Recommended Practice

Total Cost

Management®

Framework:

Total Cost

Management is a

systematic approach

to managing cost

throughout the life

cycle of any enterprise, program, facility, project, product or service.

AACE’s flagship publication, the TCM Framework: An Integrated

Approach to Portfolio, Program and Project Management, is a

structured, annotated process map that for the first time explains each

practice area of the cost engineering field in the context of its

relationship to the other practice areas including allied professions. 

Visual TCM

Framework: 

Visual TCM graphically

demonstrates the

integration of the

strategic asset

management and

project controls

process maps of the TCM Framework. The Visual TCM application has

been designed to provide a dynamic view of the TCM processes, from

the overall strategy process maps to the mid-level processes and

detailed activities. The processes are hyperlinked, giving the user the

ability to move to and from related process maps and reference

Recommended Practice

This Recommended Practice (RP) is brought to you as

public service by AACE International, the Authority for

Total Cost Management.

The AACE International Recommended Practices are

the main technical foundation of our educational and

certification products and services. The RPs are a series

of documents that contain valuable reference

information that has been subject to a rigorous review

process and recommended for use by the AACE

International Technical Board.

AACE International is a 501(c)(3) non-profit

professional association serving the total cost

management community since 1956. AACE

International provides its members and stakeholders

with the resources they need to enhance their

performance and ensure continued growth and

success. With over 8,500 members world-wide, AACE

International serves total cost management

professionals in a variety of disciplines and across all

industries. AACE International has members in 87

countries. If you share our mission to “enable

organizations around the world to achieve their

investment expectations by managing and controlling

projects, programs, and portfolios and create value by

advancing technical knowledge and professional

development”, then we invite you to become one of

our members. 

In addition to this and other Recommended Practices,

here are just a sample of the products and services that

AACE has to offer you:
management. Comprehensive, well organized, and timely, each PPG is a

collection of selected articles covering a particular technical topic area

or industry segment. The PPGs provide an excellent source of reference

material and is a welcome addition to any reference library.

Certification: 

Since 1976, AACE has

been certifying

individuals as Certified

Cost Consultants

(CCC)/Certified Cost

Engineers (CCE);

Certified Cost

Technicians (CCT);

Certified Estimating Professionals (CEP); Certified Forensic Claims

Consultants (CFCC); Earned Value Professionals (EVP); and Planning &

Scheduling Professionals (PSP). In the midst of staggering business and

economic turmoil, you need all the tools at your disposal to help shore

up your career prospects. AACE certification can help you and the

organizations that rely on you for help!

Online Learning

Center:

The Online Learning

Center features

modules based upon

actual technical

presentations captured

material. This allows for the optimal effectiveness of understanding and

using the process and sub-process in the context of and relationship to

associated sub-processes that share common strategies and objectives.

Visual TCM allows the user to view and apply TCM section-by-section,

at a sub-process or functional level. Visual TCM is available to members

at no extra fee.

Virtual Library: 

Members receive free

access to the Virtual

Library, an online

collection of over 5000

complete technical

articles on virtually

every aspect of cost

engineering. Search

this extensive database and immediately retrieve the best techniques

and potential solutions to the problems confronting you and your

organization.

Professional

Practice Guides

(PPGs):

Professional Practice

Guides contain the

most worthwhile

contributions to the

field of total cost

Recommended Practice Recommended Practice
Discussion 

Forums:

The discussion forums

encourage the

exchange of thoughts

and ideas, through

posting questions and

discussing topics. They

provide a great means for networking and interaction with your peers.

Participate anytime at your convenience and receive automatic e-mail

notifications on topics that are of interest to you. With several thousand

users, if you have questions or concerns about a technical subject,

program, or project - the forums are a great resource for you.

Mentoring 

Program: 

Looking to gain more

knowledge from an

experienced

professional or an

opportunity to help

another professional?

Included with your membership, AACE offers a comprehensive

mentoring program for individuals interested in sharing knowledge with

others or advancing their own careers to the next level. 

Recommended Practice

at our Annual Meetings. Each recorded unit includes a live audio

recording of the speaker synchronized to the slides accompanying the

presentation. Each unit includes the technical paper associated with the

presentation, and a downloadable audio-only version that you may play

on your mobile device or iPod. Completion of each unit earns 0.1 AACE

recertification credits (i.e. 0.1 CEUs). An electronic certificate of

completion will be attached to your profile.

Conferences:

AACE International’s

Annual Meeting brings

together the industry’s

leading cost

professionals in a

forum focused on

learning, sharing, and

networking. Over 100

hours of technical presentations and an industry tradeshow that will

challenge you to better manage, plan, schedule, and implement

technology for more effective and efficient business practices.

The International TCM Conference is a similar event that is held outside

of North America – complete with technical presentations, seminars

and exhibits.

Recommended Practice
Periodicals

Members receive a

complimentary

subscription to the

Cost Engineering

journal, AACE’s

bi-monthly

professionally

peer-reviewed publication. It contains best-in-class technical articles on

total cost management related subjects. 

It is published as both a print version and an online version. 

Our bi-monthly digital publication, Source, focuses on AACE activities

and items of interest to the total cost management community, with

special features for our members.

Recommended Practice

Career Center: 

AACE’s career center

provides tools and

resources for you to

progress through your

career.

Looking for the next

rung on the career ladder or to hire the talent necessary to take your

firm to the next level? Job seekers, use our services to find your next

job – post your resume, get e-mail notifications of new job-postings,

and more. Employers, post your current job-openings and search our

extensive resume database to find your next star employee.

Salary and

Demographic

Survey:

Conducted annually,

salary survey is a great

resource for

employers that want

to gain a better

understanding of the competitive marketplace for talent and for

employees interested in knowing how their compensation compares

with their peers in the profession. 

Recommended Practice
Copyright 2003 AACE, Inc. AACE International Recommended Practices

AACE International Recommended Practice No. 16R-90 

CONDUCTING TECHNICAL AND ECONOMIC EVALUATIONS – 

AS APPLIED FOR THE PROCESS AND UTILITY INDUSTRIES 

TCM Framework: 3.2 – Asset Planning, 3.3 – Investment Decision Making

This recommended practice is the culmination of several years of effort by a special AACE ad hoc 

committee. The document has been reviewed by all concerned technical committees in AACE and was 

formally accepted by the AACE Board of Directors as a recommended practice in September 1990. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

AACE International Recommended Practice No. 16R-90 

CONDUCTING TECHNICAL AND ECONOMIC EVALUATIONS 

– AS APPLIED FOR THE PROCESS AND UTILITY 

INDUSTRIES 

TCM Framework: 3.2 – Asset Planning, 3.3 – Asset Performance Assessment 

April 1991

1. INTRODUCTION(*)

The American Association of Cost Engineers (AACE) has had a long-standing interest in developing 

standards and recommended practices. The Recommended Practice described herein is for executing 

techno-economic evaluations of process oriented engineering projects. Most, if not all, cost engineers 

are involved in process-oriented techno-economic studies in the course of their work. Some concentrate 

in estimating only plant investment; others are involved in specific areas of cost estimating or only in 

financial analysis; still others, in overall economics. Adherence to a consistent set of process evaluation 

guidelines would improve the quality of these studies and would lower the cost to prepare them (improve 

productivity). 

There are several ways of conducting technical and economic evaluations in the process industries and 

within these ways there are many variations. This recommended practice was developed to reduce the 

variations to a manageable level. 

2. CRITERIA 

The AACE Recommended Practices and Standards (RPS) Committee and other standards-making 

organizations have stated that standards should, at the minimum, meet the dual criteria of verifiability and 

comparability. 

*The Practice was developed by an AACE ad hoc committee set up for this purpose. Members of this ad 

hoc committee were as follows: 

 Fred R. Douglas, Chairman (Texaco, Inc.) 

 Daryl Brown (Battelle Pacific Northwest Laboratories) 

 Raymond A. Cobb (Northeast Utilities) 

 Thomas J. George (Morgantown Energy Technology Center) 

 John W. Hackney (Mobil Oil, deceased) 

 Kenneth K. Humphreys (AACE Executive Director) 

 Paul Wellman (Ashland Oil retired) 

Other contributors are: 

 Morgantown Energy Technology Center, METC Fuels Cell Branch, which originally spearheaded this 

 effort. 

 Electric Power Research Institute (EPRI) 

 American National Standards Institute (ANSI), who provided information necessary to achieve 

 consensus and who established that there was a genuine technical community interest in the 

 Practice. 

