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UNIT 5

Cost Estimation

Benefits and costs must be quantified before projects can be ranked andevaluated. This unit covers estimation of costs. Emphasis is on identifica-tion of the items that must be costed and consistent estimation procedures.

Learning Objectives When you have completed this unit you should:

A. Know the major cost components of control systems.

B. Know how to estimate the major cost items of a system.

C. Be able to represent project cost as a cash flow table.

5-1. How Much Will It Cost?

Cost estimation should begin with some idea of how much expenditure aproject can support. An estimate of benefits and organization guidelines(e.g., projects must produce a discounted cash flow rate of return of atleast 20% per year) will provide a rough upper limit on acceptable costs. If

the benefits are high enough and the guidelines are reasonable, desirablebut nonessential features can be included. At the other extreme, if thecompany is in dire financial straits and demands a return of 35% by night-fall, no expenditure other than emergency repair can be justified. In thesecircumstances, a wise course is to patch up existing equipment and savepromising projects for a brighter day.

The next step in cost estimation is identification ofthe categories that mustbe estimated. These will depend on the nature of the project. Moderniza-tion of the controls for an old unit will include replacement of sensors and

transmitters, purchase and configuration of a distributed control system,installation, and training of operators and maintenance personnel. It mayalso include addition of new sensors, engineering of new control schemes,and software to link the system with a plantwide network. A smallerproject may require only the addition of a few measurements, reconfigura-tion or reprogramming of one unit on an existing DCS, and configurationof one or two CRT displays.

The American Association of Cost Engineers recognizes 5 types of esti-mates. Table 5-1 lists their classifications and probable accuracies for eachtype. A good discussion of estimate types can be found in Ref. 1. Cost esti-mates of each category should be at about the same level of detail. Thiswill usually result in accuracies that differ at most by a factor of two. If one

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48 UNIT 5: Cost Estimation

major cost category can be estimated with only 30% accuracy, it is a wasteof time to estimate another category with 3% accuracy. There is a naturalhuman tendency, which must be resisted, to do a more complete job onthe items that reflect the discipline in which the estimator was trained.

Example 5-1: A recent proposal for control system modernizationincluded the replacement of sensors and transmitters and the replacementof analog controls and displays by a distributed control system that incor-porated a computer and several PLCs. Application software was esti-mated at $500,000, based on a cost of $400,000 for a similar job in anotherindustry plus $100,000 because we have no experience with this type ofPLC. The proposal also included an estimate for installed cost of instru-mentation of $131,576. This estimate was backed by quotes for each instru-ment, estimates of installation hours for each trade, and calculation oflength of wire runs. Why bother? The error range of the software estimateis probably as large as the entire instrumentation estimate.

5-2. Instrumentation

The best basis for estimation of any cost is a quote for the item or a recordof a recent purchase. One, or both, of these is often available for commonlyused instrumentation. If neither can be obtained, surveys give approxi-mate costs for most instruments. These surveys cover a wide variety ofoptions for each type of instrument. For instance, one survey table (Ref. 2)for pressure and differential pressure transmitters specifies price as afunction of size, type (electronic or pneumatic), operating principle (force

balance or motion balance), and construction material (carbon steel or

stainless steel).

If a particular instrument is sufficiently exotic so that it is not covered insurveys, it is worth going to the trouble of getting a quote from the manu-

Type Probable Accuracy

Order of Magnitude(ratio estimate)

40%

Study(factored estimate)

25%

Preliminary(budget authorization estimate)

12%

Definitive(project control estimate)

6%

Detailed(firm estimate)

3%

Table 5-1. Cost Estimate Types

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UNIT 5: Cost Estimation 49

facturer for the specific application. Prices of specialized or customdevices can be several times those of off-the-shelf items.

5-3. Control System Hardware and Software

The pricing of control system hardware and software will usually requirevendor quotes. If the project is an addition to an existing system, prices ofadditional inputs, outputs, control units, or operator consoles should bereadily available from the original supplier. A complete system should bequoted by multiple vendors, based on a functional specification. The spec-ification does not have to be enormously detailed. Among the essentialsare input and output lists, operator interface requirements, and scan andcontrol timing. Interfaces to other systems should also be defined. Reason-

ability of quoted prices can be checked by comparison with projects ofsimilar size.

5-4. Application Software

Application software is the most difficult item to estimate correctly. It israre for instrumentation or control system expenditures to differ fromestimates by more than 25%. Application software overruns of 100% ormore are frequent. Gross errors are especially likely when estimating the

cost of complex, multilevel systems. The most common mistake is in theestimation of the whole as the sum of the parts. The effort required toprogram or configure individual applications is likely to be trivialcompared to fitting them together in a working system. A holisticapproach, taking into account the size and complexity of the project andthe experience of programmers or configurers, is more likely to produce areasonable cost estimate.

Complexity is a difficult concept to define. According to Stout (Ref. 3),Complexity is determined by the number of variables needed to define

the process, the degree of interaction between the variables, the number ofprocess specifications that must be met, and the number of constraints orrestrictions that must be observed. This is a good definition of controlcomplexity. Now that many projects involve exchange of information

between systems, the number of independent entities that must communi-cate with each other should also be considered. Entities that are part of onesystem designed for intercommunication (e.g., modules of a distributedsystem) are usually easy to handle. Truly independent entities (e.g., aweighing system from supplier A, a PLC from B, and a PC running anoperator interface program from C) are much more complicated andexpensive to combine into a working system. Time-critical applications,with information that will be lost or overwritten if it is not transferredquickly, are particularly difficult.

