Role of Chemical Engineer

• The chemical Engineer is a skilled person. Generally

Chemical Engineer works in four main divisions;
• Research and Development [R and D]
• Design
• manufacturing/production
• sales

• The chemical engineer also works in construction,

operation, erection and commissioning of plant .
• He must have thorough knowledge of fundamentals of
chemistry, physics and maths

December 15, 2021 1

 Chemical Engineering Design:

Chemical Engineering Design consists of

- Process Design
- Equipments Design
- Building Design

• for manufacturing of plants.

December 15, 2021 2

 Chemical Engineering Design:

• It consists :
– Product selection
– Process selection and flow diagram
– Equipment selection
– Layout
– Location & site selection
– Future expansion
– Building plans
– Utilities distribution
– Safety & environmental aspects
– Material balance
– Energy balance
– Cost analysis

December 15, 2021 3

 Process design
• Key information required for this:
– Written description of process
– Special safety precautions
– Chemical reactions
– Properties of material of construction
– Knowledge of R/M, Products and Intermediates
– Knowledge of all process parameters
– Knowledge of physical characteristics & chemical
compositions R/M, Products and Intermediates

December 15, 2021 4

 Equipment Design
• Suitable Equipment for suitable operations
– Temperature, Pressure, Corrosion erosion
• Safety and Environmental aspect

December 15, 2021 5

 Building Design
• Estimate the size and types of equipments
and materials
• Ground are and utility facility
• Layout
• Location & site selection
• Future expansion

December 15, 2021 6

 Chemical Engineering Design:

• The main factor which plays important role for

plant design project is “Return on
investment.

• For this purpose various costs are estimated in

detail & then final decision is taken to go ahead
or to drop the project.

• This indicates that Chemical Engineer must

have thorough knowledge of Economics.
December 15, 2021 7
 Good Design
• Good designs do not happen but they
found on well known sound principles.
• To create a good design key steps are
required:
– Interest to solve Chem.Engg. Problems
– Collection of various data and properties
– Ability to analyze conditions and data
– Variable to be controlled to ensure the
economy

December 15, 2021 8

 Plant Design
• The base for preparing final plant design of
project to prepare preliminary design
• Other information's like:
– Process
– Specification for Equipments
– Feasibility and Economic condition of operation
– Building Design etc.

December 15, 2021 9

 PLANT
LOCATION
Prepared By
Anand
Dhanwani
PLANT LOCATION
PLANT LOCATION
PLANT LOCATION
PLANT LOCATION
PLANT LOCATION
 Depreciation
• Introduction
• Definition
• Purpose of depreciation
• Types of depreciation
• Important Terms
• Methods for determining depreciation
 Depreciation
• It is fact that value of physical asset
decrease with time .
• The factors for this :
– Physical deterioration
– Technology advances
– Economical changes etc.
 Depreciation
• All these factors will cause a retirement of
the property. The reduction in value due
to any of these causes is called
depreciation.
• The economic function of depreciation is a
means of disturbing original expenses for
a physical asset over the period for which
the asset in use.
 Depreciation
• Depreciation is also defined as a reasonable
allowances for wear & tear of the property in
business including a reasonable allowances for
obsolescence
• The cost of the property is distributed over a
estimated period.
• To determine the depreciation it is necessary to
estimate life period of equipments and final
value at the end of life period.
 Purpose of depreciation
• It permits realistic evolution of profit
earned by company

• It gives income tax benefit on profit earned

• A fund is set aside regularly to provide

recovery of the capital invested.
 Types of depreciation
• Physical depreciation
– The decrease in value due to changes in physical
aspect of the property:
• Wear and tear
• Corrosion
• Accident
• Deterioration due to age

• Due to this type of depreciation, the

serviceability of the property is reduced because
of physical changes.
 Types of depreciation
• Functional depreciation:
– The depreciation due to all other causes is called
functional depreciation:
• Obsolescence
• Change in demand
• Shifting of population
• Change in requirement of public authority
• In sufficient capacity for the service required
• Abandonment of the enterprise
 Types of depreciation
• It is necessary to consider all possible
causes when depreciation is to be
determined.
• Physical losses are easier to evaluate
than the Functional losses.
• Both losses are accounted to make
fair allowances for depreciation.
 Important Terms
• Depletion
• Capacity loss due to materials actually
consumed is measured as depletion.
– Depletion cost =
(The initial cost) X (Amount of material used)
(original amount of material purchased)
• This type of depreciation is particularly
applicable to natural resources, such as
- stands of timber
- mineral and oil
- Crude oil
 SERVICE LIFE

• The period during which the use of a

property is economically feasible is known
as the service life of the property.
• Both physical and functional depreciation
are taken into consideration in determining
service life
• The term is also known as economic or
useful life.
 SALVAGE VALUE

• Salvage value is the net amount of money

obtainable from the sale of used property over
and above any charges involved in removal and
sale.
– If a property is capable of further service, its salvage
value may be high.
• It depends on various factors:
-Location of the property,
-Existing price levels,
-Market supply and demand,
-Difficulty of dismantling,
 Scrap, or Junk value.

• If the property cannot be disposed of as a

useful unit, it can often be dismantled and
sold as junk
• The profit obtainable from such disposal is
known as the Scrap, or Junk, value.
-This can be used again as a
manufacturing raw material.
 Important terms
• Salvage value, Scrap value, and Service life are
usually estimated on the basis of conditions at
the time the property is put in use.
• These factors cannot be predicted with absolute
accuracy, but improved estimates can be made
as the property increases in age.
• It is advisable, therefore, to make new estimates
from time to time during the service life and
make any necessary adjustments in the
depreciation costs.
 PRESENT VALUE
• The present value of an asset may be
defined as the value of the asset in its
condition at the time of valuation.
• There are several different types of
present values.
• Standard meanings of the various types
should be distinguished.
 Book Value, or Unamortized Cost

• The difference between the original cost of

a property, and all the depreciation
charges made to date is defined as the
Book value
• Sometimes called Unamortized Cost
• It represents the worth of the property as
shown on the owner’s accounting records.
 Market Value

• The price which could be obtained for an

asset if it were placed on sale in the open
market is designated as the Market
value.

• The use of this term conveys the idea that

the asset is in good condition and that a
buyer is readily available.
 Replacement Value

• The cost necessary to replace an existing

property at any given time with one at least
equally capable of rendering the same service is
known as the Replacement value.

• It is difficult to predict future market values or

replacement values with a high degree of
accuracy because of fluctuations in market
demand and price conditions.
 Methods For Determining
Depreciation
• Depreciation costs can be determined by a
number of different methods
• Government sanctioned methods for
determining depreciation costs, both for
income-tax calculations and for reporting
the concern’s costs and profits.
• So the design engineer should understand
the bases for the various methods.
 Methods For Determining
Depreciation
• In general, depreciation accounting methods
may be divided into two classes:
– (1) Arbitrary methods giving no consideration to
interest costs:
– Straight-line
– Declining-balance
– Double declining-balance
– Sum-of-the-years-digits

– (2) methods taking into account interest on the

investment.
– Sinking-fund
– The present-worth
 Straight-Line Method

• In the straight-line method for determining depreciation,

it is assumed that the value of the property decreases
linearly with time.
• Equal amounts are charged for depreciation each year
throughout the entire service life of the property.
• The annual depreciation cost may be expressed in
equation form as follows:
d= V - Vs
n
Where d = annual depreciation,
V = original value of the property at start of service life
Vs = salvage value of property at end of service life n =
service life, years
 Straight-Line Method

• The asset value (or book value) of the equipment at any time during the
service life may be determined from the following equation:
Va = V - a d
Va= asset or book value,
a = the number of years in actual use.
• Because of its simplicity, the straight-line method is widely used for
• Because it is impossible to estimate exact service lives and salvage values
when a property is first put into use, it is sometimes desirable to re-estimate
these factors from time to time during the life period of the property.
• If this is done, straight-line depreciation can be assumed during each of the
periods, and the overall method is known as Multiple Straight-Line
depreciation.
 Declining-Balance (or Fixed
Percentage) Method
• In this method, annual depreciation cost is a fixed
percentage of the property value at the beginning of the
particular year.
• The fixed-percentage (or DB) factor remains constant
throughout the entire service life of the property,
• Annual cost for depreciation is different each year.
• The depreciation cost for the first year
= V * f,
where f = Fixed-percentage factor.
 Declining-Balance Method
• At the end of the first year Asset value =
Va1, = V(1 - f)
• At the end of the second year
Va2 = V(1 - f)2
• At the end of 3 years
Va3 = V(1 - f)3
• At the end of n years (i.e., at the end of service life)
Van = V(1 - f)n = Vs
Therefore, Vs = (1 - f)n V
f = 1- (Vs / V)1/n
This equation represents the method for determining the
fixed percentage factor, and the equation is sometimes
designated as the Matheson formula.
 Declining-Balance Method
• This method permits the investment to be
paid off more rapidly during the early years
of life.
• The increased depreciation costs in the
early years are very attractive.
• This reduces the income-tax load and
recovery of depreciation is rapid in early
years.
 Declining-Balance Method
• This method is seldom used in actual
practice, because it places too much
emphasis on the salvage value.
• If salvage value is zero this method can
not be used.
• To overcome this problem, the value of the
fixed-percentage factor[ f = 2/n] is often
chosen arbitrarily using a sound economic
basis.
 Declining-Balance Method
• The value of the asset cannot be zero at
the end of the service life and may
possibly be greater than the salvage or
scrap value.
• To handle this difficulty, sometimes for
early portion of service life declining-
balance method is used and for remaining
service life, straight-line method is used
this is known as the combination method
 Declining-Balance Method

• The main advantage of this method that they

permit greater depreciation allowances in the
early life of the property than in the later life.