The Recommended Practice described herein was developed to meet these criteria in the following 

manner: 

• Verifiability - The technical and economic evaluation should be conducted and reported such that all 

aspects of the study may be independently verified with reasonable effort. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

2 of 62

• Comparability - The evaluation should be conducted and reported in ways that assure that changes 

in assumptions are readily and consistently evaluated. Also maximized is the ease of comparing 

any or all aspects of the subject study with any other study conducted under the aegis of the 

recommended practice. 

In addition to the goals of verifiability and comparability, the Practice should facilitate evaluations that are 

accurate and correct. Thus another criteria for this Practice is: 

• Accuracy - The evaluation should be conducted in a manner that yields technically and 

economically correct results within the levels of uncertainty corresponding to the level of detail 

required. 

This recommended practice is not intended to replace existing procedures but rather to provide guidelines 

such that the above criteria may be met. Different industries (and different companies within these 

industries) conduct technical and economic studies in different ways. This recommended practice is 

largely oriented to the chemical process industries although most of the methods outlined may be 

adapted to other industries. 

This recommended practice was largely written for budget-type estimates defined by AACE as having a 

+30% to -15% accuracy. It is primarily intended for those companies seeking preliminary quotations from 

contractors such that all are on the same basis and may be readily compared. Others could find the 

practice useful to conduct their own preliminary evaluations in a consistent manner. Still others could find 

the practice useful within their own company and for publishing or other external purposes (such as for 

sales discussions). 

AACE feels that the collaboration of individuals on this project who represent the private sector, 

government and not-for-profit institutions have made an impressive contribution to the development of 

this Practice. 

3. SCOPE 

3.1 This practice establishes a consistent procedure for conducting budget-type technical and 

economic evaluations for use by the process industries such that ease of comparability and 

verification are of paramount importance. 

3.2 Mass and energy balances, composition and properties of all streams, equipment 

specifications, and performance criteria are all developed and reported according to a 

recommended format. 

3.3 Direct costs of plant sections are developed and reported according to recommended 

procedures and formats. 

3.4 Other costs, such as foundations, structures, insulation, instruments, etc. are established 

by recommended factors for each type of process or type of equipment. 

3.5 Field indirects, engineering, overhead and administrative costs are determined by factors 

herein recommended. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

3 of 62

3.6 Operating costs are developed based on estimates of raw material, utility and operating 

labor requirements. Other elements of operating costs such as maintenance and overhead 

are based on factors recommended herein. 

3.7 A financial analysis is conducted based upon prescribed procedures. 

3.8 A sensitivity study may be conducted to determine the effects of changes in key variables 

and assumptions. 

3.9 A recommended reporting format is provided to be sure that all information required for 

verifiability and comparability is included. Also included are listings of deviations from this 

established practice. 

4. APPLICABLE DOCUMENTS AND REFERENCES 

4.1 AACE, Cost Engineers' Notebook.

4.2 AACE Metropolitan New York Section, AACE Transactions, "The Module Estimating 

Technique as an Aid in Developing Plant Capital Costs," 1962. 

4.3 Brown, D. R. et al, An Assessment Methodology for Thermal Energy Storage 

Evaluation, Prepared for U.S. Department of Energy by Battelle Memorial Institute, Pacific 

Northwest Laboratory, November, 1987. 

4.4 Electric Power Research Institute (EPRI), TAGtm - Technical Assessment Guide, Vol. 1, 

Electricity Supply - 1989; Vol. 2, Electricity End-Use - Part 1, 1987, Parts 2 & 3, 1988; Vol. 

3, Fundamentals and Methods, Supply - 1987; Vol. 4, Fundamentals and End-Use - 1987, 

EPRI P-4463-SR, Palo Alto, CA. 

4.5 Guthrie, K. M., Process Plant Estimating Evaluation and Control, Craftsman Book 

Company of America, Solana Beach, CA, 1974. 

4.6 Humphreys, K. K. and P. Wellman, Basic Cost Engineering, 2nd ed., Marcel Dekker, Inc., 

New York, 1987. 

4.7 Peters, M. S. and K. D. Timmerhaus, Plant Design and Economics for Chemical 

Engineers, 3rd ed, McGraw-Hill Book Co., New York 1980. 

4.8 Weinheimer, W. R., Cost Engineers' Notebook, "Percent Your Indirect Field Costs," 

Revision 1 dated November 1984 

4.9 Wessell, H. E., "New Graph Correlates Operating Labor Data for Chemical Processes," 

Chemical Engineering, July 1952, p. 209. 

5. DEFINITIONS 

5.1 For the purpose of this document the following terms are defined, (Other terms used are 

defined in AACE Recommended Practice No. 10S-90, "Cost Engineering Terminology”). 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

4 of 62

5.1.1 ADR (Asset Depreciation Range) Class Life. Approximate ranges of useful equipment life 

established by the Internal Revenue Service for tax purposes. 

5.1.2 Depreciable Life. The legal capital cost recovery period established by the Modified 

Accelerated Cost Recovery System (MACRS). MACRS and its predecessor technique 

ACRS, Accelerated Cost Recovery System, are depreciation techniques mandated by U.S. 

tax law. 

5.1.3 Measure of Merit. An economic measurement (e.g., present value, interest rate of return) 

used to determine the economic viability of a project. Syn. Figure of Merit 

5.1.4 Inflation. A rise in the general price level, usually expressed as a percentage rate. 

"Inflation" is usually used to describe the general change in prices for all goods and 

services. "Escalation" usually refers to specific items. 

5.1.5 Internal Rate of Return. The compound rate of interest that, when used to discount study 

period costs and benefits of a project, will make the two equal, i.e., the discount rate that 

results in a net present value of zero. 

5.1.6 Levelized (Annualized) Production Cost. A unit cost equal to the annualized cost of 

production divided by the annual production rate. The annualized cost, recurring every 

year for the life of a project, has a present value equivalent to the present value of all 

project costs. When the discount rate used is the after-tax weighted cost of capital, the 

levelized production cost is similar to the revenue requirements used by the utility 

companies, and the cost of capital is considered part of the cost of production. 

5.1.7 Net Present Value. The sum of all project cash flows, both negative and positive, 

discounted to the present time. 

5.1.8 Nominal (Current) Dollars. Dollars of purchasing power in which actual prices are stated, 

including inflation or deflation. In the absence of inflation or deflation, current dollars equal 

constant dollars. 

5.1.9 Overnight Cost. A measurement of capital investment that excludes any interest expense 

or escalation of costs that may occur during the construction period, as if the project had 

literally been built overnight. 

5.1.10 Payoff Period, Discounted. The length of time required for the cumulative present value of 

after-tax cash flows of a project to become positive. 

5.1.11 Price Year. The reference year for a cost estimate or cash flow. For example, a capital 

cost estimate might be based on 1990 dollars or some other year's dollars. 

5.1.12 Profitability Ratio. The net present value of a project divided by the present value of the 

initial capital investment. 

5.1.13 Real (Constant) Dollars. Dollars of uniform purchasing power exclusive of general inflation 

or deflation. Constant dollars are tied to a reference year. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

5 of 62

6. SUMMARY OF RECOMMENDED PRACTICE 

The following sections are organized as follows: 

• Significance, use and limitations of this Recommended Practice 

• General description of the step-by-step procedures in using the Practice 

• Objectives, alternatives, constraints and assumptions 

• Data and other requirements 

• Detailed description of computations necessary to conduct the step-by-step procedures 

• Summary of applications and limitations of methods 

• Summary of report procedure 

• Appendices containing tables and charts to be used in the procedures 

7. SIGNIFICANCE, USE AND LIMITATIONS 

7.1 The significance of this Recommended Practice is that it provides a comprehensive yet 

consistent procedure for taking into account all the technical information needed to develop 

a budget-type estimate as well as all the relevant costs necessary to evaluate the economic 

performance of a process being evaluated. 

7.2 The method is intended to compare readily and in a consistent manner the economics of 

competing processes as well as the economic viability of individual processes. The 

consistency of the method, providing verifiability and comparability, makes it particularly 

useful for publishing results or for other external purposes such as for sales discussions. 

The method may also be used in analyzing possible cost reductions in existing plants, for 

incremental studies, to design and cost individual components of projects or for optimizing 

purposes. In short, the method has applications wherever conceptual, preliminary or 

budget-type techno-economic studies are required. The method is not intended for 

definitive-type estimates, although some parts of the practice may be adapted for this use 

(particularly the financial analysis model). 

