Cost estimating for process analyzer projects

This article addresses cost estimating for capital projects on which an analyzer system is installed, through start-up and commissioning of the project, to the resultant lifetime cost savings that can be gained.

By Gary D. Nichols

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By Gary D. Nichols, PE, Principal Control Systems Engineer, Jacobs Engineering Group

Process Analyzer ProjectThe premise of this series on process analyzer systems is that analysis and optimization of full lifecycle costs describe the activities and results of a well-planned and well-run analyzer reliability program. In the first article (“How to Launch an Analyzer System Reliability Program,” June ’06), we discussed the analyzer system lifecycle from concept through wear-out and disposal. The second article (“Accurately Scoping Process Analyzer projects,” Oct. ’06) addressed the scope of process analyzer capital projects, while the third dealt with analyzer system documentation requirements during the lifecycle (“Project Roadmaps Get You There,” Dec. ’06). This fourth article will address cost estimating for the capital project on which the analyzer system is installed, through start-up and commissioning. Maintenance management and costs will be discussed later.

Table 1 below lists reasons for having accurate project costs as early as practicable in the project lifecycle.

 

TABLE 1: THE CASE FOR ACCURATE PROJECT COST ESTIMATING

  • Personnel safety and loss prevention
  • Corporate accountability, especially as defined by the Sarbanes-Oxley Act of 2002
  • Capital and expense budgeting
  • Cash flow management
  • Client/owner expectations and credibility

 

Every project, irrespective of size or whether an analyzer system is included, has a safety and loss prevention component which overrides all other factors and is reflected in costs and cost estimating. Though there are sometimes less costly ways to achieve personnel and process safety objectives, there is no justification for cost savings that compromise safety.

In in his July  ’06, article, “Sarbanes-Oxley and Cost Engineering” in Cost Engineering, Doug Creech points out that the Sarbanes-Oxley Act (Sarbox), enacted by Congress as a result of high visibility, high-level corporate fraud, is as applicable to engineers as it is to accountants and top managers. Sarbox affects capital project estimating through proper, or improper, stewardship of valuing fixed assets, accounting for on-going expenses, and reporting and managing cash flows. Not coincidentally, these costs are reflected in corporate annual reports on the balance sheet, the income statement, and cash flow statement, respectively. Criminal and civil penalties can apply to the careless engineer as well as to the corporate executive.

The need for capital and expense budgeting and cash flow management logically follow legal requirements as good business practices. Note that, based on accounting rules, capital projects often have significant expense components, including preliminary engineering, repairs to existing facilities, start-up of new and existing equipment, and demolition of existing equipment. Meeting Sarbox requirements is included in what engineers often call “due diligence.”

The need for accurate cost estimating is shown by the consequences of unnecessarily tying up funds by over-estimating one project, and thus denying funds to another, or underfunding a project and later having to take away funds from a lower-priority project. In extreme cases, additional money must be taken from cash reserves, further lessening cash flow.

The case for meeting clients’ expectations and maintaining the credibility of project engineering is less easily quantified, but it’s easy to understand because most engineering-client/owner relations are based on relationships between individuals and among team members, including client/owners, engineers, suppliers, construction and maintenance personnel.

Common causes of poor project cost estimates are shown in Table 2 below.

 

TABLE 2: COMMON CAUSES OF POOR ANALYZER PROJECT ESTIMATES

  • Poor scope and subsequent undocumented scope creep and scope changes
  • Poor estimating data
  • Invalid assumptions and lack of attention to detail during estimating
  • Unrealistic and unstated cost expectations and subjective rather than objective information included in estimate line items
  • Team/project personnel changes and turnover
  • Project engineering and/or field construction interruptions/starts and stops

 

These causes can affect any engineering project, be it a single analyzer system or a multi-billion dollar public civil infrastructure project.

Let’s review special factors that influence estimates for analyzer system projects (Table 3).

 

TABLE 3: SPECIAL FACTORS IN ANALYZER SYSTEMS ESTIMATING

  1. Analyzer systems are complex specialty field devices
  2. Analyzer systems are generally more costly per field device than conventional instruments
  3. Analyzer systems generally require climate control in carefully designed open shelters or fully enclosed analyzer houses
  4. Analyzer systems touch and are touched by most other engineering disciplines
  5. Analyzer systems, especially those in analyzer houses, frequently have detailed inspections and testing at fabrication and start-up/commissioning

 

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