• They are particularly applicable for units in

which the greater proportion of the production
occurs in
the early part of the useful life or when operating
costs increase markedly with age
 Double declining-balance method

• This is also known as 200 percent method.

• This method using a fixed-percentage factor giving a
depreciation rate equivalent to twice the minimum rate with the
straight-line method
• Straight-line method:
– V= 22,000/-, Vs=2000/- n = 10 years
– d = (V-Vs)/n = 2000/- per year
– depreciation rate f =2*(d/V) = 2000/22000 = 0.1818
• the double declining-balance method is often applied to cases
where the salvage value is considered to be zero.
• Under this condition, double declining-balance , this fixed-
percentage factor for this example would be (0.2000.)
 Sum-of-the-Years-Digits Method

• This method is an arbitrary process for

determining depreciation
• Results are similar to those obtained by
the declining-balance method.
• Larger costs for depreciation are allotted
during the early-life years than during the
later years.
• This method has the advantage of
permitting the asset value to decrease to
zero or a given salvage value at the end of
the service life.
 Sum-of-the-Years-Digits Method
• The annual depreciation is based on the
number of service-life years remaining and
the sum of the arithmetic series of
numbers from 1 to n service life.
• The yearly depreciation factor
F = The number of service-life years left
The sum of the arithmetic series.
Annual Depreciation = FX Depreciable value
d = F X (V-Vs)
 Sum-of-the-Years-Digits Method
• The Equations for determining annual
depreciation by this method are

• d = depreciation =

=
 Sinking-Fund Method

• The use of compound interest is involved

in the sinking-fund method.
• It is assumed that the basic purpose of
depreciation allowances is to accumulate
a sufficient fund to provide for the recovery
of the original capital invested in the
property.
 Sinking-Fund Method
• An ordinary annuity plan is set up wherein
a constant amount of money should
theoretically be set aside each year.

• At the end of the service life, the sum of all

the deposits plus accrued interest must
equal the total amount of depreciation.
 Sinking-Fund Method
• Derivation of the formulas for this method:
• Let,
• i =annual interest rate expressed as a fraction
• R = uniform annual payments made at end of
each year (this is the annual depreciation cost)
• V-Vs = total amount of the annuity accumulated
in an estimated service life of n years
• (original value of property minus salvage value
at end of service life),
 Sinking-Fund Method
•• For simple
– Whereinterest P =Principal amount
• S = P +ZZ= P (1 + in)Amount
= interest
I = Interest rate
• Interest Z=P.i.N
n= no of years

Total Amount including Interest =

S = P +Z = P + P .i .n = P ( 1+i.n)
 Sinking-Fund Method
• Compound Interest :
Year Principal Interest Compound amount
Amount earned S= P+Z

1 P P.i P + P. i = P(1+i)

2 P(1+i) P(1+i) . i P(1+i)+ P(1+i) . i

= P(1 + i )2

3 P(1 + i )2 P(1 + i )2. i P(1 + i )2 +P(1 + i )2. i

= P(1 + i )3
 Sinking-Fund Method
• So after n years
• Sn = P (l + i )n
• (l + i )n= discrete single-payment
compound-interest factor.
• Let,
• R =Uniform periodic payment
• S = Total compound amount
• i = Rate of interest
 Sinking-Fund Method
• The first payment of R is made at the end
of the first year and will bear interest for
(n – 1) periods giving an accumulated
amount of R(1 + i)n-1
• The second payment of R is made at
the end of the second period and will
bear interest for n - 2 periods = R(1 + i)n-
2
 Sinking-Fund Method
• Similarly, each periodic payment will give an
additional accumulated amount until the last
payment of R is made at the end of the (n-n)
annuity term.
• S =R(l + i)n-l +R(l + i)n-2+R(l + i)n-3+*..+R(l + i)+ R
• multiply each side by (1 + i) and subtract from
the result.
• This gives:
• Si = R(1 + i)n - R 0r
• S = {R[(1 + i)n – 1] /i }
 Sinking-Fund Method
• S = Total depreciation = V – Vs
• [V-Vs] ={R[(1 + i)n – 1] /i }
• R = [V-Vs] {1/[(1 + i)n – 1]}
• After ‘a’ years depreciation collected up
to ‘a’ years = V-Va [ Va= asset value]
• [V-Va] ={R[(1 + i)a – 1] /i }
• Putting value of R
• [V-Va] =(V-Vs){[(1 + i)a – 1] / [(1 + i)n – 1]}
• Va=V-(V-Vs){[(1 + i)a – 1] / [(1 + i)n – 1]}
 PRESENT WORTH
• It is often necessary to determine the
amount of money which must be available
at the present time in order to have a
certain amount accumulated at some
definite time in the future.
• Because the element of time is involved,
interest must be taken into consideration.
P = S/(l + i )n
 PROFITABILITY
• The profitability is measurement of the amount
of profit that can be obtained from a given
situation.
• Before capital is invested, it is necessary to
know how much profit can be obtained
– Whether or not it might be more advantageous to
invest the capital in another form of enterprise.
• The determination, analysis of profits and the
choice of the best investment among various
alternatives are major goals of an economic
analysis.
 PROFITABILITY
• Before making an investment decision, the
minimum profits anticipated from the investment
is called a minimum profitability standard.
• This profitability standard, which can normally be
expressed on a direct numerical basis.
• It must be weighed against the overall judgment
evaluation for the project in making the final
decision
 PROFITABILITY
• The profit evaluation is based on a
prediction of future results so that
necessary assumptions are made such as:
• Future changes in demand
• Future changes in prices
• Possibility of operational failure
• Premature obsolescence.
 BASES FOR EVALUATING
PROJECT PROFITABILITY
• Total profit alone cannot be used as the deciding
profitability factor in determining if an
investment should be made.
• The profit goal of a company is to maximize
income against the capital invested.
• If the goal were merely to maximize profits,
– Any investment would be accepted which would give
a profit,
– No matter how low the return or how great the cost.
 BASES FOR EVALUATING
PROJECT PROFITABILITY
• For example, suppose that two equally
sound investments can be made:
– 1. Investment Rs.100,000/- profit Rs. 100,00/year
– 2. Investment Rs.1,000,000/- profit Rs. 300,00/year
• Ten lakh investment is not attractive while one
lakh investment is worth because it gives 10%
annual return.
• So rate of return is important not total profit
 Methods for Profitability
Evaluation
• The most commonly used methods:

1. Rate of return on investment

2. Discounted cash flow based on full-life performance
3. Net present worth
4. Capitalized costs
5. Payout period

• Each of these methods has its merits and demerits,

• The engineer should understand the basic ideas
involved in each method and be able to choose the
one best suited to the needs of the particular situation.
RATE OF RETURN ON INVESTMENT

• % Return = yearly profit x 100

Total Initial Investment

• % Return = Average annual profit x 100

[½ fixed-cap. Invstmnt.–Salvage value+ Working-capital]

• % Return = Net after tax profit + Depreciation x 100

fixed-capital investment
RATE OF RETURN ON INVESTMENT

• Profit = [Income ─ expense],

• Profit is a function of:
• The quantity of goods produced
• Services produced
• The selling price
• The economic efficiency of the operation
• Effective methods
– Reducing the operating expenses.
• Profits may be:
– Expressed on a before-tax
– After-tax basis,
RATE OF RETURN ON INVESTMENT

• To estimates investment returns

– Make accurate predictions of profits
– The required investment
• Both working and fixed capital should be considered
• To determine the profit:
– Estimates must be made of :
• Direct production costs,
• fixed charges
• Depreciation
• Plant overhead costs
• General expenses.
RATE OF RETURN ON INVESTMENT
• Another method for rate of return is based on the assumption:
– Obtain certain minimum profit or return from an investment

• This minimum profit is included as a fictitious expense + other

standard expenses.

