Chemical Engineering,
July 2, 1979, pp. 89–93.

Operating Costs

Unlike capital cost estimates, operating cost estimating impacts on raw material usages must be included. Such
errors are difficult to see, even in hindsight. If more oper- items as offspec material, spills, plant upsets, and opera-
ators, utilities, or raw materials are needed during actual tor inexperience can increase the quantity of raw materi-
operations than projected in the early feasibility studies, als used.
no one seems to notice. This lack of feedback on esti- Once the volume of raw material is set, the price must
mating operating costs means the engineer doing the early be estimated. In some studies, a captive source is avail-
studies must do an especially careful and complete job. able with a set transfer price. In other studies, contracts
The estimator should also undertake an operating audit as for raw materials will be far enough along to establish
soon as possible to validate the estimating techniques. the price. However, in some studies, contacts with
vendors and the literature is the only source of raw mate-
rial prices.
Estimating Form
The Chemical Marketing Reporter tabulates the
current list price for many chemicals. These prices, like
A systematic method of developing operating costs
“off the cuff ” estimates from vendors, tend to be conser-
should be devised. A table or form that everyone becomes
vative. The European Chemical News also publishes
familiar with helps to make all studies uniform and com-
chemical prices for many places in the world. These
plete. Reference 1 presents a good form and checklist.
prices are sometimes better to use for raw materials.
After the volume and price of the raw materials have
Building Up the Operating Cost been set, the freight estimate must be made. A call to the
local rail, barge, or truck office by the traffic department
The trick to getting a good estimate of the operating or the engineer will get a price. Here again, the price tends
costs is being thorough. Accounting plant cost statements to be conservative for preliminary studies since several
help, but of necessity, many costs are lumped into one months or years elapse before serious freight rates are
category so it is difficult to determine all of the items to negotiated.
be included in a first of a kind, or grassroots, plant. Some
of the expense items are discussed in the following sec-
Operating Labor
tions, but each project will have its own unique costs that
must be estimated.
The engineer estimating the operating labor must visu-
alize the plant operation, degree of automation, and the
Raw Materials labor climate for the project being estimated. For most
hydrocarbon processing plants, each control room should
The amount of raw materials needed is supplied by the have at least one operator with no outside duties. For very
licensor or process developer. However, unless similar large control rooms, more than one such operator may be
plants are in operation, allowances for unforeseen needed.
266 Rules of Thumb for Chemical Engineers

The number of outside operators will depend on the ing, and tools can usually be estimated knowing the
layout of the equipment, and the number of operating number of operators. When all known items have been
levels that have pumps, valves, or other equipment estimated, an allowance for unforeseen things should be
needing attention. In remote locations, operators should added.
never work alone. A not-so-good alternative to a second
“buddy” operator might be a closed circuit TV in the Supervision
control room, or a good voice communication system that
allows a second person to make sure the remote operator All salaried employees working directly with the plant
is okay. Certain units, such as boilers and water treating operation should be included in the estimate of super-
units, tend to be manned with their own operator, even vision costs. The plant manager’s secretary and other
if the amount of equipment does not justify an operator. supervision support personnel are sometimes included as
Laboratory personnel, loading rack operators, guards, and supervision even though they are not salaried nor in a
daylight operators must be considered. direct supervisory position. The main thing is to make
When the number of operators per shift has been esti- sure all employee costs are included in some category, but
mated, multiply the number by five to get the total oper- not duplicated in some other category.
ating personnel to cover all shifts. This provides for days
off, some training, and sick leave. The price per person
must be estimated for the project location. Fringes, taxes, Administrative Expenses
and other overheads must be added.
When the engineer has decided on the number of oper- The allocation of home office expenses shows up in
ators and estimated their cost, it is wise to consult an old this category. It has been argued that home office
operating hand who has worked shift on a similar plant expenses do not increase with the addition of a new plant
to review the number of operators and other assumptions. or unit. However, a full allocation of home office over-
head should be made for each study, since old units are
phasing out or losing profitability. The new units must
Maintenance Labor and Materials carry their share. Further, as discussed next in the section
on Economics, each new unit must stand on its own and
Maintenance labor is usually estimated as a percentage contribute to the overall company’s profitability. The cost
of the capital cost of the project, or as a percentage of the of yield clerks, plant accountants, plant personnel repre-
maintenance materials, which in turn is estimated as a sentatives, plant transportation department personnel,
percentage of the project cost. For many petrochemical etc., must be estimated and included here.
and refinery projects, the maintenance materials can be
estimated as 2%–3% of the current cost of the project.
Utilities
The ratio of labor to materials is around 50-50. Exact
ratios for the type of project being estimated should be
The cost of utilities is one of the most significant, yet
obtained from historical data if available. Get relatively
difficult chores encountered in estimating operating costs.
current percentages for materials and labor because the
As discussed earlier, the amount of utilities required for
numbers change with economic conditions and the learn-
both the process and the offsite areas must be estimated
ing curve on the plant. An older plant with all the bugs
as accurately as possible. If utilities are generated in the
worked out usually requires less maintenance than a new
project, the utilities required to operate the utility area
plant. Reference 2 presents data on the maintenance cost
must be included. Any increase in the project requires re-
as a percentage of current replacement cost, percentage
estimating the utilities consumed in the utility area. This
of original cost, and percentage of depreciated value for
can result in a trial and error calculation to get the total
many chemical, refining, and other companies.
cost of utilities.
The cost of fuel for generating steam and electricity is
Supplies and Expenses usually a major one. The efficiency from fuel to finished
utility must be determined. The choice of fuel can become
This account covers everything from chemicals and a major study in many circumstances. Future availability
catalysts to paper clips. Safety supplies, protective cloth- and price must be considered.
 Process Evaluation 267

