47

UNIT 5
Cost Estimation
Benefits and costs must be quantified before projects can be ranked and
evaluated. This unit covers estimation of costs. Emphasis is on identifica-
tion of the items that must be costed and consistent estimation procedures.
Learning Objectives When you have completed this unit you should:
A. Know the major cost components of control systems.
B. Know how to estimate the major cost items of a system.
C. Be able to represent project cost as a cash flow table.
5-1. How Much Will It Cost?
Cost estimation should begin with some idea of how much expenditure a
project can support. An estimate of benefits and organization guidelines
(e.g., projects must produce a discounted cash flow rate of return of at
least 20% per year) will provide a rough upper limit on acceptable costs. If
the benefits are high enough and the guidelines are reasonable, desirable
but nonessential features can be included. At the other extreme, if the
company is in dire financial straits and demands a return of 35% by night-
fall, no expenditure other than emergency repair can be justified. In these
circumstances, a wise course is to patch up existing equipment and save
promising projects for a brighter day.
The next step in cost estimation is identification of the categories that must
be estimated. These will depend on the nature of the project. Moderniza-
tion of the controls for an old unit will include replacement of sensors and
transmitters, purchase and configuration of a distributed control system,
installation, and training of operators and maintenance personnel. It may
also include addition of new sensors, engineering of new control schemes,
and software to link the system with a plantwide network. A smaller
project may require only the addition of a few measurements, reconfigura-
tion or reprogramming of one unit on an existing DCS, and configuration
of one or two CRT displays.
The American Association of Cost Engineers recognizes 5 types of esti-
mates. Table 5-1 lists their classifications and probable accuracies for each
type. A good discussion of estimate types can be found in Ref. 1. Cost esti-
mates of each category should be at about the same level of detail. This
will usually result in accuracies that differ at most by a factor of two. If one
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48 UNIT 5: Cost Estimation
major cost category can be estimated with only 30% accuracy, it is a waste
of time to estimate another category with 3% accuracy. There is a natural
human tendency, which must be resisted, to do a more complete job on
the items that reflect the discipline in which the estimator was trained.
Example 5-1: A recent proposal for control system modernization
included the replacement of sensors and transmitters and the replacement
of analog controls and displays by a distributed control system that incor-
porated a computer and several PLCs. Application software was esti-
mated at $500,000, based on a cost of $400,000 for a similar job in another
industry plus $100,000 because we have no experience with this type of
PLC. The proposal also included an estimate for installed cost of instru-
mentation of $131,576. This estimate was backed by quotes for each instru-
ment, estimates of installation hours for each trade, and calculation of
length of wire runs. Why bother? The error range of the software estimate
is probably as large as the entire instrumentation estimate.
5-2. Instrumentation
The best basis for estimation of any cost is a quote for the item or a record
of a recent purchase. One, or both, of these is often available for commonly
used instrumentation. If neither can be obtained, surveys give approxi-
mate costs for most instruments. These surveys cover a wide variety of
options for each type of instrument. For instance, one survey table (Ref. 2)
for pressure and differential pressure transmitters specifies price as a
function of size, type (electronic or pneumatic), operating principle (force
balance or motion balance), and construction material (carbon steel or
stainless steel).
If a particular instrument is sufficiently exotic so that it is not covered in
surveys, it is worth going to the trouble of getting a quote from the manu-
Type Probable Accuracy
Order of Magnitude
(ratio estimate)
40%
Study
(factored estimate)
25%
Preliminary
(budget authorization estimate)
12%
Definitive
(project control estimate)
6%
Detailed
(firm estimate)
3%
Table 5-1. Cost Estimate Types
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UNIT 5: Cost Estimation 49
facturer for the specific application. Prices of specialized or custom
devices can be several times those of off-the-shelf items.
5-3. Control System Hardware and Software
The pricing of control system hardware and software will usually require
vendor quotes. If the project is an addition to an existing system, prices of
additional inputs, outputs, control units, or operator consoles should be
readily available from the original supplier. A complete system should be
quoted by multiple vendors, based on a functional specification. The spec-
ification does not have to be enormously detailed. Among the essentials
are input and output lists, operator interface requirements, and scan and
control timing. Interfaces to other systems should also be defined. Reason-
ability of quoted prices can be checked by comparison with projects of
similar size.
5-4. Application Software
Application software is the most difficult item to estimate correctly. It is
rare for instrumentation or control system expenditures to differ from
estimates by more than 25%. Application software overruns of 100% or
more are frequent. Gross errors are especially likely when estimating the
cost of complex, multilevel systems. The most common mistake is in the
estimation of the whole as the sum of the parts. The effort required to
program or configure individual applications is likely to be trivial
compared to fitting them together in a working system. A holistic
approach, taking into account the size and complexity of the project and
the experience of programmers or configurers, is more likely to produce a
reasonable cost estimate.
Complexity is a difficult concept to define. According to Stout (Ref. 3),
Complexity is determined by the number of variables needed to define
the process, the degree of interaction between the variables, the number of
process specifications that must be met, and the number of constraints or
restrictions that must be observed. This is a good definition of control
complexity. Now that many projects involve exchange of information
between systems, the number of independent entities that must communi-
cate with each other should also be considered. Entities that are part of one
system designed for intercommunication (e.g., modules of a distributed
system) are usually easy to handle. Truly independent entities (e.g., a
weighing system from supplier A, a PLC from B, and a PC running an
operator interface program from C) are much more complicated and
expensive to combine into a working system. Time-critical applications,
with information that will be lost or overwritten if it is not transferred
quickly, are particularly difficult.