% Return = [ Annual income – Expenses] X 100

Total investment
• This result shows the risk earning rate.
• It represents the return over and above that necessary to make the
capital expenditure advisable.
• If the return is zero or larger, the investment will be attractive.
• This method is sometimes designated as return based on capital
recovery with minimum profit.
 Capitalized Cost Method
• An annuity is a series of equal payments
occurring at equal time intervals.

• Payments of this type can be used:

– To pay off a debt,
– Accumulate a desired amount of capital,
– Receive a lump sum capital in periodic
installments as in some life-insurance plan.
 Capitalized Cost Method
• Ordinary annuity:
– The common type of annuity involves payments which
occur at the end of each interest period.
• Interest is paid on all accumulated amounts, and
the interest is compounded each payment
period.
• An annuity term: time from first payment to last
payment period.
• Amount of an annuity : the sum of all the
payments plus interest from the time of initial
payment to the end of the annuity term.
 Capitalized Cost Method
• Mathematically:
• annuity is the sum of all the accumulated
amounts from each payment; therefore,
• S = R(l + i)n-l + R(l + i)n-2 + *.. +R(l + i) + R
• Si = R(1 + i)n - R 0r
• S = {R[(1 + i)n – 1] /i }
– R =Uniform periodic payment
– S = Total compound amount
– i = Rate of interest
 Additional Formulas
• If we have taken loan(Amount P) then
R as EMI can be calculated by :

• If deposit some amount periodic or

Recurring then total Amount can be
calculated by:
 Capitalized Cost Method
• A perpetuity is an annuity in which the
periodic payments continue indefinitely.

• This type of annuity is of particular interest

to engineers, to determine a total cost for
a piece of equipment or other asset
under conditions which permit the asset to
be replaced perpetually without
considering inflation or deflation.
 Capitalized Cost Method
• Consider the example
– original cost of an equipment =12,000.
– The useful-life period = 10 years,
– scrap value = 2000
– Rate of interest = 6 %
• This piece of equipment, or its replacement, will be in
use for an indefinitely long period of time,
• So it will be necessary to supply Rs.10,000 every 10
years in order to replace the equipment.
• Therefore wishes to provide a fund of sufficient size so
that it will earn enough interest to pay for the periodic
replacement.
 Capitalized Cost Method
• A fund of Rs.12,650. At 6 percent interest compounded
annually, the fund would amount after 10 years =
• Sn = P (l + i )n =(12,650)(1 + 0.06)10 = 22,650.
• Thus, at the end of 10 years, the equipment can be replaced
for Rs.10,000 and Rs.12,650 will remain in the fund.
• This cycle could now be repeated indefinitely, If the
equipment is to perpetuate itself.
• The theoretical amount of total capital necessary at the start
would be Rs.12,000 for the equipment plus Rs.12,650 for
the replacement fund. The total capital
[Rs.24,650]determined in this manner is called the
capitalized cost.
• Engineers use capitalized costs principally for comparing
alternative choices.?
 Capitalized Cost Method
• In a perpetuity, such as in the preceding
example, the amount required for the
replacement must be earned as
compounded interest over a given length
of time.
• P = Present principal amount (present worth)
• S= Amount accumulated during n interest periods
• I = Rate of Interest
– S = P (l + i )n
 Capitalized Cost Method
• For perpetuity:
• Present worth P = S - CR ,
– CR = the replacement cost,
– P = P (l + i )n - CR
– P = CR /[(l + i )n - 1]
• The capitalized cost is defined as the original cost of the equipment plus the
present value of the renewable perpetuity.
– K = Capitalized cost
– Cv = Original cost of the equipment [Where CR= Cv – Vs ]
– P = Present worth
• K = Cv + P = Cv + CR /[(l + i )n - 1]
– CR= Cv – Vs
– Cv= CR + Vs
• K = Vs+ CR + CR /[(l + i )n - 1]
• K = Vs+ CR {1+1 /[(l + i )n - 1]}
• K = Vs+ CR {(l + i )n /[ (l + i )n - 1]}
 Discounted Cash Flow

• This method takes into account the time value of

money
• It is based on the amount of investment that is
unreturned at the end of each year during the
estimated life of the project.
• A trial & error procedure is used to establish a
rate of return
• This can be applied to yearly cash flow so that
the original investment is reduced to zero (or to
salvage and land value plus working-capital
investment) during the project life.
 Discounted Cash Flow
• The rate of return by this method is
equivalent to the maximum interest rate
(normally, after taxes)
• Money could be borrowed to finance the
project under conditions where the net
cash flow to the project over its life would
be just sufficient to pay all principal and
interest accumulated on the outstanding
principal.
 Pay out period
• Pay out time is defined as:
– The minimum length of time theoretically
necessary to recover the original capital
investment in the form of cash flow to the
Project
– It is based on total income minus all cost
except depreciation.
– The original capital investment means
depreciable fixed capital investment
 Pay out period
Where no interest is accounted :

If interest is accounted then Pay out Period is:

 Alternative investments
• In industry, it is often possible to produce
equivalent product in different ways.
• Although the physical results may be
approximately the same.
• The capital required & expenses are
different variable
– It depends on the method selected.
 Alternative investments
• Similarly for a given business,
– It is necessary to decide which would be
profitable & which method is more suitable.
• The final decision, as among alternative
investments is taken and best is selected.
– For each additional invest should also yield
adequate rate of return.
 Alternative investments
• A company wants to add new production unit
& will require a
– Total capital investment of Rs 1500,000 and
annual profit will be Rs 320,000
• However alternative addition is proposed:
– It requires 20,00,000 & annual profit 360,000.
• The minimum rate of return 15% is required
• Find out which is the best alternative choice
 Alternative investments
• A general rule for making comparisons of
alternative investments can be stated as
follows:
– “The minimum investment which will give the
necessary functional results and the required
rate of return should always be accepted
– Unless there is a specific reason for accepting
an alternative investment requiring more initial
capital”
 Layout Planning
• To start a detail planning study space
requirement must be known for various by
products, raw material and process
equipments.

• First a trial plot plan is prepared and then

suitable plot and elevation plan is
prepared.
 Unit area concept
• This method is particularly used for large
plant layouts
• Unit areas required for each item is
determined
• Blocks are prepared based on unit area
concept
• Blocks are prepared from wood,
cardboard, hard board etc.
 Scale model
• The scale model method is better than all other

methods
• Scale models of equipments etc are prepared.
• The models are prepared from wood or
cardboard.
• These models are used to develop plot plan &
elevation plan.
• The piping services facilities and control
facilities are also included
 Scale model
• This is 3-Dimensinal model

• Plant layout prepared by this method is

more accurate on scale.

• This method is more expensive and

useful for construction
 Advantages of Scale model
• This method helps the operator to trace
line quickly instead of walking and
climbing over extensive part of the plant.
• Optimum design selection can be made
• It provides effective construction planning
• It is used for training of personnel
 Preparation of the layout
• Scale drawings are prepared.
• Elementary layout are developed first
• Fundamentals relationships between storage
space and operating equipments are considered
• The operational sequences are considered for
primary layout
• It is based on flow of materials, unit operations,
storages & future expansion
• After considering all above factors a layout is
prepared.
• It includes piping system also.
 Storage layout
• Storage is required for R/M, Intermediates,
product and finished product.
• R/M storage must be at adjoining or near
to the processing area.
• It reduce the material handling cost but it
may also become obstacle or constrain to
future expansion.
• Finished product must be stored near the
outgoing area
 Storage layout
• Liquid can be stored in containers or in
tanks in outdoor or indoor areas.
• Hazardous materials must be stored in
isolated areas.
• The material which are not affected by
normal conditions of climate may be
stored in open area.
• Storage must be done to utilize gravity
flow wherever possible
 Equipment layout
• Ample space should be assigned to each
equipment
• Accessibility is an important factor for
maintenance
• Each unit must be in harmony with each
other.
• Equipment should not be placed too
closed into the building.
 Equipment layout
• A slight larger building is necessary
facilitates more.
• Identical equipments which are repeated
several times in the flow of material should
be arranged in groups or series.
• This reduce operating cost.
• Gravity flow is usually preferable so
equipments should be installed
accordingly means multistory layout.
 Equipment layout
• Overhead equipments must have a space
for lowering into place.
• H.E. should be located such that there
should be place to remove tube bundles.
• The space must be provided for repair and
maintenance and replacement.
 Safety
• Fire protection, Water reservoirs, Fire
pumps, hose pipe etc are required.
• Proper training must be provided to
operate all safety measures.
• Proper place must be provided to keep
them.
 Roads
• For easy transportation within the
premises roads are required.
• The proper planning must be made for
internal roads.
 Utilities
• The distribution of utilities is important
factor
• No pipe should be laid on the floor or
between the floor
• Pipes must be installed at 7-8 feet level.
• Steam generation plant should be on
oneside
 Future Expansion
• A space must be kept reserved for future
expansion
Selection of Process Equipment
• The design of equipment is an essential
part of a plant design.
• For each equipment Engineer should
prepare:
– Material of construction
– Specification sheet
– Methods of fabrication
– Safety
Selection of Process Equipment
• The design data must be developed and it
should includes:
• Size
• operating conditions
• No of units
• Location of openings
• Types of flanges and head
• Code number
• Variation allowances
• Other required information
Selection of Process Equipment
• The design data must be accurate if it is
not available in literature or when past
experience does not give adequate design
basis.
• Pilot plant tests data helps in order to
design plant equipment.
• The result of these test must be scaled up
to the plant capacity
 Material of Construction