7.3 The practice is not intended to replace existing design and cost procedures but rather to 

provide guidelines such that the criteria of verifiability and comparability in the transmission 

of results to others may be readily met. The words, "This study was performed using the 

AACE Recommended Practice" should provide instant information as to exactly what was 

done and exactly how it was done. 

8. PROCEDURES (See Section 12 for detailed description) 

8.1 Identify Objectives, Alternatives and Assumptions Necessary to Conduct the Study. The 

first step in the procedure is to establish the specific objectives of the study, identify 

alternative ways of accomplishing these objectives and bring out any constraints that limit 

the resultant analysis. 

8.2 Develop the Design. A process plant size is first established based on market 

considerations. Flow sheets showing the major equipment required with detailed material 

and energy balances around each equipment item are developed. Standard engineering 

practice as outlined in such texts as Peters & Timmerhaus (ref. 4.7) are followed using a 

common set of recommended design premises. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

6 of 62

8.3 Develop Equipment Specifications. Major equipment components are sized according to 

the requirements of the process flow sheet and material and energy balances. Major 

equipment items are specified sufficiently to conduct budget-type costing. For example, in 

a budget-type estimate for a heat exchanger, only the surface area, required type of 

exchanger and materials of construction are needed to develop the cost. Such details as 

the tube pitch and length of tubes are helpful but are not necessary for a budget estimate of 

the cost. 

8.4 Establish Total Capital Requirement. Plant costs are built up by first establishing the cost 

of each equipment item delivered to the plant site. Material and labor costs to set and 

install equipment are next estimated using recommended factors. Total plant costs are 

established by adding field indirects, engineering costs, overhead and administration based 

on recommended factors. Finally, total capital requirement is established by adding in such 

costs as pre-production or start-up costs, inventory capital, initial chemicals and catalyst 

charges and land. 

8.5 Estimate Plant Operating Cost. Operating labor, utility and chemical requirements are first 

estimated from the design data and from these total operating costs are established by 

means of recommended factors. 

8.6 Conduct Financial Analysis. Detailed cash flows (year-by-year) are first established based 

on recommended procedures. One or more of a set of measures-of-merit techniques are 

selected generally involving discounted cash flow in order to determine economic viability. 

8.7 Conduct Sensitivity Study. A set of key variables and assumptions are selected and the 

effects of changes in these on the previous results are determined. 

8.8 Prepare Report. All the findings and the basis for them are documented by a set of 

recommended tables. Discussions of the results are included in the report. All deviations 

from the recommended practice are documented and reasons for the changes from those 

recommended are discussed. 

 The above steps are described in more detail in Section 12. 

9. OBJECTIVES, ALTERNATIVES AND CONSTRAINTS OF THE RECOMMENDED PRACTICE 

The objective of this Technical and Economic Practice is to provide a consistent and reliable guide to 

performing budget-type estimates such that communication of results to others is readily achieved with 

clear and unequivocal understanding of what was and what was not included in the study. The criteria of 

verifiability and comparability are the goals to be met. 

The method is primarily aimed at generating budget-type estimates as defined by AACE having accuracy 

limits of +30% to -15%. The method is also adaptable to order-of-magnitude estimates. The method is 

aimed at the process industries and those doing business with them, but here again, other industries may 

find it useful. 

The method does not detail rigid engineering design techniques. These are more than adequately 

covered in plant design texts and other sources. Major equipment components are only specified 

sufficiently to conduct budget-type estimates. Certain factors (or ranges of factors) in the costing 

procedure are specified for the purpose of consistency. Recommended procedures for year-by-year cash 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

7 of 62

flows and financial analyses are provided. Here again, deviations are allowed as long as they are 

specified. 

Finally, individual sections of the practice, such as the operating cost routine or the financial analysis 

procedure, may be followed as long as it is made clear as to what is being done. 

10. ASSUMPTIONS AND DEVIATIONS FROM RECOMMENDED PRACTICE 

The primary assumption in using the recommended practice is that the process has been developed 

enough so that sufficient detail is available to conduct the study for a budget-type estimate that will result 

in an accuracy range of +30% to -15%. Reliable data for developing mass and energy balances around 

major equipment items should be available. A sensitivity study, described below, is to be conducted on 

those items for which insufficient data (including costs) are available or for which questionable 

assumptions are made. The reliability of the data, as well as other factors, may necessitate deviating 

from the recommended practice. Deviations from the recommended practice must be well documented in 

the report. 

11. DATA REQUIREMENTS 

Some of the data needed in the specific calculations have been discussed and will also be covered in the 

following sections. Briefly, these are summarized as follows: 

11.1 Plant Design. Material balance, energy balance, stream compositions and quality, flow 

sheets showing plant configuration. 

11.2 Equipment Specifications. Design of individual equipment to the extent necessary for 

costing; materials of construction required; number of equipment items necessary; sparing 

philosophy used; utility requirements; etc. 

11.3 Total Capital Requirements. Factors to be applied if not using recommended ones; cost 

curves and data (including utility investment costs); construction labor rates. 

11.4 Operating Costs. Factors required if not using recommended ones; operating labor 

requirements; annual utility and chemical requirements; raw material and byproduct unit 

costs and quantity requirements. 

11.5 Financial Analysis. Factors required if not using recommended practice factors; timing of 

cash flows; cost of capital; discount factors; inflation rates for operating labor; investment 

capital; power rates, chemical and catalyst rates. 

12. COMPUTATION PROCEDURES 

12.1 Identify the Objectives, Alternatives and Assumptions. It is first necessary to establish the specific 

objectives for the technical economic study. For example, two or more design changes may be 

evaluated to determine which has the best economic potential in the overall scheme. Thus, a 

contractor could optimize the design to produce the desired end result and thus be competitive with 

other contractors when opening discussions with a client. The client might be evaluating two or 

more processes from different contractors to determine which, if any, are worthy of further 

consideration. If all the studies are done in a consistent manner as outlined in this practice, then 

comparisons are possible. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

8 of 62

 It is also necessary to establish basic assumptions in applying the practice to the objective desired. 

The comprehensiveness of the study will depend on the degree of complexity of the problem, the 

intended purpose of the evaluation, the cost and resources available to perform the evaluation, and 

the impact, both monetary and non-monetary, contingent on the investment decision. Each of 

these may require different assumptions and different detail within the budget-type estimate. 

 Assumptions made with respect to engineering design and bare equipment costs should be 

carefully considered. An error in establishing bare equipment costs can be magnified three to five 

times by the time the final results are estimated. 

 Deviations from the recommended practice should be carefully documented and explained. Keep 

in mind that one of the main objectives of the practice is one of communicating to others exactly 

what is and what is not included in the study so that verification and comparability of results are 

readily obtained. 

12.2 Develop the Design. This section includes a description of the necessary information to define 

properly the process under consideration. This section also defines the recommended design 

premises to be used in the study. 

12.2.1 Process Definition -- Budget estimates require a detailed process flow diagram and stream 

summaries incorporating the following data: 

 a. Raw material feed rates and composition of all streams. 

 b. Temperature and pressure of all streams. 

 c. Residence or reaction time for all reactors. 

 d. All streams should be shown, including intermediate, recycle and main. 

 Mass and energy balances should be conducted according to normally acceptable 

engineering practices and using the design premises outlined below. It is not necessary to 

document the complete design unit but basic performance design criteria on which 

conclusions rest should be documented. In most cases, all that would be necessary are the 

flow diagrams outlined above, the equipment list (described below) and deviations from the 

design premises (described below). 

 Before developing the process flow diagrams, a plant size should be established based on 

marketing conditions, expected share of market, economies of scale and other factors. In 

comparing alternatives, plant size (output) should be kept constant except in those cases 

where plant size is being evaluated in a sensitivity study. 

12.2.2 Define Plant Sections and Sub-sections -- As the process is being developed, care should 

be taken to establish logical plant section names and the groups of equipment to be 

contained within those sections. Even within the same organization, slight variations in 

practice can complicate future study-to-study comparisons (e.g., does heat exchange 

equipment go in its own section, in the section that produces the waste heat, or in the 

section that benefits from the heat exchanger product?). If executed with care, plant section 

definition will aid the ease of comparing studies, as for example, the situation when the 

studies are executed by different entities for a single sponsor. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

9 of 62

12.3 Develop Equipment Specifications. Major equipment items are sized according to the requirements 

of the process flow-sheets and material and energy balances. The items are specified sufficiently 

to conduct budget-type costing. Major equipment items in a process plant include heat exchangers, 

columns, reactors and other vessels, pumps, compressors, process furnaces, direct-fired heaters, 

miscellaneous equipment, specialized equipment, etc. A list of all major equipment items with 

design parameters specified should be included as part of the report. Examples of the degree of 

documentation that should be included are shown in Table 1. Appendix A provides a listing of 

optimum design and costing specifications for many types of equipment. 