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50 UNIT 5: Cost Estimation
Reference 4 mentions a pilot plant operation that utilizes separate soft-
ware tools for recipe development, batch process simulation, and process
safety analysis. Each package has its own syntax, semantics, and data stor-
age format. Information sharing among these tools is described as error
prone, requires expertise in the source and destination tools, and is very
time consuming.
5-5. Installation and Commissioning
Installation costs include labor and material. Labor is the dominant com-
ponent, especially for digital systems. Labor and material costs for instru-
ment installation can be estimated roughly as about 50% of
instrumentation costs. This percentage assumes national average wages
and should be scaled up or down depending on the local situation. Instal-
lation costs for a control system will be a much smaller fraction of equip-
ment cost unless a new control room must be constructed.
One factor that can have a large effect on installation costs is the time
available for installation. If all the work must be done during a short turn-
around, one should expect that much of the labor will be at overtime rates
and increase the cost accordingly.
Commissioning includes calibration, system checkout, start-up, and tun-
ing. Calibration costs can be estimated as 2-5% of instrumentation costs.
The other items must be evaluated separately. System checkout costs will
depend on the number of process connections and the number of intercon-
nections between independent entities. Start-up and tuning costs will
depend on control complexity. Self-tuning controllers will reduce but not
eliminate this item.
5-6. Training
Training costs will depend on the familiarity of engineering, maintenance,
and operating personnel with the new equipment. Maximum costs will be
incurred for the first digital system in a plant. Maintenance must then
learn a whole new set of diagnostic and repair procedures. Operators have
an even more difficult task, since they must become comfortable with an
interface that is completely different from the one with which they are
familiar. A change from one system to another of the same type will
require much less training. For small projects that involve the addition of a
few loops and displays to an existing system, no formal training is needed.
Operators can be shown the new features during start-up.
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UNIT 5: Cost Estimation 51
5-7. Operating Costs
All the cost components discussed in Sections 5-2 through 5-6 are one-time
expenditures, part of the first cost of a project. Operating costs, the recur-
ring costs incurred while running a facility, must also be considered. A
control improvement project usually reduces operating costs of the pro-
cess and often reduces operating costs of the control system. If the project
includes replacement of equipment that has reached the end of its useful
life, maintenance savings can be considerable. The installation of smart
equipment with self-calibrating and self-tuning features can also save time
and money.
In some cases, new control equipment will increase maintenance
expenses. On-line analytic equipment (e.g., chromatographs, spectrome-
ters) requires considerable attention, especially in the first year or two
after installation. Sampling systems are often prone to fouling. Recalibra-
tion may have to be frequent. These added costs must be weighed against
the benefits from additional information. One company that manufactures
fuel cells provided a fairly sophisticated unit control system including on-
line analytical instruments. After some field experience, the instruments
were removed from the control loops. The added efficiency they provided
when working properly was not sufficient to justify their maintenance
costs, especially since the units were expected to run unattended.
5-8. Representation as a Cash Flow Table
Costs, as well as benefits, are a series of cash flows over time. First costs
will show up as negative cash flows in the first years of the project. Oper-
ating costs will appear every year after start-up.
Example 5-2: The control of four units will be consolidated in one new
control room, which will cost $50,000. All units will be controlled by a new
$200,000 DCS, which will be purchased at the start of the project. Each unit
will require expenditures of $50,000 for application software, $10,000 for
installation, and $10,000 for commissioning. The project schedule calls for
two units to be put under DCS control in the first year and two more in the
second year. The cash flow diagram for the first costs of this project is
shown in Fig. 5-1. Note that the project starts with the initial expenditure
at year zero. Costs for the control room and for putting two of the units
under DCS control, all of which are incurred in the first year, are shown in
the diagram at year one. The remaining costs for the other two units are
shown at year two.
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52 UNIT 5: Cost Estimation
References
1. Holland, F. A.; Watson, F. A.; and Wilkinson, J. K., 1979. How to
Estimate Capital Costs. Modern Cost Engineering: Methods and
Data, pp. 67-77. New York: Chemical Engineering McGraw-Hill.
2. Liptak, B. G., 1979. Costs of Process Instruments. Modern Cost
Engineering: Methods and Data, p. 349. New York: Chemical
Engineering McGraw-Hill.
3. Stout, T. M., 1978. Justifying Computer Control. Minicomputers
in Industrial Control (T. J. Harrison, ed.), p. 207. Pittsburgh, PA:
ISA.
4. Zhao, C. et al, 2006. Information Central. InTech 53, 3, pp. 16-21.
Exercises
5-1. A company has a requirement that project proposals must include costs
estimated with an expected error of no more than 20%. If control system
and instrumentation costs are 60% of total cost and can be estimated with
an expected error of 15%, how closely must the remaining costs be
estimated?
5-2. Combustion control of two boilers is to be upgraded by:
replacing oxygen analyzers and sampling systems with in-situ probes,
Fig. 5-1. Cash Flow Diagram for First Costs of Control Consolidation
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UNIT 5: Cost Estimation 53
adding carbon monoxide measurements, and
revising the control strategy.
Each boiler is presently controlled by one module on a DCS. Operator
interface is via a DCS console. Which cost components are likely to be
significant for this project? Assume that present instrumentation and
control are the same as other plant boilers.
5-3. Your firm has just acquired a plant that is controlled by a legacy DCS. The
DCS is no longer supported by its manufacturer. You have been given the
task of replacing the DCS with a type of control system similar to that used
in your other plants. Can the existing code for the present DCS be reused or
translated to save application programming effort?
5-4. You are a systems integrator. A client for whom you have installed
supervisory software packages at various sites asks you to install some of
them on a unit at one of his plants. These include packages for model
predictive control, batch startup, and process simulation. He estimates the
cost by adding together the prices you charged to install each of the
packages individually, then adding 10% to tie them together. Is this a fair
estimate?
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