Water costs can also be substantial in many locations. problem. Due to the attention, solid waste disposal prob-
The raw water cost, as well as the everyday cost of gath- lems must be solved with a sledge, even though a tack
ering, transporting, settling, treating, and demineralizing hammer would do the job. Make sure there is enough
must be estimated. Do not forget potable, fire, process, operating money included so that the ultimate disposal of
utility, and cooling tower water treating costs. Each treat- solids is satisfactory for all time.
ing cost must be estimated and included.
If utilities are supplied to the new project from some
other source, the cost and amount must be determined. If Local Taxes and Insurance
purchased from a second party, the cost will be deter-
mined by contract and can be estimated by discussions Current costs for taxes and insurance should be ob-
with the vendor. If utilities are transferred from an affili- tained for the proposed project site.
ated source, the cost must include a profit to the supply-
ing entity. Some estimators use a lower return on utility
plants than on a new hydrocarbon processing unit, since Estimating Operating Costs from Similar Plants
the utility can be used for some alternate plant if the new
one shuts down for any reason. However, the preferred If overall operating costs on similar plants are avail-
analysis allows a high enough utility transfer price to able, a reasonable estimate can be made for the new
provide the same return on the utilities as the new unit project. The closer the plants resemble each other, the
being studied. This can require a trial and error approach, more accurate this method.
especially if the utilities are a significant part of the Several rules of thumb have been developed for esti-
selling price of the product. mating operating costs. For instance, Grumer (Reference
3) suggests that the raw material costs can be estimated
Waste Disposal Costs as a percentage of the sales price of the finished product.
Correlations have been made that indicate the overall
Historical data on disposal costs are often inadequate operating costs can be related to the lbs of products, i.e.,
for estimating operating costs for a new unit, since envi- the total operating costs are a constant cents/lb of finished
ronmental laws have changed extensively. In the early product. This obviously will work only when history can
stages of planning for a plant, many of the trace impuri- be used to get the recent cost on a similar plant.
ties and their disposal problems may not be defined, espe-
cially for a first of a kind unit. Every effort should be
made to define the waste products and their compositions. Hidden Operating Costs
The operating costs for the ultimate disposal of every
waste stream must be estimated. If not enough is known, Every project has its share of hidden operating costs,
then an allowance for the costs of the most expensive dis- those items that cannot be foreseen and estimated. As an
posal method must be included. example, the catalyst in a first of a kind ethylbenzene
Wastewater disposal costs depend on the area and, of process did not operate in the plant as the research data
course, the quality of the wastewater. In one plant, the indicated it should. This caused all facets of the operat-
wastewater was sold to an oil company for secondary oil ing costs to be much higher than the estimates. However,
recovery. However, the cost of treating and filtering the after the bugs were worked out, the cost of the catalyst
wastewater far exceeded the revenues from the oil dropped to near zero and the rest of the operating costs
company. were below original projections. In another project,
Gas waste stream disposal operating costs can be sig- unexpected trace impurities in the product caused extra
nificant. Incineration with or without a catalyst usually expenses for rerun, and ultimately increased utilities for
requires additional fuel. A heat balance provides the additional fractionation. Further, operators can increase
amount. If sulfur must be removed before releasing the or decrease the operating costs, depending on their ability
waste gas, all operating costs associated with its removal and attitude.
and recovery must be included. To compensate for some of these unexpected costs, a
Solid waste disposal has been in the limelight and will 10%–20% contingency should be added to the operating
continue to be a political, emotional, and technical costs.