Table 1. Example of a Detailed Equipment List Showing Parameters Necessary for Cost Estimation

Amine contactor (4 required) 

Size: Top, 9' ID X 29'6" high; bottom, 

12' ID X 35'6" high 

Operating pressure: 200 psig 

Operating temperature: 150°F 

Amine regenerator (2 required) 

Size: 19' ID X 84' high 

Operating pressure: 50 psig 

Operating temperature: 260°F 

Caustic precontactor (2 req'd) 

Size: 2' ID X 24' high 

Operating pressure: 180 psig 

Operating temperature: 120°F 

Caustic contactor (2 required) 

Size: 4'6" ID X 61' high 

Operating pressure: 180 psig 

Operating temperature: 120°F 

Amine knockout drum (2 required) 

Size: 12' ID X 16'6" high 

Operating pressure: 180 psig 

Operating temperature: 120°F 

Amine flash drum (2 required) 

Size: 10' ID X 30' high 

Operating pressure: 60 psig 

Operating temperature: 150°F 

Regenerator reflux drum (2 req) 

Size: 9' ID X 11' high 

Operating pressure: 50 psig 

Operating temperature: 100°F 

Amine sump (2 required) 

Size: 8' ID X 8' high 

Operating pressure: atmospheric 

Operating temperature: 160°F 

Sand filters (4 required) 

 Size: 9' ID X 15' high 

Operating pressure: 50 psig 

Operating temperature: 185°F 

Carbon filters (4 required) 

Size: 9' ID X 15' high 

Operating pressure: 50 psig 

Operating temperature: 185°F 

Lean amine pumps (3 required, 

including 1 spare) 

Type: centrifugal 

Capacity: 1,475 gpm 

Drive: motor 

Hp: 325 

Amine filter pump (2 required) 

Type: centrifugal 

Capacity: 620 gpm 

Drive: motor 

Hp: 25 

Semi-lean amine pump (5 

required, including 1 spare) 

Type: centrifugal 

Capacity: 2.640 gpm 

Drive: motor 

Hp: 900

12.3.1 Design Philosophy and Equipment Sparing -- Conventional commercially available 

equipment should be selected wherever possible. Deviations and special design 

equipment should be documented. 

 Sparing should be done to provide 90% availability exclusive of planned maintenance 

unless prior experience or system engineering studies have indicated that another level of 

sparing is appropriate for the process being studied. 

12.4 Establish Total Capital Requirement

12.4.1 Introduction -- Total Capital Requirements are built up by first establishing the cost of 

purchased delivered equipment items and then applying factors for: handling and setting; 

commodity material and labor costs; field indirects; engineering; overhead and 

administration; contingencies. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

10 of 62

 Finally, factors for start-up costs, working capital, prepaid royalties, initial catalyst and 

chemical charges, and land are applied to give the total capital requirement. The 

components are summarized in Table B-1 in Appendix B. Details are provided in the 

following sections. 

12.4.2 Purchased Equipment Costs -- Once the major equipment list has been specified, the bare 

delivered equipment cost is next developed (see Table 1 for examples). These "bare" 

equipment costs comprise 18% to 35% of the total costs of the typical processing plant and 

an error in estimating these costs could be magnified three to five times in the final 

estimate. Thus, the design and costing of this equipment requires a great deal of care. 

 A piece of equipment is required to receive, hold, pump, compress, and release material. 

Some equipment can be identified as "off-the-shelf items." These are manufactured in 

large quantities and are readily available since the demand for such items is high. Included 

in this category are pumps, compressors, heat exchangers, and crushing and grinding 

equipment. Other items are especially designed specifically for a particular application, as 

in the case of a new or developing process, and thus must be manufactured or fabricated 

as needed. 

 The cost of equipment can be obtained from the following: 

 1. Firm bids and quotations 

 2. Previous project equipment costs 

 3. Published equipment cost data 

 4. Preliminary vendor quotations 

 5. Scaleup of data for similar equipment of other capacities. 

 Table B-2 (in Appendix B) shows how the purchased equipment costs should be 

summarized. Also shown in this table is the utility summary for each piece of equipment 

necessary for developing capital costs and operating costs, as well as the chemical costs 

summary for each piece of equipment necessary for developing operating costs. 

12.4.3 Direct Costs -- Direct capital costs are defined as shown by the following: 

Component: Material: Labor: 

Delivered equipment costs a 

Labor for handling and placing bare equipment b 

Installation material c 

Associated Installation labor d 

Total Direct Material a+c 

Total Direct Labor b+d 

Total Direct Capital a+b+c+d 

Handling and placing equipment costs are those costs associated with unloading, uncrating 

and physically placing the equipment at its final resting place, mechanical connection 

alignment, storage, inspection, etc. These costs (b) can be estimated by using factors 

given in terms of labor cost as a percentage of delivered equipment cost or by labor hours 

for each type of major equipment multiplied by dollars per hour labor cost of placing 

equipment. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

11 of 62

 The installation material and labor components consist of the following nine bulk items: 

Foundations, structures, buildings, piping, instrumentation, insulation, electrical, painting, 

and miscellaneous. The bulk material costs for each installation item (c) are established by 

factors applied to total delivered cost of major equipment (pumps, heat exchangers, etc.). 

Associated labor costs (d) are established by factors applied to each material category. 

 The system is one in which all items involved in installing equipment and placing it into 

operable condition are factored. These factors are called "distributive percentage factors." 

Table B-3 lists such factors for six specific types of installations and for four different 

generic plant types: (1) solids, (2) solids-gas, (3) gas processes, (4) liquid and liquid-solids. 

Temperature and pressure are also taken into account. The break point for temperature is 

400 and for pressure it is 150 psig. All major items required for the complete installation 

are considered. The delivered equipment cost is used as the base for the calculations 

involved. The percentage factor is applied to establish the installation material cost (c). 

Then the installation material cost is used as a base for determining the labor cost involved 

(d). 

 As an example, a gas-to-gas heat exchanger has a delivered price of $10,000 and is 

designated to operate at 800F and at a pressure of 125 psi. Table 2 illustrates the use of 

these factors for putting in the heat exchanger in an operable mode. 

 To install any type of equipment, provision must be made for the items included in Table B3. However, the labor cost of physically handling and placing the unit (b) must also be 

determined. Table B-4 lists the labor factors involved in handling and placing various types 

of equipment. These factors were developed from a series of detailed estimates and 

represent average values. (In the absence of other data, an average value of 20 percent of 

delivered equipment cost may be used as an approximation for estimating bare equipment 

installation labor. It should be noted, however, that this factor can vary over a range of 15 

to 35 percent or more.) 

Table 2 -- Typical Costs for Placing Heat Exchanger in Operable Mode (Bare Equipment 

Cost=$10,000)

 

 Material Labor

Foundations $ 600 $ 800 

Structures 500 250

Buildings 300 300

Insulation 200 300

Instruments 700 525

Electrical 600 240

Piping 4,000 2,000

Painting 50 150

Miscellaneous 400 320

Total $7,350 $4,885 

The total cost of installing a piece of equipment, using this estimating technique, then 

equals the bare equipment cost plus the handling and placing labor cost plus the materials 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

12 of 62

and labor costs as determined using the distributive percentage factors. Thus in the heat 

exchanger example (Table 2) the total installed cost equals $10,000 (bare cost) + $10,000 

x 0.20 (handling and placing labor cost) + $7,350 (materials cost) + $4,885 (labor cost) or a 

total of $24,235. 

 

 Table B-3 is intended to set some guidelines for determination of both materials and field 

labor associated with bulk accounts. The material-labor split is important if any attempt is 

made to estimate field labor requirements. Using the first numerical column as an 

example, the 4 indicates 4% of the "bare equipment" cost as the factor for foundation 

material (concrete, rebar), etc. The 133 indicates that 133% of the above 4% should be 

used as the labor to install the foundations or a total percentage of 9.32% of the "bare 

equipment" costs for foundations. As is indicated at the top of the column, this is for a 

solids handling system. This represents only one method of estimating labor; for example, 

work-hours per yard of concrete times an appropriate labor rate could well be used for the 

labor component. Sometimes the factors used include both the materials and labor; 

however, treating materials and labor separately allows the estimator to make an additional 

check on the reasonableness of the estimate. The credibility of studies that do not 

document costs to at least the level of detail shown in Table 3 will always be in question. 

