W22_RM_Equipment Factored Cost Estimates

1. Problem Recognition

The increasing demand of LPG Product in a new province in Borneo Island has made the management planned to build a New LPG Storage Facilities in the province. Since the investment decisions should be made in a short time, Management asked the estimator to estimate  the investment cost of this facilities based on the limited time and data available. Management stated that the estimation will be used to conduct a feasibility study.

2. Identify the Feasible Alternative

Based on the following matrix [1], the estimator should create a class 4 estimate to meet the management requirement that the estimation purpose is to study or feasibility.

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Table 1. Cost Estimate Classification Matrix

In order to prepare a class 4 estimates, the Author then prepare the estimation requirement check list as follow [2]:

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Table 2. Estimate Input Checklist for Class 4 Estimate


3. Development of the Outcome for Alternative

After selecting the estimation class, the Author then select an estimation method to produce the estimates. Based on the table 1 above, the methodology suggested to produce a class 4 estimates is : Equipment Factored or Parametric Models.

In this case, the Author will use Happel’s Method [3]. Happel estimated purchase cost for all pieces of equipment (material), labor needed for installation using factors for each class of equipment, extra material and labor for piping, insulation etc. from ratios relative to sum of material and added installed cost of special equipment, overhead, engineering fees,and contingency.

The Happel’s Method can be described as follow:

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Table 3. Happel’s Method: Table 1

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Table 4: Happel’s Method : Table 2

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Table 5: Happel’s Method: Table 3


4. Selection of Criteria

The estimation result should meet the management desired expected accuracy at the end of the project actual cost generated.

5. Analysis and Comparison of the Alternative

The Author has collected the estimate data input required (material data) in the calculation by using Happels Method as follow:

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Table 6. Input Data for Happel’s Method

The estimation result calculated by using Happel’s Mehod as follow:

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Table 7. Estimation Result


6. Selection of the Preferred Alternative

Based on the estimation result in Table 7, the Author then proposed a class 4 estimate with expected accuracy -30% to 50%  to the Management with the total investment cost is $ 5.636.407. The total investment cost include all of the construction cost plus overhead, engineering fees, and contingency.

7. Performance Monitoring and Post-Evaluation Results

The class 4 estimates purpose is only for the study or feasibility. If the management approve the FID (Final Investment Decision),  the Estimators then should complete the required project scope so that the level 2 or 3 estimate can be produced for bidding process.


  1. Christensen, P.et.al.(2011). AACE International Recommended Practice No. 18R-97 Cost Estimate Classification System – As Applied in Engineering, Procurement, and Construction for The Process Industry. United States of America: AACE International.
  2. Ibid 1
  3. Prasad, Rashmi. et.al. (2011). AACE International Recommended Practice No. 59R-10 Development of Factored Cost Estimates- As Applied in Engineering, Procurement, and Construction for The Process Industry. United States of America: AACE International.
  4. Amos, S. J. (2012). Skills & Knowledge of Cost Engineering: A Continuing Project of the AACE International Education Board (5th ed.). Section 2, Chapter 9. Morgantown, WV: AACE International.
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2 Responses to W22_RM_Equipment Factored Cost Estimates

  1. drpdg says:

    Perfect, Pak Rico!!!!! Just doesn’t get any better than this……

    My only advice would be for a Class 4 cost estimate, I would NEVER go into management with a number like $5,636,407. Either ROUND it to the next higher thousand ($5,637,000 OR better yet, for a Class 4 estimate you would be better off to quote the actual RANGE- 5,637k X 70% = $3,946 to 5,537k x 150% = 8,456k.

    By showing a number down to a single value IMPLIES a degree of accuracy which just isn’t there….

    Make sense to you?

    Keep up the great work Pak Rico!!!!


  2. Pingback: W6_OAN_Equipment Factored Cost Estimates – EMERALD AACE 2017 – WEEKLY BLOG

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