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Reference 4 mentions a pilot plant operation that utilizes separate soft-ware tools for recipe development, batch process simulation, and processsafety analysis. Each package has its own syntax, semantics, and data stor-age format. Information sharing among these tools is described as error

prone, requires expertise in the source and destination tools, and is verytime consuming.

5-5. Installation and Commissioning

Installation costs include labor and material. Labor is the dominant com-ponent, especially for digital systems. Labor and material costs for instru-ment installation can be estimated roughly as about 50% ofinstrumentation costs. This percentage assumes national average wages

and should be scaled up or down depending on the local situation. Instal-lation costs for a control system will be a much smaller fraction of equip-ment cost unless a new control room must be constructed.

One factor that can have a large effect on installation costs is the timeavailable for installation. If all the work must be done during a short turn-around, one should expect that much of the labor will be at overtime ratesand increase the cost accordingly.

Commissioning includes calibration, system checkout, start-up, and tun-

ing. Calibration costs can be estimated as 2-5% of instrumentation costs.The other items must be evaluated separately. System checkout costs willdepend on the number of process connections and the number of intercon-nections between independent entities. Start-up and tuning costs willdepend on control complexity. Self-tuning controllers will reduce but noteliminate this item.

5-6. Training

Training costs will depend on the familiarity of engineering, maintenance,and operating personnel with the new equipment. Maximum costs will beincurred for the first digital system in a plant. Maintenance must thenlearn a whole new set of diagnostic and repair procedures. Operators havean even more difficult task, since they must become comfortable with aninterface that is completely different from the one with which they arefamiliar. A change from one system to another of the same type willrequire much less training. For small projects that involve the addition of afew loops and displays to an existing system, no formal training is needed.Operators can be shown the new features during start-up.

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5-7. Operating Costs

All the cost components discussed in Sections 5-2 through 5-6 are one-timeexpenditures, part of the first cost of a project. Operating costs, the recur-

ring costs incurred while running a facility, must also be considered. Acontrol improvement project usually reduces operating costs of the pro-cess and often reduces operating costs of the control system. If the projectincludes replacement of equipment that has reached the end of its usefullife, maintenance savings can be considerable. The installation of smartequipment with self-calibrating and self-tuning features can also save timeand money.

In some cases, new control equipment will increase maintenance

expenses. On-line analytic equipment (e.g., chromatographs, spectrome-ters) requires considerable attention, especially in the first year or twoafter installation. Sampling systems are often prone to fouling. Recalibra-tion may have to be frequent. These added costs must be weighed againstthe benefits from additional information. One company that manufacturesfuel cells provided a fairly sophisticated unit control system including on-line analytical instruments. After some field experience, the instrumentswere removed from the control loops. The added efficiency they providedwhen working properly was not sufficient to justify their maintenancecosts, especially since the units were expected to run unattended.

5-8. Representation as a Cash Flow Table

Costs, as well as benefits, are a series of cash flows over time. First costswill show up as negative cash flows in the first years of the project. Oper-ating costs will appear every year after start-up.

Example 5-2:The control of four units will be consolidated in one newcontrol room, which will cost $50,000. All units will be controlled by a new

$200,000 DCS, which will be purchased at the start of the project. Each unitwill require expenditures of $50,000 for application software, $10,000 forinstallation, and $10,000 for commissioning. The project schedule calls fortwo units to be put under DCS control in the first year and two more in thesecond year. The cash flow diagram for the first costs of this project isshown in Fig. 5-1. Note that the project starts with the initial expenditureat year zero. Costs for the control room and for putting two of the unitsunder DCS control, all of which are incurred in the first year, are shown inthe diagram at year one. The remaining costs for the other two units areshown at year two.

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References

1. Holland, F. A.; Watson, F. A.; and Wilkinson, J. K., 1979. How to

Estimate Capital Costs.Modern Cost Engineering: Methods andData, pp. 67-77. New York: Chemical Engineering McGraw-Hill.

2. Liptak, B. G., 1979. Costs of Process Instruments.Modern CostEngineering: Methods and Data, p. 349. New York: ChemicalEngineering McGraw-Hill.

3. Stout, T. M., 1978. Justifying Computer Control.Minicomputersin Industrial Control(T. J. Harrison, ed.), p. 207. Pittsburgh, PA:ISA.

4. Zhao, C. et al, 2006. Information Central. InTech53, 3, pp. 16-21.

Exercises

5-1. A company has a requirement that project proposals must include costsestimated with an expected error of no more than 20%. If control systemand instrumentation costs are 60% of total cost and can be estimated withan expected error of 15%, how closely must the remaining costs beestimated?

5-2. Combustion control of two boilers is to be upgraded by:

replacing oxygen analyzers and sampling systems with in-situ probes,

Fig. 5-1. Cash Flow Diagram for First Costs of Control Consolidation

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adding carbon monoxide measurements, and

revising the control strategy.

Each boiler is presently controlled by one module on a DCS. Operatorinterface is via a DCS console. Which cost components are likely to besignificant for this project? Assume that present instrumentation andcontrol are the same as other plant boilers.

5-3. Your firm has just acquired a plant that is controlled by a legacy DCS. TheDCS is no longer supported by its manufacturer. You have been given thetask of replacing the DCS with a type of control system similar to that usedin your other plants. Can the existing code for the present DCS be reused ortranslated to save application programming effort?

5-4. You are a systems integrator. A client for whom you have installedsupervisory software packages at various sites asks you to install some ofthem on a unit at one of his plants. These include packages for modelpredictive control, batch startup, and process simulation. He estimates thecost by adding together the prices you charged to install each of thepackages individually, then adding 10% to tie them together. Is this a fairestimate?

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