 Other important cost considerations in a factored estimate are the work-hours allowed for 

setting the "bare equipment," the field indirects, engineering, overhead and administration, 

a contingency, and a contractor's fee. Each of these will be discussed separately. 

 Work-hours to set equipment are always derived from historical data and/or from the 

experience of the engineers and estimators on the project. Engineering and construction 

firms maintain work-hour tables for setting different types of equipment according to weight, 

horsepower (rotating equipment), and so on. Percentage factors such as those given in 

Table B-4 may also be used, but vary widely from 5% to 35% of the "bare equipment" cost 

depending on the difficulty of the work. Although in the overall estimate this allowance is 

rarely an overriding consideration, these costs should not be omitted. 

 Table 4 provides a summary direct capital cost estimating procedure. Table 3 gives an 

example of the use of the procedures. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

13 of 62

Table 3. Typical Direct Capital Cost Summary

DATE: 08/06/84 Equipment and Installation 

BY: P. Wellman TITLE: ABC Alcohol Company 

REPORT: Ethanol UNIT: Fermentation 

ITEM Quantity Material, 

dollars 

Labor, 

dollars 

Total cost, 

dollars 

Fermenter 8 904,800 90,500 

Fermenter agitator 8 112,000 11,200 

Fermenter cooler 4 519,200 51,900 

Fermenter circ. pump 8 170,400 25,600 

Fermenter cleaner 8 16,000 1,600 

Beer well 1 195,800 19,600 

Beer well agitator 2 28,000 2,800 

Beer well cleaner 1 3,000 300 

Sterilant scale 1 1,400 100 

Sterilant pump 1 1,100 200 

Sterilant tank 1 14,500 1,500 

Sterilization pump 1 18,500 2,800 

Sterilant tank agitator 1 1,300 100 

Distillation feed pump 2 44,000 6,700 

CO2 Offgas scrubber 1 55,400 5,500 

Scrubber pump 1 3,200 500 

Scrubber blower 1 30,000 4,500 

Scrubber chiller 1 30,000 3,000 

 2,148,600 228,400 2,377,00 

Foundations 96,700 128,600 

Structures 85,900 43,000 

Buildings 85,900 85,900 

Insulation 21,500 32,300 

Instrumentation 107,400 43,000 

Electrical 128,900 96,700 

Piping 537,200 134,300 

Painting 7,500 25,800 

Miscellaneous 85,900 68,700 

 1,158,000 658,300 1,816,300

Total Direct 3,306,600 886,700 4,193,300 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

14 of 62

Table 4. Direct Capital Cost Summary

Cost 

Item 

(dollars) 

Quantity 

Cost 

Material 

(dollars) 

Labor 

 

Total 

1. ............... (Delivered See labor 

2. ..(Individual.. equipment factors 

3. ...equipment... cost) for bare 

4. ....items)..... equipment 

5. ............... 

 ............... 

 ............... 

 ............... ________ ________ _________ 

Subtotals......... .......... Line 1-A Line 1-B Line 1 

Foundations....... .......... 

Structures........ .......... 

Buildings......... .......... Base on Base on 

Insulation........ .......... line 1-A individual 

Instrumental...... .......... (see Table material 

Electrical........ .......... B-3) items 

Piping............ .......... (see Table 

Painting.......... .......... B-3) 

Miscellaneous..... .......... _______ _______ _______ 

 Total Direct.... .......... Line 1-A Line 2-B Line 2 

12.4.4 Indirect Field Costs -- Indirect costs are defined by AACE Standard Terminology (ref. 4.1) 

as those "costs which do not become a final part of the installation but which are required 

for the orderly completion of the installation . . ." The AACE Cost Engineers' Notebook has 

several papers that more completely define indirect costs. One such paper prepared by W. 

R. Weinheimer (ref. 4.8) describes the elements in indirect field costs including indirect field 

labor, construction support, labor benefits and equipment and tools. Table B-5, shows a 

breakdown of these categories as used in this practice. 

 Weinheimer suggests that the percentage factors to be used vary inversely as the 

magnitude of the direct plant labor. Figure B-1 follows this suggestion and is based on $20 

per hour direct field labor. The resultant indirect field costs must be adjusted to the actual 

dollars per workhour prevailing at the time of the estimate. 

 Note that the major category left out of Figure B-1 is that of labor benefits which include 

craft fringe benefits, travel necessary, construction camp and insurance and taxes of all 

labor, both direct and indirect. Most labor benefits are generally directly proportional to 

total labor costs. In the absence of data to the contrary, it is recommended that benefits be 

estimated at 35% of total direct and indirect labor. The indirect field labor component of 

total indirect costs is also shown on Figure B-1. 

 Two other categories left out of Figure B-1 are labor and materials for equipment servicing 

and small tools. It is assumed that the equipment servicing is included in the indirect field 

costs estimated above. Small tools, below $500 per tool, range from about 5% for small 

projects (up to $300,000 of direct labor); 3.5% for $300,000 to $3,000,000 direct labor; and 

2% for over $3,000,000 direct labor. 

 An example of how to calculate Indirect Field Costs as a function of Direct Field Labor is 

given in Table B-6. 

12.4.5 Total Plant Cost -- Referring to Table B-1, the total plant cost component of total capital 

requirements is the sum of process capital (direct and indirect costs as described in 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

15 of 62

Sections 12.4.3 and 12.4.4) plus general facilities capital, plus home office overhead and 

fee, plus contingencies. 

 The Process Capital is to be divided into major plant sections (e.g., pretreatment, reaction, 

separation, plant utilities, etc.). The process capital for each plant section should be broken 

down as shown in Table B-7. The other categories of Total Plant Cost are discussed 

below. 

 General Facilities: These include roads, fences, shops, laboratories, office buildings, etc., 

and are generally in the range of 5% to 20% of Total Process Capital. For the purpose of 

this practice, assume 15% unless there is some underlying reason to assume otherwise. 

Documentation should be provided. 

 Home Office Overhead and Fee: These usually range from 7% to 15% of the process 

capital. This practice recommends 10% for contractor and 5% for client costs for a total of 

15%. 

 Contingencies: This Recommended Practice assumes two types of contingencies, process 

and project, and is based on EPRI (ref. 4.4) philosophy. Contingency covers expected 

omissions and unforeseen costs caused by the lack of complete engineering or incomplete 

scope of work. The process contingency factor is applied in an effort to quantify the 

uncertainty in the technical performance due to limited design data. EPRI (ref. 4.4) 

provides the following guidelines to aid in assigning process contingency allowances to 

various sections of the plant. 

State of Technology Development Process Contingency Allowances as 

Percentages of Total Process Capital Cost 

New concept with limited data 40+ 

Concept with bench-scale data 30% to 70% 

Small pilot plant data 20% to 35% 

Full-size modules have been operated 5% to 20% 

Process is used commercially 0% to 10% 

 Generally, budget-type estimates are made after there is at least small pilot-plant data 

available. Thus, a factor of 25% of the total process capital cost is recommended for those 

sections of the plant designed on the basis of limited data. For example, utility design and 

costs are usually based on well-known data so that the process contingency factor is 

relatively low (say 5%). The larger chance of error would be in the size of each utility 

(which is related to the process utility requirements), not the design of the utility plant. A 

factor of 25% would be applied to the reactor section if limited engineering data were 

available. Table B-7 was designed to handle different process contingencies for different 

sections of the plant. 

 Project Contingency is included to cover the costs that would result if a detailed-type 

costing was followed as in a definitive-type study. For a budget-type estimate, project 

contingency would range from 15% to 30%. We recommend a factor of 25% of Total 

Process Capital plus Home Office Overhead and Fees plus Process Contingencies. 

 The contingency factors actually used should be documented in the report. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

16 of 62

12.4.6 Other Components of Total Capital Requirements -- As shown by Table B-1 these include 

the following: 

 Total Plant Cost 

 Prepaid Royalties 

 Start-up and Other Pre-production Costs 

 Working Capital 

 Spare Parts 

 Initial Catalyst and Chemicals 

 Land 

 Total Plant Cost was discussed in previous sections. The remaining components of Total 

Capital Requirements are discussed below. 

