- Problem Definition
We are evaluating to build new storage tank. One of the critical aspects is development cost of the new storage tank. Since the decision shall be taken early, there is no sufficient time to conduct good and fully complete engineering study. In this stage the research is going to select qualitatively what is the most suitable cost estimation method using historical data.
- Development of feasible alternatives
Based on AACE RP No. 17R-97, Author should create class 5 estimate to meet Management requirement.
Table 1: Class Estimate
- Possible Solution / Alternative
Based on Table 1, the methodology suggested to produce class 5 estimate are:
- Capacity Factored
- Parametric Models
In this case, we will use Capacity Factored Estimates (CFE) and Parametric Models, which The cost of a new plant is derived from the cost of a similar plant of a known capacity with a similar production route (such as both are batch processes), but not necessarily the same end products. It relies on the nonlinear relationship between capacity and cost.
Table 2: Process Equipment Size Exponent (N) – N= 0.6 for Tank Vessels, Carbon Steel
We use historical data from our previous contract. Therefore, we use Cost Indices, which are useful when basing the approximated cost on other than current prices.
- Selection of Criteria
The Estimation result should meet the Management requirement, at expected accuracy at the end of the project actual cost generated .
- Analysis and Comparison of the Alternatives
Table 3: Data
Table 4: Calculation Result using Process Equipment Size Exponent (N)
Since we are using 2015 data, and we want to calculate for 2017 project, we use Cost Indices. For the ratio, we use The Big Mac Ratio.
Tabel 4: The Big Mac Index
Table 5: Current Cost Using The Big Mac Index
- Selection and Preferred Alternatives
As shown at table 1, Class 5 estimation range is from -50% to + 100%.
Based on the estimation result in Table 7, the Author proposed a class 5 estimate with the total investment cost is using P70 for preferred capacity of tank.
- Performance Monitoring and the Post Evaluation of Result
The class 5 estimates purpose is only for the concept screening. If the management approve the concept screening, we can continue to Feasibility Studies until, with class 4 estimates. Then, the Estimators complete the required project scope so that the level 2 or 3 estimate can be produced for bidding process.
- Module 08-4 Creating the Owners Cost Estimate (Top Down) (2015).
Retrieved from http://www.planningplanet.com/guild/gpccar/creating-the-owners-cost-estimate
- AACE International Recommended Practice No. 17R-97
Retrieved from http://www.anvari.net/Risk%20Analysis/17r-97.pdf
- AACE International Recommended Practice No. 59R-10
Retrieved from https://fenix.tecnico.ulisboa.pt/downloadFile/1126518382175702/DEVELOPMENT%20OF%20FACTORED%20COST%20ESTIMATES_AACE%2059R-10.pdf
- W24_HI_Cost Estimating Method
Retrieved from https://garudaaace2015.wordpress.com/2015/08/22/w24_hi_cost-estimating-method/
- Process Equipment Cost Estimating by Ratio and Proportion (2012)
Retrived from https://www.pdhonline.com/courses/g127/g127content.pdf
- Sullivan, G. W., Wicks, M. E., & Koelling, C. P. (2014). Engineering economy 16th Edition. Chapter 3 – Cost-Estimation Techniques., page.91-122.
- W6_OAN_Equipment Factored Cost Estimates
Retrieved from http://emeraldaace2017.com/2017/09/10/w6_oan_equipment-factored-cost-estimates/
- The Big Mac Index (2017)
Retrieved from http://www.economist.com/content/big-mac-index