• The important factors for selection of MOC for design of

equipment :
• Corrosion and erosion
• Chemical resistance
• Physical property of material
• Structural strength
• Resistance to physical or thermal shock
• Cost of material
• Ease of fabrication
• Necessary maintenance
• Service required
• Operating conditions – Temp & Pressure
• All these factors ultimately influence the final selection of
material
 Material of Construction

• All details are obtained from literature survey.

• Laboratory tests should be carried out under similar to
the final operating conditions
• Corrosion and erosion test is carried out.
• Broad range of materials are now available for corrosive
service
• Material of Construction
– Metals & alloys
– Non metals
• Alloys and plastics have sufficient corrosion resistance
for particular application
• Final choice is made on a sound economic analysis of
competing materials
 Material of Construction

• Material of Construction
– Metals & alloys
– Non metals
• Metals & alloys
– Iron steel
– Stainless steel
• 302&304 steel [ 18%Cr+ 8%Ni]
• 316 steel [ Molybdenum]
– Copper & its alloys
– Nickel & its alloys
– Aluminum & its alloys
– Lead & its alloys
 Material of Construction

• Non metals:
– Glass
– Graphite
– Brick and cement material
– Rubber
– Plastic
– Wood
 Material of Construction

• Selection of material:-
• a) Preliminary selection:
• Experience
• Manufacture data
• Special literature
• General literature
• Availability
• Mechanical & Physical property
• Standard Laboratory testing
• Safety
• b) Laboratory setting:
• Suitability of material
• Lab runs of the proposed process
• Testing at process conditions
 Material of Construction
• c) Application of data :
– Interpret laboratory results & other data in terms of
plant operation, giving consideration to:
• Presence of air in equipment
• Possibility of impurities
• Segregation of alloy constituents
• Fabrication method
• Avoidance of electrolysis
• Effect of temperature
• Effect of method of heating
• Effect of agitation
 Material of Construction

• d) Economic features
• Material cost
• Production cost
• Probable life
• Lost time cost
• Cost of product degradation
• Liability of special hazards
 Material of Construction

• e) Final Selection
• Economic factor
• Initial cost
• Maintenance
• Probable life of material
• Requirement of Coating :
– Coating material
» Wood
» Cladding of alloy
» Ceramic
» Glass coating
» Hard rubber
» plastic
 Specification Sheet
• For each equipment detailed design is
prepared and preliminary specification
sheet is prepared
• This sheet should have following items:
1. Identification 6. Essential control
2. Function 7. Insulation required
3. Operation 8. Allowable tolerance
4. Material handled 9. Material of construction
5. Basic design data 10. Support & Installation etc.
 Specification Sheet for
Heat Exchanger
• Identification No: H-5 Date: _____
• Nos Required : 3 Prepared By:
• Function : To condense overhead vapors
from distillation column
• Operation : Continuous
• Type : Horizontal Fixed type of H.E.
• Out side area : _________ m2
• Duty : _________ W / hr
 Specification Sheet for
Heat Exchanger
• Tube side :
– Fluid handled : cooling water
– Flow rate : ______ Kg / hr
– Pressure : ______ kPa or atm
– Temperature : ______ oC
– Head material : Carbon steel
– Diameter of tube : ______
– Pitch : ______
– Length of tube : ______
– No of passes : ______
– Tube material : ______
 Specification Sheet for
Heat Exchanger
• Shell side :
– Fluid handled : CH3OH vapor
– Flow rate : ______ Kg / hr
– Pressure : ______ kPa or atm
– Temperature : ______ oC
– Diameter of shell : ______
– Baffles : ______
– No of passes : ______
– Shell material : ______
• Utilities → Untreated cooling water
• Insulation : ______
• Tolerance : ______
• Drawing : Details of inlet, outlet, support etc are mentioned.
 Material Handling Equipment
• Material can be handled :
- Manually -
- Mechanically
• The equipments :
- Continuous -
- Batch type
• Equipments are handling:
– Solids
– Liquids
– Gasses
• liquid : Pumps → pipe lines
Container → Drums, Cylinders, Tankers
• Gases : Blowers, Compressors → pipe lines, Ducts
• Solids : Conveyor, Elevators, Pneumatic systems
 Development of the project

• The key objectives for a Chemical Engg

plant project :
• Design & Erection of new plant
• Design & erection of an addition to an existing
plant.
• Revamping & modernization of existing plant.
 Development of the project
• Once, an idea is clicked in the mind, the
company executives start the work to
investigate it.
• A preliminary study is made & more
detailed analysis is carried out.
• From this information, a reliable decision is
taken-to go ahead or to drop the project.
 Development of the project
• Key consideration for Dev. of project are:
• The process,
• laboratory work,
• pilot plant data and other details.
• All these data are submitted to the design
group to integrate technical factors with
economics.
• The next stage required to evaluate the
process
 Evolution of a Process
• A evolution of a process consists of the following
stages:
– Process Research-library & laboratory work.
– Research evaluations for possible commercialization.
– Process development.
– Preliminary engineering studies.
– Pilot plant.
– Semi commercial plant.
– Commercial plant.
• Many stages may be carried out simultaneously
to expedite the work but first five items may be
carried at a time.
 Process Research
• The conception of an idea may be originated by chemical engineer,
chemist, physicist or any other person.
• A chemical research is carried out to provide more quantitative
basis for evaluating the economic feasibility of the process.
• In general the objectives of process research are:
1. To carry out library survey & laboratory work if product can be made
& what the yield & Rate of conversion are.
2. To provide scientific data for rational design of manufacturing
process. The data contains :
– time → minimum time
– equipment → pilot plant studies
– economic operating conditions:
• like: temp, pressure, velocities, feed composition
 Research evaluation
• From the available data engineering &
economics analysis is made before doing
laboratory work.
• This analysis is help to determine the
potentialities of a project
• The analysis also help for research &
development of the work.
• Some times it happens that price of new material
and finished product are very closed so such
process must be dropped
 Research evaluation
• In second stage all laboratory work is completed
& enough information is available for material
balance , unit operation & process involved.
• An engineering evaluation is made:
– To make an economic analysis of the project
– To out line unit operation &process involved.
– To show what additional information are required to
complete the design of the process and equipment for
plant.
 Research evaluation
• All above information is used to evaluate
the process and provide basis for the final
decision