12.4.7 Prepaid Royalties -- Royalty charges on portions of the plant are usually levied for 

proprietary processes. A value of 0.5 of 1% of the process capital involved is usually used. 

If only portions of the plant are subjected to royalty, Table B-7 may be extended to include 

another column of numbers. 

 This practice recommends that a factor of 0.5 of 1% be used on Total Process Capital for 

Prepaid Royalties. 

12.4.8 Start-up Costs -- These costs are incurred for expenses for plant start-up such as operator 

training, extra maintenance, plant modifications and inefficient operation. For this Practice, 

the following are recommended: 

 a. One month of total annual operating cost at full capacity. 

 b. An additional 25% of total fuel (including fuel in steam) at full capacity for one month 

operation. 

 c. Two percent (2%) of Total Plant Costs to cover expected changes and modifications of 

equipment to reach full capacity. 

 d. No credit for byproducts. 

 The method of estimating the annual operating costs needed above is shown in Section 

12.5. 

12.4.9 Working Capital -- Working capital is needed to meet the everyday needs of operating the 

plant, such as payroll, maintenance, the purchase and storage of chemicals, etc. A partial 

list of items included in working capital is: 

• Process inventory, including raw materials, fuels, in-process materials, finished 

product not sold. 

• Supplies inventory. 

• Accounts receivable. 

• Current liabilities. 

• Other current assets including cash, bank deposits and government securities 

needed for wages, materials and other accounts payable. 

 For this Practice, two months of total annual operating costs are recommended (see 

Section 12.5 for estimation of total annual operating costs). 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

17 of 62

12.4.10 Spare Parts -- This item is needed to cover the need for an initial inventory of 

critical parts to minimize extensive shut-downs for repairs. An allowance of 0.5 of 

1% total plant cost is recommended. 

12.4.11 Initial Catalyst and Chemicals -- The initial costs of these items actually contained 

in the process equipment (but not in storage, since this is covered in Working 

Capital) should be included. The basis for this will vary, depending on the process 

and the unit costs. Documentation of this item should be included in the report. 

12.4.12 Land -- Land costs vary greatly and are very site-specific. Prevailing land costs in 

the proposed plant area must be locally determined. 

12.5 Establish Total Annual Operating Costs. For the purpose of this Recommended Practice, 

operating costs will be considered as including: 

 Raw materials less byproducts 

 Utilities and chemicals 

 Total labor (direct operating, supervision, maintenance and indirect) 

 Other costs 

 Table B-8, shows the computations necessary to arrive at the total annual costs. Components 

of the annual operating costs are discussed below. 

12.5.1 Raw Materials Less Byproducts -- These are commodities that are converted in the process 

and appear in some form in the final product or byproduct. They may be purchased or sold 

in the open market or they may be available or sold captively. Current prices are listed in 

the trade journals (such as Chemical Marketing Reporter) or actual quotations may be 

available for those commodities obtainable in the open market. 

 For captive markets, sales price could be assumed if the market would not be affected by 

the additional volume. If there is a glut on the market, the manufacturer could assume an 

operating cost for the commodity or even an incremental cost if below-capacity plants are 

involved. Since there are many ramifications involved in these assumptions, the actual 

market price should be used in this practice. Any deviations should be documented. 

 It is stressed that most often, the cost of raw materials represent the largest component of 

the operating cost. Extreme care should be taken in arriving at the annual cost of this 

component. 

 In computing the annual cost of this component, the annual consumption (or manufacture 

in the case of byproducts) is taken from the flow sheets described earlier and multiplied by 

the $/unit commodity market price. 

 In many cases, material balance calculation errors affect operating costs more than they do 

plant costs, so care should be taken in the development of the material balance. 

 Complete documentation of yields and unit prices should be provided in the report. 

12.5.2 Utilities and Chemicals -- Utilities are made up of fuel, net steam (required steam less 

process-produced steam), power and water. It is assumed in this practice that the only 

purchased utilities are power and fuel. All steam facilities, power distribution facilities and 

water treatment facilities are to be included in the plant investment sections as are waste 

water and waste product disposal costs. Operating costs of utilities, except for fuel and 

power, are assumed negligible. The steam annual cost represents mostly fuel (at the price 

assumed for fuel in the fuel component of utilities and chemicals). 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

18 of 62

 Utility and chemical requirements for each piece of major equipment are accounted for in 

Table B-2. The last page of Table B-2 should show the totals of all the utilities and 

chemicals. The power to operate each utility is shown on the last line of this table. The 

total of the power required for the major equipment and the power required for the utilities is 

used in the calculation of annual power cost in Table B-8. 

12.5.3 Direct Operating Labor -- An estimate of the workers per shift required to operate each 

section of the plant is to be made based on judgement and experience. The cost of 

operating labor is often not a major component of the total manufacturing cost, but since it 

is used to estimate other components, it should be estimated as carefully as possible using 

existing plant operating records for similar type plants. 

 As a guide for estimating direct operating labor, a factor suggested by Wessel (ref. 4.9) 

may be used. Using an average factor of 50 daily workhours per primary operational steps, 

such as distillation, drying, filtration, etc., and multiplying this factor by the number of 

operational steps provides the daily workhours required. Multiplying this product by the 

number of hours in a calendar year (8,760) and the average hourly labor rate gives the total 

direct annual operating labor costs for plants of 100 tons per day capacity. For other 

capacities, Wessel recommends applying a 0.25 power factor to the ratio of the capacity. 

 Documentation of the method used (experience, Wessel, other) should be provided. 

12.5.4 Maintenance, Supervision, Overhead, etc. -- Table B-8, shows the other components and 

the factors recommended to calculate their annual costs. It is seen that these are functions 

of direct operating labor and total plant investment. If other factors are thought to be 

appropriate, they should be so documented. 

12.5.5 Approximate Equation for Manufacturing Costs -- Based on the factors shown in Table B-8, 

an equation has been developed which may be used instead of the table (assuming no 

change in factors from those recommended). 

 Oper. Costs (excluding corporate overhead and sales expense) 

 = Raw materials less byproducts, $/yr 

 + Utilities and chemicals, $/yr 

 + Fuels, $/yr 

 + (3.4)(Annual Direct Oper. Labor) 

 + (0.15)(Total Plant Investment) 

 Corporate Overhead = (0.60) (Total Labor) 

 Sales Expense = (0.10) (Annual Sales) 

Raw materials less byproducts, utilities, chemicals, fuel and direct operating labor should 

be documented as shown in Table B-8. A statement that the equation was used should be 

included in the report. 

Note that depreciation is not included in the operating cost estimate. Depreciation is taken 

into account in the next section (Financial Analysis). 

12.6 Financial Analysis

12.6.1 Introduction -- Using the data developed in the previous sections, a measure of the 

economic merit of the process is next estimated. There are many measures-of-merit 

procedures available that highlight different aspects of a project's economic merit. Most of 

these procedures utilize the time value of money concept. This recommended practice 

does not suggest a particular procedure to be used exclusively but rather provides 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

19 of 62

guidelines on how each should be done in a consistent and readily understandable 

manner. 

 The various procedures are discussed briefly below: 

 Net Present Value: The net present value (NPV) of the project is a measure of how much 

the project will increase (or decrease) the wealth of the owner after accounting for the time 

value of money. It is calculated by summing all project cash flows discounted to a single 

point in time. 

 Profitability Ratio: This is the ratio of a project's NPV to the NPV of the initial capital 

investment. This ratio is useful in selecting among projects with different capital investment 

requirements in situations where investment funds are limited. Higher profitability ratios are 

required when investment funds are in short supply. 

 Internal Rate of Return: A project's internal rate of return (IRR) is defined as the discount 

rate for which the present value of the after-tax cash flows is equal to zero. Projects with 

higher IRR values are generally preferred to projects with lower values of IRR(*). 

 Payback Period: The payback period is defined as the length of time required to recover 

the initial capital investment. The advantage of this method is that it is relatively easy to 

calculate and understand. Generally, time value of money is ignored. Payback period is 

most often used in preliminary estimation where more sophisticated methods are not 

merited due to the relative inaccuracy of the data. 

 Discounted Payback Period: The discounted payback period is similar to the simple 

payback period, except that the time value of money is considered. The discounted 

payback period is defined as the length of time for the present value of project revenues to 

equal the present value of the project's initial capital investment. The two payback period 

methods have the drawback of not considering any cash flows that occur after the payback 

is reached. 

