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

 

Analyzers are complex specialty devices that require attention to a broader range of details than conventional field instruments. Therefore, an accurate process analyzer system estimate requires attention to a sometimes-lengthy checklist of what is included and not included, in the scope. Common examples are specialty sampling devices, heat-traced sample and sample-return lines, utility services, specialty gases, added DCS or SIS I/O points, and ergonomic sample-point and analyzer locations. Many details relevant to Table 2 and Table 3 were discussed more extensively in the second article in this series.

Besides identifying these cost items, a thorough estimate also states which project partner is responsible for its completion. Either the engineering firm or the analyzer systems integrator might be responsible for the sampling device and the heat trace controller. The client/owner may want to be responsible for DCS programming because of the high safety and security nature of control system software, and the engineering firm or the general contractor can be responsible for the local electrical disconnect switch at the field device. Therefore, it’s important to identify early, and in the estimate, who’s responsible for individual line items, lest they get estimated twice or not estimated at all.

Complexity usually means higher cost, so an inaccurate estimate will have a high overall project impact. Complexity requires touching and being touched by other disciplines such as electrical, piping and civil engineering. Therefore, the estimating process must take into consideration the two-way impact of the analyzer system on other disciplines and the requirements of the other disciplines on the analyzer system costs. Lastly, additional costs for testing, inspection, and field assistance for analyzer systems, especially for those in analyzer houses, can cost as much as $1,000 per day per person assigned.

What can be done to ensure more accurate analyzer system project estimates earlier in the project lifecycle? Best practices include: 

  • Clearly defined scope of deliverables.
  • Clearly fixed and enforced lines of responsibility for  creating estimates for all parts of the project.
  • Plenty of front-end engineering and design (FEED) time and funding. If more is needed, be prepared to justify and argue forcibly for it if compromise would result in a poor estimate.
  • Clarity about specific parts of the project the project controls/estimating people are addressing.
  • Willingness to explain, compromise and push back where compromise isn’t acceptable.
  • Firm estimates on tagged/specially engineered items to be acquired specifically for the particular analytical application and project.
  • Clarity about what commodity items/bulk materials are required to complete installation and start-up of the specially engineered items.
  • Liberal, but cautious use of  walkthroughs, photos, drawings and other FEED documentation, especially when something “doesn’t look right.” Ask lots of questions.
  • Due diligence in pointing out poorly defined items or unfilled gaps at the time the estimate is delivered.

They must be pointed out, their potential impact explained, and alternatives that minimize negative impact addressed.

The reader is also encouraged to review the references in the sidebar “Extra-Credit Reading” for additional and supporting suggestions. Important related topics which must be left for another time include cost elements by project stage, estimate accuracy by project stage, sources of estimating information, types of costs by work breakdown structure, and types of construction contracts.

Extra-Credit Reading 

  • Khan, Asadullah, “Project Scope Management,” Cost Engineering, Vol. 48, No. 6, June ’06, pp. 12-16.
  • Ward, Stephen, “Concept Selection, Estimating and Project Economics,” PetroMin magazine, Dec. ’05, pp. 20-29.
  • Harrison, Malcolm, “How to Get What You Want from Your Engineering Contractor and Save Money Too,” presented at the 7th World Congress of Chemical Engineering, July ’05.
  • Kunesh, John G. and Raymond M. Sowiak, “Which is the Best Hardware Quote?” Chemical Processing, July ’05, pp. 23-26.
  • Kunesh, John G., and Raymond M. Sowiak, “Distill Your QuoteRequest,” Chemical Processing, June ’05, pp. 30ff.

 


  About the Author
Gary Nichols, PE, is principal control systems engineer with Jacobs Engineering Group. He can be reached at gary.nichols@jacobs.com.
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