• The main objective of engineering &

economic evaluation is to find that project
is economical sound or viable if yes
further work is carried out
 Process Development
• Through research evaluation necessary
process development studies is conducted
• Design information is collected from
laboratory work & pilot plant.
• Material and energy balance is also very
essential for process development
 Process Development
• To Material and Energy balance, various
properties of material are required :
– Molecular weight - Specific gravity
– Boiling point - Melting point
– Liquid vapor relationship - Viscosity
– Vapor pressure - Entropy
– Critical pressure - Enthalpy
– Critical temperature - Heat capacity
 Preliminary Engg. Studies
• To operate the process physical equipment and
facilities must be specified.
• The commercial plant require large scale
equipment so material of construction is very
important.
• Engineering studies are carried out at lab scale
so development of equipment is required which
is commercially not available.
• Such equipments are generally Glass apparatus
 Pilot Plant
• It is completely medium scale processing unit
• It contains all essential product processing
element including control.
• Pilot scale equipment falls into two categories:
1) Capable of producing translatable results according
to supplied instruction into full scale design &
operational data.
2) Designed and Constructed to permit much wider
range of operating characteristics than normally
available in production models
 Functions of Pilot Plant
• Conversion of
laboratory data → plant design data
• Works as research unit
• Development of unusual equipments which are
commercially not available
• helps for selection of suitable materials and
equipment
• Gives information regarding time & labor study
• Gives idea about recovery & waste disposal
• Detects trouble shooting problems
 Check list of Pilot Plant
• b) Materials:
• Raw materials – availability, substitute raw material
• Impurities in raw material
• Corrosion, erosion, dust fumes
• Solvent – properties & recovery
• Waste disposal
• Byproduct
 Check list of Pilot Plant
• c) Equipment / operation:
• Selection of equipment
• Cost of operation
• Control specification
• Material of construction
• Heat transfer & Mass transfer
• d) Material handling :
• Proper method of handling
• Storage
• Industrial hazards – Explosion, fire, etc.
 Check list of Pilot Plant
• e) Labour
• Operation needed
• Control specification
• Process simplification
• Safety
• Saving of time and labour
• The ultimate goal is to operate plant with the
assurance that all risk both technically &
economic in full commercial plant have been
minimized or eliminated.
• The cost of pilot plant is one of the largest
expensive component in research budget.
 Semi Commercial Plant
• It is larger than the pilot plant
• It produces sufficient quantity of new
product in small lots for sale.
• If product is accepted in the market or
demand of the product increases the
capacity of plant is increased.
• When full capacity is reached :
Semi commercial plant → commercial plant
 Commercial Plant
• If production cost is sufficiently low
commercial plant should be carried out
• Capacity of plant depends upon Demand
• This final step is the coordination of :
– all chemical engineering data obtained & their
translation into a detailed commercial plant.
 Commercial Plant
• The key consideration for designing the
commercial plants are:
• Specification of equipments and materials
• Selection of commercial equipment
• Plant Elevation
• Plant location
• Selection of appropriate staff
• Operating instruction for working staff
• Preconstruction cost
• Production cost per unit of material used
 The Aim of Project Design
• Plant design not only technically satisfactory but
also economically sound.
• The goal of the design is to get workable plant
with maximum return on Investment.
• Any plant design must also consider the safety
factors not only for the sake of its workers but
also for the
• Public of large
• The equipment
• Plant
• The product
 Factors for Plant Design
Technical Legal
– Market - Patent
– Flow diagram - Infringement
– Equipment - Public Relation
– Plant layout
– Plant location
– Building
Economic Safety
– Economic Contribution - Process
– Preliminary process appraisal - Equipment
– Cost & Profitability analysis - Building
– Cost in Safety & Environment
 Technical Factors
• Market:
– It is made by trade or market survey
department.
– Some times some agencies or consultant are
appointed to carry out market survey
– They prepare complete report on any
Commodity / Product.
– The reports Include various items like:
 Technical Factors: Market
– Its uses
– Forms of the product- solid/ liquid/ gas
– Quality of the product
– Quantity of the product
– Availability of the same type of the product
– Consumers Test
– Network for distribution
– Trade agreement
– Import Export of the product
 Technical Factors
• Flow Diagram:
– It shows the sequence or arrangement of equipment
– It is a picture representing of :
– Process ,
– Material balance
– Energy balance
– Equipment
– Material handling
– Storage
– Future expansion
– Utility requirement
– Equipment symbols & flow sheet symbols are used
for flow diagram
 Technical Factors: Flow Diagram
• There are three types of flow diagram
1. Qualitative Flow Diagram :
– It indicates the flow of material unit operation
involved, equipment necessary and other
information required (like temp & pressure)
• Quantitative Flow Diagram :
– This indicates the material and energy balance of
each equipment.
• Combined Detail Flow Diagram:
– This is combination of above two and it gives
complete details regarding process.
 Technical Factors
• Equipment:
– Performance and service are demanded for
all equipment.
– The information for the selection of equipment
can be obtained from the manufacturer.
• Equipments are classified in :
• Standard equipment
• Special equipment
 Technical Factors: Equipment
• Standard equipment:
– Many equipments for material handling, unit
operations and for process are standardized
– Advantages of standardized equipments are:
• Low cost
• Easy for replacement/ duplication
• Easily available
• Spare parts are easily available
• Service after sale is also available from
manufacturer
 Technical Factors: Equipment
• Special equipment:
– Some services are not possible to get from
normal equipments.
– Drawing , detailed design & specifications
sheets are required for special type of
equipments.
– If small changes are to make to suit standard
equipment, one should do it so that it will
lower the cost substantially.
 Technical Factors
• Plant Layout
– This means a systematic economic
arrangement of equipment.
– The proper arrangement of equipments saves
the spaces and labour requirement
– It reduces the time and distances for
transportation and material handling
 Technical Factors
• Building:
– Building plan is prepared after the layout is properly studied.
– For The building required depends on process and material
handling.
– chemical industries special attention is given to:
• Foundation for building and equipment
• Fumes
• Waste gas handling
• Lighting
• Sanitation
• Ventilation
• Drainage
• Safety protection
– Multistory building is used to utilize:
• the gravity flow of material,
• discharging of product
• reduce the power consumption for material handling.
 Economic Factors

• Economic Factors
• Economic consideration
• Preliminary process appraisal
• Cost & profitability analysis
• Cost in safety & environment
• Economic consideration:
– Success of engineer is directly related to his contribution to an
enterprise
– An efficient engineer can make
• New design at lower cost
• Increase in production
• Production at lower cost
– All these ultimately leads to increase the profit of the business
 Economic Factors
• Preliminary Process Appraisal:
– This usually consist:
• Preliminary process design of comm. Plant
• Investment cost
• Processing cost
• Profit
– Based on experience commercial performance is
studied and compared with various other process.
– Batch process data is converted into continuous data
& optimum operating condition are set.
 Economic Factors
• Cost & Profitability Analysis:
– The cost of following items are estimated
• Raw material land building
• Labour & supervision Equipments
• Taxes Insurances
• Interest on loan & capital
– Design engineer obtain all above cost +
• Preconstruction cost
• Total manufacturing cost
• Total capital investment
• Estimated of selling price
– From all these data possible profit and earning is
estimated & Return on investment can be forecast.
 Economic Factors
• Safety:
– Safety leads to be very important economic
factor for any chemical business
– Hazard is main villain of profit
– Hazards also involves:
• Loss of production
• Men’s service
– Hence decrease in Hazards favors saving
and profit.
 Legal Phase
• Legal:
• Patent
• Infringement
• Public Relation
• Patent:
– If any item is registered as patent, then such item can
not produced
– Patent can be obtained to:
• Any product
• Equipment
• Uses or application of any product
– The patent law are to be referred by legal department
– Trade mark & copy rights are also like a patent
 Legal Phase
• Infringement:
– A search is made in patent office for required item.
– Many patent are registered for fixed period say ten
years., after ten years such patent expires.
– As regards infringement, it should be emphasized that
no unexpired patent can be covered.
– The validity of patent is studied by legal dept.
– For entire new product/process one should registered
it in patent office so that no one can use it without
permission.
 Economic Factors
• Public Relation:
– Legal dept. must be acquainted itself with all local,
state and central laws that pertain to manufactures of
the commodity.
• Site clearance NOC from local authority
• Special approval from government of India for prohibited
explosive( if any)
– Explosive act -Environmental act
– Electricity act -Hazardous chemical act
– Workmen’s compensation act -Insurance act
– Indian boiler act -national building code
– Factories act -National electrical code
– Building & construction works act
 Safety
• Safety is very important factor:
– Process leakage
– Equipment
– building
• Process leakage
• Flash-fire Explosion
• Decomposition combustion
• Toxic vapors

• Many chemical can cause severe burns if permitted to come into

contact with living tissues.
– E.g.: oxidizing agent, acids, base, etc
• Chlorine irritates eyes.
• Eyes & mucous membranes of nose throat sensitive to
– Corrosive dust , gases, mists
 COST ESTIMATION
• A plant design must present a process
That is capable of operating under condition
 which will yield a profit.
 Profit = Total Income – All Expenses
• Many different types of the cost involve in

manufacturing process.
•The expenses are divided into two groups.
 COST ESTIMATION
• Direct plant expenses:
 Raw material ,
 Labor ,
 Equipment etc .
• Indirect expenses:
 Administrative salaries ,
 Product distribution cost ,
 Communication cost etc .
 Cash flow for industrial
operation
The capital source includes all funds
necessary to get the project underway:
The funds are obtain from the following
1.Bonds and fixed deposit
2.Common stocks
3.Loans from bank
4.Net cash flow to capital sink
5.Other capital input
 Cash flow for industrial
operation
The capital outgoing from the funds:

1.Industrial operation
2.Dividend to stock holders
3.Interest on loan
4.Repayment of loan
5.Repayment of bond and fixed deposit
6.Other investment
7.Land value or cost
 CAPITAL INVESTMENT
• A capital investment is required for any
industrial process.
 Fixed capital investment :
 The capital required for physical equipments
and facilities in plant.
 Working capital investment :
 The capital requires for salaries ,
 To keep stock of raw materials and products
on hand
 Other direct cash outlay.
Gross profit =
 Income from sale – Cost of operation
 Net profit before taxes
 Si-Co-D
 Net profit after taxes
 Si-Co-d-tx

Net profit and depreciation is cash flow the

project and returned to funds .
TOTAL CAPITAL INVESTMENT :
• For an industrial plant:
A large sum of money is required to:
 To purchase and install the necessary machinery
and equipment
 To purchase land and service facilities
 To complete all piping, control system etc
• In addition, it is necessary to have
Money available for the payment of expenses
involved in the plant operation
 CAPITAL INVESTMENT

• The total capital investment includes:

 Manufacturing fixed capital investment for

project
 Non manufacturing fixed capital investment
 Working capital
 MANUFACTURING FIXED CAPITAL

• Manufacturing fixed capital investment

• It is the capital required for
– The necessary manufacturing and plant
facilities
• The capital necessary for the installed
process equipment
– With all necessary auxiliaries for complete
process operation
 Fixed Capital Investment
• Other Expenses like :
Piping, insulation,
foundation,
site presentation
• Also included in the manufacturing fixed
capital investment
 Nonmanufacturing fixed capital
• Nonmanufacturing fixed capital investment
– The capital required for construction overhead
– All plant components that are not directly related to
the process operation.

• The items which are included are:

– Process building, administrative and other offices,
– Warehouses and laboratory,
– Transportation, utilities and waste disposal facilities
 WORKING CAPITAL
• Total money invested in
– Raw materials and supplies carried in stock.
– The stock of raw material is generally made for one month
supply.
– Finished product stock is also made fro one month production.
– Cash kept on hand for monthly payments of operating expenses
• such as salaries, wages, R/M purchase, etc.
– The accounts receivable ordinarily amounts to the product cost
for one month of production.
– For chemical plant , the working capital is 10 to 20 % of the
capital investment.
– The percentage is higher for seasonal products.
Factors affecting on investment
and production cost
• When cost for any type of commercial
process is to be determined ,
– It must be sufficiently accurate to provide reliable decision.
– Engineer must consider many factors that affects the cost.
– Many companies have reciprocal arrangement with other
concern
– where by certain raw material may be purchases at lower
prices than the prevailing market prices.
– This affect economics operation . If the prices are high
cost will be high.
 (1) Source of equipment
• The cost of equipment is one of the major cost involved in any
way chemical process
• In many cases standard types of tank reactors and others
equipment are used.
• A substantial reduction in cost can be made by using standard
equipment or purchasing second hand equipment .
• To purchase new equipment several independent quotation
should be obtained from different manufactures .
• A specification must be supplied to manufactures.
• It possible by minor changes can be made in design to match
with standard equipment .
 2) PRICE FLUCTUATION
• The prices may vary widely from one period to another.
• This factor must be considered when the cost for an
industrial processes are determined.
• The engineer must keep up-to-date on price and
fluctuation.
• The wages vary from time to time.
• Hence considering price fluctuations , cost must be
determined.
 3) COMPANY POLICIES
• Company policies are different from one company to
other company.
• One company follow strictly safety regulations, so
cost will increase.
• Method used to determine the depreciation also
affects the cost
• Rate of overtime, dearness allowing etc. are also
important.
• All these items have direct effect on total cost to be
estimated.
 4) OPERATION TIME AND RATE
OF PRODUCTION
• When equipment isn't used for a long period of time,
labour cost is low ,
– But other cost like maintenance ,protection and depreciation are
continued.
– So this will increase the costs.
• Operating time , rate of production and sales demand
are closely related .
– The ideal plant must be operated under time schedule,
– Which will give the maximum production rate.
– When the production rate is maximum, the cost per unit product
decreases.
– Because fixed costs are utilized to their full extent.
– It's assumed that sales demands are sufficient.
 5) GOVERMENT POLICIES:
• Government policies are affect
investments.
1. Income tax rates are changing from time to
time.
2. Government subsides also decrease the
cost.
3. The exemption also reduces the cost.
 ESTIMATION OF CAPITAL
INVESTMENT
• Various items are included for estimation of
capital investment.
• The estimate may vary from pre-design
estimate to detailed estimate
 based on complete drawing and
specifications.
There are FIVE categories for such
estimations.

12/15/21 172
 ESTIMATION OF CAPITAL
INVESTMENT
• (1) Order of the magnitude estimate:
 Based on similar previous cost data.
 The accuracy is about and over +/- 30%.

• (2) Study estimate :

 Based on knowledge of major items of
equipment .
 The accuracy is probably up-to +/- 30 %.

12/15/21 173
 ESTIMATION OF CAPITAL
INVESTMENT
• (3) Preliminary estimate
 based on sufficient data to permit the
estimate to be budgeted.
The accuracy is within +/- 20%.

• (4) Definitive estimate :

 based on almost complete data but before
the completion of drawing and specification
 The accuracy is up to and about +/- 10%.
12/15/21 174
 ESTIMATION OF CAPITAL
INVESTMENT
• (5) Detailed estimate
 based on complete engineering drawing ,
specification , site surveys
The accuracy is within +/- 5%.

• The actual cost will be higher than estimated

cost if information is incomplete.

12/15/21 175
 ESTIMATION OF CAPITAL
INVESTMENT
 The first three methods are pre-design cost
estimation methods.
 These methods don't require that much detail.
 While remaining two methods require more
detailed information.
 First 3 methods are important for determining
estimate and based on the alternative designs
are compared
 These methods are used to provide basis for
requirement of capital.
 On these basis detailed estimates are determined.
12/15/21 176
 A grass root plant is defined as a complete
plant erected on new site.

 Battery limit - It's a geographical boundary

covering a specific project of existing plant.

 Fixed capital investment for new plant or for

addition to existing plant is determined by
above methods.

 For battery limit plant addition is considered

 but utilities , auxiliaries , storage ,
administrative buildings are not specified.
12/15/21 177
BRERAKDOWN OF FIXED CAPITAL
INVESTMENT
1) purchased equipment
• All equipment and spare parts
• Surplus equipment
• Freight charges
• Taxes, insurance
• Allowance for modification during startup

12/15/21 178
2) purchased equipment installation
– Installation of all listed equipment
– Structural support, insulation, calibration
3) instrumentation and control
– Purchase, installation, calibration
4) piping
– Process piping - carbon steel, aluminum, copper,
plastic, ceramic etc.
– Fitting and valves
– Insulation
5) Electrical equipment
– Electrical motors, switches, wire fitting, lighting
panels etc.
6) Building
•A) Process building -
– Structure, platform support, stave ways, ladder,
elevators, cranes etc
•B) Auxiliary building
– Administrative office, garage, warehouse,
– Guard and safety, fire station,
– Personal building research laboratory,
– Canteen, dispensary etc.
•C) Working building
– Carpentry, welding, electric, piping, instrument etc.
•D) Building services
– Heating, air conditioning, lighting, telephone,
intercommunication, painting etc.
7) Yard improvement
– Site development - leveling, roads, parking areas,
walkways, fences wall
8) Service facilities
– A) utilities - steam, power, water, refrigeration, compressed air,
fuel, waste disposal
– B) facilities - water treatment, cooling tower, water storage,
refrigeration plant, waste disposal plant
– C) non process equipment - office furniture and equipment,
canteen equipment, safety equipment, medical equipment,
laboratory equipment, loading and unloading station etc.
– D) Distribution and packaging-Raw material storage, product
storage, product packaging equipment etc.