 Annualized Production Cost: This method is similar to the revenue requirements technique 

used in the utility industry. The annualized production cost (APC) is defined as the price 

per unit of production which, if held constant over the project's lifetime, would produce a 

present value of revenues equal to the present value of all project expenses. It may be 

expressed in real (constant) dollars, which are measured with the effects of inflation 

excluded, or in nominal (current) dollars which are measured with the effects of inflation 

included. 

 This method has the advantage that revenue streams need not be estimated. Instead, a 

capital recovery factor (CRF) is applied at an appropriate discount rate that provides the 

revenue required to cover all after-tax costs including a return on and of the investment. 

(*) See AACE Recommended Practice No. 15R-81, "Profitability Methods" for a discussion of the 

method of calculating IRR and limitations on its use. This reference also provides detailed 

discussion of several other procedures for financial analysis including NPV.

12.6.2 Cash Flow Procedure -- The elements of the year-by-year cash flows are based on the 

AACE Recommended Practice (ref. 4.1) entitled, "Profitability Methods." The following 

equations are used in calculating cash flows for each year. 

 Total Capital Requirement (as defined in Table B-1) 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

20 of 62

 Depreciable Capital = Total Plant Costs (Table B-1) 

+ Prepaid Royalties 

+ Spare Parts 

+ Initial Catalyst and Chemicals 

 Total Expense = Start-up Expense 

+ Operating Costs (excluding depreciation) 

+ Depreciation 

 Taxable Income = Revenue - Total Expense 

 Taxes = Taxable Income x Tax Rate 

 Cash Flow = Revenue - Total Expenses (including startup) – Taxes 

+ Depreciation 

- Total Capital Requirement (excluding start-up) 

+ Salvage Value 

The timing of the cash flow is very critical. Each of the items in the Cash Flow equation 

need not occur in the same year. For example, the Total Capital Requirement item occurs 

in years prior to start-up of the plant and hence, revenues in those years are zero. Also, 

Salvage Value is zero for every year except the last year. The reader is referred to the 

AACE Recommended Practice (ref. 4.1) mentioned above for an example of how the 

complete cash flow is developed. 

 In this Practice, certain conventions as to timing of the cash flows are recommended: 

• Total Capital Requirement is allocated as appropriate over the estimated years of 

construction based upon the anticipated construction and equipment delivery 

schedules. 

• Revenues, total expenses and taxes start in the year after Total Capital Requirement 

is expended. 

• Salvage, recovered depreciable capital, recovered working capital and resalable land 

occurs in the last year plus one. 

• All expenditures are assumed to occur at the end of the year. 

• Depreciation starts on the last year of construction (see next section under Financial 

Analysis Model). 

• Venture life after start-up (see Economic Life in next section). 

• Escalation: 

If escalation is included in the analysis, it is suggested that escalation of all components 

(capital, labor for operating expenses, fuel, power, raw materials, chemicals, products, and 

other operating expenses) be individually considered. As a general rule labor for operating 

expenses and fuel and power escalate at a higher rate than the other components. 

Documentation of escalation factors used for each component should be provided. 

The choice of whether or not to include escalation in the cash flow analysis is not of major 

importance provided that all comparisons are made on the same basis, i.e. with or without 

escalation. 

If escalation is not considered, the analysis inherently assumes that any escalation in costs 

will be offset by an equivalent escalation in revenues. 

In the next section, a model is described in which the calculation of the various measures of 

merit based on the above cash flows is described. The model has provisions for escalating 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

21 of 62

the components of the cash flows at the assumed inflation rates. As noted above, if desired, 

escalation may be ignored. 

There are many financial analysis computer models available with varying features and 

capabilities. In the next section the desired logic and capabilities of a model to be used in the 

Practice are described. 

12.6.3 Logic and Description of a Financial Analysis Model Suggested for use in this Practice: 

A financial analysis computer model should evaluate the economic feasibility of process plants and other 

systems. It should generate projections of cash flows and calculate the economic measures-of-merit 

discussed previously to help generate the economic feasibility of the system being considered. It should 

be able to perform sensitivity analyses on key project uncertainties (either performance or cost) so as to 

address the impact of these parameters on project economics. 

The use of the model should require the input of general project information (such as process annual 

production rate), general economic assumptions (such as inflation rates), and estimates of project 

revenues, costs, and cash flow timing (discussed in the previous section). Output from the model should 

include: 

• Annual cash flows for capital, operating costs, taxes and revenues for each year. 

• Net present value. 

• Internal rate of return. 

• Payback period. 

• Discounted payback period. 

• Levelized (annualized) life cycle production cost in both nominal (current, inflation-included dollars) 

and real (constant, inflation excluded dollars) terms. 

The model should individually analyze a wide number of project cash flows, including: 

• Initial capital. 

• Interim capital (occurring during the operating life rather than the construction period). 

• O&M (operation and maintenance). 

• Revenue. 

• Salvage. 

• Income and property taxes. 

Some of the general capabilities that should be available in the selected computer model are: 

Initial Capital Costs: The model should automatically spread capital costs over the construction period 

specified by the user. The initial capital costs may be expressed in any year's price level, with the model 

accounting for escalation during construction. 

Interim Capital Costs: Some projects will have capital costs that occur during the operating life (rather 

than the construction period) when equipment must be replaced during the project. Interim capital costs 

may be expressed in any year's price level, with the model accounting for price escalation between the 

price year and the year that the replacement occurs. 

Depreciation: Depreciation should be calculated for each year of the project life using current federal tax 

methods for each capital and interim capital account. Since 1981, in the United States, the Accelerated 

Cost Recovery System (ACRS) has been used to determine the appropriate class life and depreciation 

schedule. The Tax Reform Act of 1986 introduced a modified ACRS depreciation system and also 

increased the number of ACRS class lives. Table C-1 lists the modified ACRS (MACRS) class lives and 

corresponding asset depreciation range (ADR) class lives. The ADR class lives represent estimates of 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

22 of 62

the lives of equipment and other depreciable assets for tax purposes. Actual equipment lives tend to be 

longer than the ADR class lives (see Economic Life discussion following). Nevertheless, by U.S. law, 

ADR class lives must be used in selecting the appropriate MACRS class life. 

Table C-2 shows the MACRS Depreciation Table based on the ADR class life. Table C-3 shows the ADR 

class lives for various processes. Knowing the ADR class life provides a MACRS class life (Table C-1). 

Knowing the MACRS class life provides a depreciation schedule from Table C-2. For example, assuming 

a knitwear manufacturing process, the ADR class life is 9 (Table C-3), the MACRS class life is 5 (Table C1), and the depreciation schedule is 20%, 32%, 19%, 15%, and 14% for years 1-5 respectively. 

If a process not listed in Table C-3 is being evaluated, the average ADR class life, 13 years, 

corresponding to a 7-year depreciation schedule, is generally used. 

Economic Life: Table C-3 also lists the approximate economic life of processes in various industries. 

Cash flows should be calculated for the number of years of construction plus the number of years of 

economic life. 

Operation and Maintenance Costs: The model should be capable of entering all relevant categories of 

O&M expenses, such as power, fuel, labor, and other operating expense. The user should be able to 

express these costs in any convenient price year with applicable escalation rates. The model should 

automatically calculate the nominal (current year) O&M cash flows in each year of the project's operating 

life. The model should also permit each year's O&M expense to be entered explicitly into the model. 

Revenues: The model should be capable of entering different types of revenues such as various product 

and byproduct streams. The model should employ user-supplied escalation rates, if desired, to calculate 

the nominal (current) dollars in each year of the plant's operating lifetime. 

Taxes: The model should automatically calculate property tax payments and combined federal/state 

income tax payments for each year of the project. Property tax rates are highly variable from state to 

state and within a particular state. In the absence of specific data, assume 2% of the escalated total plant 

investment for property taxes. The 1986 Tax Reform Act rate of 34% can be used for federal tax 

calculation (assuming all projects are from companies having taxable income in excess of $75,000). 

Most states have a state income tax. The average rate for all states is 7.7%. Assuming that state income 

taxes are deductible for federal income tax purposes and that the allowable tax deductions from revenue 

(e.g., depreciation) are the same for state income taxes as they are for federal income taxes, the 

combined rate is 39.1%. An appropriate model should use this default value. 