9) Land -
– Survey and fees, property cost
 Indirect costs
• 1) Engineering supervision and inspection
– Engineering cost - administrative,
– Process, design, general engineering,
– Communication scale models, consultant fees etc.
• 2) Construction services
– Construction, operation,
– Maintenance of temporary services,
– Offices, roads, fencing,
– Communication etc.
 – Construction supervision,
– Accounting, time keeping,
– Purchasing, safety,
– Medical, field tests,
– Taxes, insurance, Internet
• 3) contractors fee
• 4) contingency
COST FACTORS IN CAPITAL
INVESTMENT

• To estimate the capital investment cost

factor is considered.
• It is the percentage of fixed capital
investment values of
• Direct and Indirect costs.
 Direct cost
Sr.No: COMPONENT RANGE
1 Purchased equipment 15-40
2 Purchased Equipment Installation 6-14
3 Instrumentation & controls (installed) 2-8
4 Insulation Cost 1-3
5 Piping (installed) 3-20
6 Electrical (installed 2-10
7 Buildings (including services) 3-18
8 Yard Improvements 2-5
9 Service Facilities 8-20
10 Land 4-10
(1) Purchased Equipment
– The cost of purchased equipment is the basis of
several pre-design methods.
– Price, capacity, and auxiliary equipment for the
equipment is important for estimation.
•The equipments are divided into three
classes.
– (1) Processing equipment
– (2) Raw material handling and storage
equipment
– (3) Finished product handling and storage
equipment.
 Purchased Equipment

• The cost of auxiliary equipment, materials,

insulation, painting are also included.
• To get most accurate process equipment cost
one must obtain quotation from fabricators
and suppliers.
• From the past purchased equipment
experience the cost can be estimated.
• By referring various cost journals, price
can be obtained.
Estimation of Equipment cost by
Scaling
• It is often necessary to estimate the cost of
equipment,
– when no cost data are available for a particular size
of operational capacity involved.
• By using six-tenth factor rule cost can be
estimated
– For the equipment similar to one another capacity
for which cost data is available.
 Six-tenth factor rule

 Cost of equipment B is known

 Capacity of B is also known.
• The actual cost capacity factor varies with
capacity and type of equipment.
• When no information is available 0.6 factor is
used.
capacity factor
Dryer 10-100 ft2 0.76
crystallizer 500-700 ft3 0.37
heat exchanger 100-400 ft3 0.60
fixed Reactor 100-1000 gallon 0.56
glass lined 50-600 gallon 0.54
 Installation cost
• Installation of equipment involves cost for labor,
supports, platform, foundation, construction etc.
• The installation cost is estimated as percentage of
purchased equipment cost.

Equipment Installation cost

Heat exchanger 25-60%

Evaporator 30-60%

Compressor 20-60%

Filler 65-80%

Pump 25-60%
 Instrumentation and Control cost
• The cost of instrument, installation labor cost,
materials cost involved in instrumentation cost.
• The instrumentation cost depends on the
amount of control required.
• This cost is approximately 6-30% of the
purchased cost of all equipment.
• For solid fluid processing - 13%
• This cost is about 3% of the total capital
investment.
 Insulation cost
• When very high or low temperatures are
involved, insulation is to be done.
• So it is necessary to estimate insulation cost
• The total cost for the labor and material
required for insulation of equipment.
• In chemical plant is approximately 8 to 9
percent of purchased equipment cost.
• It is approximately 2% of total capital
investment.
 PIPING
• The cost of piping covers labour, fittings,
valves, supports etc.
• The complete erection of all piping used
directly in the process.
• Piping is used for the flow of
• Raw material, finished product,
• Steam, water, air, etc.
 PIPING
• The cost of piping is estimated 80% of
purchased equipment cost or 20% of fixed
capital investment.
• Labour cost for installation – 40-50% of total
installed cost of piping.
• The insulation cost is 15-25% of total installed
cost.
 ELECTRICAL INSTALLATION
• Cost for electrical installation consists of:
– Primarily installation labour
– Materials for power & lighting.
• The electrical installation consists of
– Power, wiring, lighting, transformation services
– Instrumentation and control wiring.
• In ordinary chemical plant, electrical
installation cost is 10-15% of the cost of all
purchased equipment and
• It is generally 3-10% of the fixed capital
investment.
 BUILDINGS
• The cost of buildings includes all expenses for
– Labour, material, plumbing, lighting, ventilation,
heating, etc.
• This cost is different for different plants.
• The cost is approximately 10% of purchased
equipment cost.
 YARDS IMPROVEMENTS
• The cost for fencing, compound wall, grading,
side walk, landscaping, etc
• It is 10-20%of purchased equipment cost or 2-
5% of fixed capital investment.
 SERVICE FACILITIES
• Utilities for supplying
– Steam, water, power, compressed air
– Fuel are part of service facilities of an industrial
plant.
• The total cost for services in chemical plant is
8-30% of the purchased equipment cost.
• For single product plant, the cost is low.
• The service cost is 8-20% of fixed capital
investment.
 LAND

• The cost of land depends upon the

location and hence variation is high.
• The cost roughly 4-25% of the purchased
equipment.
• It is generally 4-10% of the fixed capital
investment.
 Indirect cost
Sr.No: COMPONENT RANGE
1 Engineering and Supervision 4-21
2 Construction expense 4-16
3 Contractor’s fee 2-6
4 Contingency 5-15
5 Start up expenses 1-3
 ENGG. AND SUPERVISION

• The cost for construction, design, drafting,

travel, communication, office etc are
considered is indirect cost in fixed capital
investment.
• It is approximately 30% of the purchased
equipment cost.
• It is generally 4-21% of the fixed capital
investment.
 CONTRACTOR’S FEE

• This fee is 2-8% of the direct plant cost

• It is generally 4-10% of the fixed capital
investment.
• 2-6% of fixed capital investment.
 CONTINGENCIES
• Contingencies are unpredictable expenses
occurred during estimation and other
unforeseen expenses such expenses are,
price changes, small changes in design, errors
in design, etc.
• The contingencies expenses are 5-15% of the
direct and indirect plant costs.
 START UP EXPENSES

• After completion of plant construction, certain

changes have to be made before the plant
can operate as per design conditions.
• Such expenses are 1-3% of fixed capital
investment.
Break Even Chart for Process Industry
 COST INDEX
• Most of data available for immediate use
in a preliminary or predesigned estimate
are based on conditions at some time in
past.
• The prices may change with time due to
changes in economic conditions.
• So some methods must be used for
updating cost data applicable
 COST INDEX
• At a past date to costs that are
representative of conditions at a later time.
• This can be done by using cost index.
• A cost index is merely an index value for a
given point in time showing cost at that time
relative to a certain base time.
• If cost at some time in the past is known , the
equivalent cost at the present time can be
determined by the formula given below.
 COST INDEX

• Cost indexes can be used to give general

estimate.
• Different types of indexes are:
• Marshall & Swift Equipment Cost Indexes
• Nelson Refinery Construction Cost Index
• Engineering News- Record Construction Index
• Chemical Engineering Plant Cost Index
 Marshall and
Swift equipment-cost index
 Estimating cost of equipment using
scaling factors and cost index.
• The purchased cost of a 50-gal glass-lined, jacketed
reactor (without drive) was$8350 in 1981.
• Estimate the purchased cost of a similar 3OO-gal, glass-
lined, jacketed reactor (without drive) in 1986.
• Use the annual average Marshall and Swift equipment-
cost index (all industry) to update the purchase cost of
the reactor.
• Solution. Marshall and Swift equipment-cost index (all
industry)
• (From Table 3) For 1981 721
• (From Table 3) For 1986 798
 METHODS FOR ESTIMATING
CAPITAL INVESTMENT
• Various methods can be used for estimating
capital investment.
• The choice of anyone method depends upon
the amount of detail information available and
the accuracy desired.
• There are six methods.
• The maximum accuracy within approximately
±5% of actual capital investment can be
obtained with detailed items estimate.
1. DETAILED ITEM ESTIMATE
• In this method, for each item, cost is
determined carefully.
• Complete drawing and specification of
equipments are prepared
• Cost is determined from current data and
quotations.
• Installation cost is evaluated from accurate
labour rates.
 DETAILED ITEM ESTIMATE
• Complete data for site survey and soil data
are obtained
– To minimize construction costs.
• This type of estimate requires large
amount of information.
• This method is used by contractors for
bidding.
 2. UNIT COST ESTIMATE
• In this method, accurate records of previous
cost experience is used to estimate fixed
capital investment.
• This method is used for preparing definitive
and preliminary estimate.
• The purchased price is obtained from
quotation or index-corrected cost records &
published data.
 UNIT COST ESTIMATE
• Equipment installation labour cost is evaluated
as % of delivered equipment cost.
• Cost for concrete, steel, pipe, electrical etc. are
determined on unit cost of material and
labours.
• The cost equation is given below:
• Cn[ ∑(E+Eₐ)+∑(fxMx+fyMₐ′)+∑feHe+∑fd*dn](f )
 3. PERCENTAGE OF DELIVERED-
EQUIPMENT COST

• In this method, delivered equipment cost is

required.
• Based on this cost, all other costs are
determined as percentage of delivered-
equipment cost.
• This method is used for preliminary study
estimate method.
 PERCENTAGE OF DELIVERED –
EQUIPMENT COST
• Purchased equipment cost = Rs. E
installation cost = 39% E
instrumentation cost = 28% E
piping(installed) = 10% E
electrical(installed) = 22% E
Building = 22% E
Service facilities = 55% E
Land = 6% E
Total =D Total direct cost

Engg. & Supervision = 32% E

Construction expenses = 34% E
Total =I indirect cost
 PERCENTAGE OF DELIVERED
EQUIPMENT COST
Total direct and indirect cost= D+I

Constructor’s fee = 5% (D+I)

Contingency = 10% (D+I)
Total= C
Fixed capital investment= D+I+C
 4) LANG FACTOR METHOD

• This method is used to estimate capital investment.

• This is order of magnitude estimate method.
• The cost of a process plant may be obtained by using
some factor.
• The cost of basic equipment is multiplied by some factor.
• These factors vary depending upon type of process plant
considered.
• The great accuracy can be achieved by using a number
factor means different factors are used for different type
of equipments.
 Example Factor
1.Fractionating 4.0
Column
2. Heat Exchanger 3.5
3. Compressor 2.5
4. Fired Heater 2.0
• Another approach is to use separate factor for:
 Erection of equipment, foundation, Utilities,
Piping etc.
 An Equation is developed,
Cn = fi [E(1+fF+fP+fm)+Ei+A]
E = Purchased Equipment Cost
fi = Indirect cost Factor always >1.0
fF = Cost Factor for field Labor
fp = Cost factor for pipelines
fm = Cost Factor for miscellaneous item
A = Increment cost for corrosion-resistance
Ei = Cost of equipment already installed at site.
 [5] POWER FACTOR APPLIED
TO PLANT CAPACITY RATIO
• This method is used for study estimate or order of magnitude
estimate.
• The fixed capital investment of a new process plant to fixed Capital
investment of similar previously constructed plant is related
– By the equation given below,
– Cn = C ( )x
– Cn = Fixed capital investment of new plant
– C = Fixed capital investment of old plant
– Cn = C {R}x =
– R = Capacity ratio of new to old plant
– X = 0.6 to 0.70
–
• If direct and indirect cost is considered then

equation is given below can used,

Cn = f [D(R)x + I]
f = Lumped cost index factor relative to
original installation cost
D = Direct Cost
I = Indirect Cost
D & I are costs of previously installed plant
of similar unit .
X = Tend to unity if capacity is increased
by
adding identical process unit & not by
increasing capacity of the process
equipment.
 6) Turn over ratio
• This is order of magnitude estimate method
• Turn over ratio =
 (Gross annual sale /fixed capital investment)
• The reciprocal of turn over ratio is defined as
 Capital ratio or investment ratio
• Turn over ratio 5.0 is very common.
 As a very rough rule of thumb the ratio can be
approximately as 1.0 or unity.
 Total Production Cost
• Methods for estimating capital investment
is one of complete cost estimate.
• Another important part is the estimation of
costs for operating plant and selling price
of products.
• These costs are considered as total
production cost.
 Total Production Cost
• Total product cost are commonly calculated on
one of the three basis:
1) Daily basis
2) Unit of product basis
3) Annual basis

• The best of them is the annual basis because:

1) Effect of seasonal variation is eliminated.
2) It provides operating cost at lesser than full

capacity.
 A) Manufacturing Cost
• All expenses directly connected with the
– Manufacturing operation or physical equipment of a
process plant
• These expenses are divided into three classes :
1) Direct production cost
2) Fixed costs
3) Plant overhead cost
 1) Direct Production Cost
• The expenses are directly related with manufacturing
operation. The items considered are as follows:
 1) Raw Material:
• The one of the major costs is raw material cost.
• The quantity of raw material to be supplied per unit time
or per unit product can be determined from process
material balances.
• The cost of raw materials can be estimated from
quotations supplied by traders/ manufacturers.
• The market price are often used for estimating raw
material cost.
• In chemical plants, raw-material costs are usually in the
range of 10 to 50 percent of the total product cost.
 2)Direct operating labor:

• The operating labor is divided into 2 groups:

a) Skilled labor b) Unskilled labor
• Wages for operating labor are different at different
locations.
• The requirement of labor can be estimated
• From company experience of similar process plant.
• From the knowledge of the flow sheet and drawing
operating labor can be estimated.
Direct supervisory & electrical labor
1.) Utilities
2.)Maintain and Repair
3.)Laboratory Chargers
4.)Patents/Royalties
5.)Catalyst/ Solvent
3) Utilities:
• The cost for utilities:
• such as steam, electricity, process and cooling water,
compressed air, natural gas, and fuel oil,
• varies widely depending on the amount of consumption,

plant location, and source.

• Water is required for :
• cooling, cleaning & washing purpose.
• It may be used in form of steam as R/M.
• Electricity is used for :
• lighting, motor and to run electrical equipment.
• Compressed air is used :
• To develop the pressure.
• Air is used for combustion of fuel :
• To generate heat requirement.
• Utility cost for ordinary chemical process is :
• About 10-20 percent of total production cost.
4) Maintenance and Repair
• To run all the equipment with possible higher efficiency
or performance maintenance is essential.
• By maintenance plant is kept in efficient condition.
• Sometimes repair is also required spare parts is
replaced if necessary.
• Maintenance & repair cost includes labour material
and supervision.
• This is approximately 2% of equipment cost & 6% of
fixed capital investment.
• Building repair cost is 3%-4% of building cost
 5) Operating supplies:-
– In any manufacturing operation many miscellaneous supplies
are needed to keep the function of plant efficient.
– Such items are charts, lubricants, testing chemical, etc..
– The annual cost for such supplies about 15% of the total cost
for maintenance and repair.
laboratory charges:
– The cost of laboratory equipment , chemical , labor ,
supervision, etc.. Is about 10% -20% of operating labor cost.
Patent and royallies :
– For many process patents are to be purchased and royally is
to be paid.
– Such cost is 6% of total product cost.
Catalyst and solvent :
• The cost of catalyst and solvent depend on type of process
 2) Fixed charges
• Certain expenses are always present in industrial
plant whether or not manufacturing processes is in
operation
• The costs that are invariant with the amount of
production are designated as fixed costs or fixed
charges
• The include costs for depreciation, local property
taxes, insurance, rent etc.
• The expenses of this type are a rough
approximation, these charges are 10% to 20% of
the total product costs
• 1)Depreciation :
– Equipment, building and other material objects comprising
a manufacturing plant are require an initial investment
– Which must be written off as a manufacturing expenses
– In order to write off this cost, a decrease in value is
assumed to occur throughout the usual life
– This is decrease in value is designated as depreciation
– Thus depreciation is calculated by various method.
– For every year during the life period of equipment
– The annual depreciation rate for machinery and equipment
is about 10%, of the total fixed capital equipment.
• 2) Local Taxes :
– The rate of local taxes depends upon the
locality of the plant and local region laws
– Annual properties taxes are higher in
populated areas and are 2% to 4% of the
fixed capital investment
– For less populated area taxes are 1% to 2%
of the fixed capital investment
• 3) Insurance :
– Insurance rate depend upon type of process
used for manufacturing operation
– Insurance on annual basis is about 1% of the
fixed capital investment
• 4) Rent:
– Annual cost for rented land and building is
approximately 8% to 12% of the value of
rented properties.
 3) PLANT OVER HEAD COST
• Many other expenses are involved which are not
directly related with production operation
– To run the plant efficiently such expense are
occurred.
– These expenses are called plant over head
cost.
– Non manufacturing machinery, equipment &
buildings are such expense.
• The following items are considered for plant
overhead cost
– Hospital & Medical Service
– Safety Service
– Canteen Facilities
– Control laboratories
– Packaging
– Employment offices
– Distribution of utilities
– Inter plant transformation
– Lighting
 B) General Expenses
1. ADMINISTRATIVE COST
The expense connected with top
management cannot be charged directly to
manufacturing cost.
 Salaries of administrative secretors,
accountant officer communication building.
 This costs 20% to 50% operating cost.
 B) General Expenses
2. Distribution and marketing Cost:
• It is necessary to sell the product to push the product
in the market
• Distribution network is necessary for this purpose
– Salesman, advertisement, technical services after sale
– All such expenses are to be bared.
– This cost is 2%- 20% of the total product cost.
• Research and development cost
– R&D is necessary to improve the quality of product
– Salaries, laboratory equipment etc expanses are 2%
to 5%.