Salvage: Salvage represents the cost or credit associated with removing the system after its useful life 

and selling the parts for scrap or for other uses. Salvage occurs in the year following the last year of plant 

operation. The user specifies the fraction of the initial capital investment. (Note: It is commonly assumed 

that the cost of dismantling will equal the salvage credit and thus salvage is not generally recommended 

to be considered.) 

Interest: Interest charges should be implicitly accounted for in the model by the use of an after-tax 

weighted cost of capital. This approach to modeling interest-related cash flows assumes that the debt 

fraction of the investing corporation remains constant during the life of the investment and that interest 

expenses are deductible in the period incurred. Changes in the tax laws make this latter assumption 

invalid in some situations. For this Recommended Practice, it is assumed that the effect of this invalid 

assumption is negligible. 

Weighted Cost of Capital: In general, the proper discount rate for projects of risk similar to a company's 

current business is equal to its weighted average cost of capital. Assuming a debt fraction of 32% and an 

equity fraction of 68%, and assuming long-term expected return on corporate bonds (based on 60-year 

history) is 5.3% and for equity is 12.1%, the weighted cost of capital is: 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

23 of 62

K = (0.32)(0.053) + 0.68(0.121) = 9.9% 

The after tax weighted cost of capital, (the value suggested for this practice) incorporating the deductibility 

of debt at the combined state and federal tax rate of 39.1% would be: 

K = (0.32) (0.053) (1-0.391) + (0.68) (0.121) = 9.3% 

The 9.3% rate would, for this specific example, be considered the minimum acceptable rate of return on 

an investment (MARR). The model should determine the MARR in this manner. 

The Present Value of After-Tax Cash Flows: The net after-tax cash flow for each year of the project is 

calculated from the other cash flows. The present value of all after-tax cash flows is calculated as follows: 

ATCFpv = (Present Value of Total Revenue 

+ Present Value of Salvage Value) 

- (Present Value of Operation and Maintenance 

+ Present Value of Property Tax 

+ Present Value of Income Taxes) 

- (Present Value of Total Init. Capital Investment 

+ Present Value of Total Interim Capital Inv.) 

The calculations for each of the above present values are shown in Table C-4 along with the calculations 

for each of the measures-of-merit. Table C-5 is a summary of the principal assumptions that may be 

used in the model. Table C-6 is a tabulation of nomenclature for the model. The information provided in 

Tables C-4, C-5, and C-6 may be used as an aid to preparing a satisfactory computer modeling program 

if one is not otherwise conveniently available. 

12.7 Sensitivity Analysis

A sensitivity analysis examines the effect of changes (technical or non-technical) on a base line study. 

Changes might include variations in the plant size to examine economies of scale or modifying the flow 

sheet to examine the best use of a by-product stream. Key variables and assumptions (those in which 

small changes would have the largest effect on the results of the base line study) are usually chosen for 

the analysis. These variables would most likely be found in raw material costs, by-product costs, yield 

assumptions, financial analysis assumptions (revenues, cash flow timing) and assumptions in design or 

costs for which little supporting data are available. 

13. APPLICATIONS AND LIMITATIONS 

The purpose of this Practice is to assist evaluators in consistently considering all the components in a 

technical economic study of plant processes. It is not intended to replace existing in-house procedures, 

but rather as a means of consistently reporting the results such that valid comparisons can be made both 

within or outside the organization. 

The Practice is limited to applications of budget-type estimates, although order-of-magnitude estimates 

may also be made using these procedures. Parts of the Practice may also be applied in definitive-type 

studies. 

Detailed reporting of results as outlined in the next section is extremely important, especially in those 

areas where changes from the Recommended Practice have been made. Enough information must be 

provided so as to permit others to duplicate results and make changes with confidence that the 

comparisons are valid. 

In addition to providing consistency, the Practice, in that it uses a variety of measures-of-merit, may be 

used for many types of process studies: 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

24 of 62

• The method may be used to determine whether to make an investment. For example, if a process 

has a positive NPV at the after-tax weighted cost of capital, then the process will result in increased 

benefit to the company. The larger the NPV, the greater the value to the company. 

• Alternate investment projects for satisfying a given purpose can be compared. 

• Incremental investment projects can be evaluated. For example, if an investment addition to an 

existing investment results in savings in yield or fuel, incremental analysis using the practice would 

indicate the worthiness of the investment addition. 

• The application of the practice may be used to determine priority among various investment 

alternatives that are non-mutually exclusive competing for a fixed budget. 

• Engineering alternatives for a project may be consistently compared. The cost-effectiveness of 

technical design changes may be evaluated. 

14. REPORT CONTENT 

In general, the report should contain enough information such that an independent study using the same 

basic data, assumptions, and deviations from the practice would come up with the same result. 

As stated previously in this Practice, the attempt here is to standardize a procedure such that, given a 

number of factors and data, an independent study could be made that would verify the results and ensure 

comparability. This Practice has recommended the use of a number of factors, but does not require their 

use. What is required is that the factors and data actually used be documented in the report. Table D-1 

is a checklist of the items that should be covered in the report. 

It is recognized that in some cases (such as publication in a trade journal), it may not be possible, for 

reasons of space limitations or for proprietary limitations, to include all the data shown in Table D-1. 

Table D-2 shows the minimum information that should be included under these circumstances. 

Table D-3 lists the recommendation of this Practice and provides for a listing of deviations from the 

Recommended Practice. 

A summary of the descriptive material and tables to be included in the report is shown in Table D-4. 

It is recommended that because of the considerable deviations in results that may be obtained, 

depending on methodology and data used, the following disclaimer be made in the report: 

"This study was performed under the guidelines of the AACE Recommended Practice for purposes of 

consistency, verifiability, and comparability. There is no guarantee, implicit or otherwise, that the 

economic performance shown will be duplicated in actual practice." 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

25 of 62

APPENDIX A: DESIGN AND COSTING SPECIFICATIONS FOR EQUIPMENT 

AGITATED OPEN TANK 

 MATERIAL: 

 CAPACITY, volume (gal): 

 DIAMETER (ft): 

 HEIGHT (ft): 

 AGITATOR SPEED (rpm): 

 AGITATOR POWER (hp): 

AGITATED OPEN TANK, FLOTATION CELL 

 MATERIAL: 

 CAPACITY, volume per cell (cu ft): 

 SINGLE OR DUAL DRIVE: 

 DRIVER POWER (hp): 

AGITATED PRESSURE TANK 

 MATERIAL: 

 CAPACITY, volume (gal): 

 DIAMETER (ft): 

 HEIGHT (ft): 

 PRESSURE (psig): 

 AGITATOR POWER (hp): 

AGITATOR 

 MATERIAL: 

 CAPACITY (hp): 

 SPEED (rpm): 

 TYPE IMPELLER: 

 TYPE DRIVER: 

AIR COMPRESSOR, CENTRIFUGAL 

 MATERIAL: 

 INLET CAPACITY (acfm): 

 DISCHARGE PRESSURE (psig): 

 INLET TEMPERATURE (deg F): 

 INLET PRESSURE (psig): 

 DRIVER HORSEPOWER (hp): 

 TYPE DRIVER: 

 STAGES: 

AIR DRYER 

 MATERIAL: 

 INLET CAPACITY (acfm): 

BLENDER, ROTARY DOUBLE-CONE 

 MATERIAL: 

 CAPACITY (cu ft) 

 SPEED (rpm): 

 DRIVER HORSEPOWER (hp): 

BLENDER, ROTARY DRUM 

 MATERIAL: 

 BULK MATERIAL DENSITY (lb/cu ft): 

 DRIVER HORSEPOWER (hp): 

CENTRIFUGE, ATM SUSPENDED BASKET 

 MATERIAL: 

 CAPACITY (lb/hr): 

 HORSEPOWER (hp): 

CENTRIFUGE, BATCH AUTOMATIC 

 MATERIAL: 

 CAPACITY (lb/batch): 

 CAPACITY (cu ft): 

 HORSEPOWER (hp): 

CENTRIFUGE, BOTTOM BATCH 

 MATERIAL: 

 CAPACITY (lb/hr): 

 DIAMETER (in.): 

 HORSEPOWER (hp): 

CENTRIFUGE, BOTTOM UNLOADING 

 MATERIAL: 

 CAPACITY (lb/hr): 

 DIAMETER (in): 

 HORSEPOWER (hp): 

CENTRIFUGE, DISK 

 MATERIAL: 

 CAPACITY (lb/hr): 

 DIAMETER (in.): 

 HORSEPOWER (hp): 

CENTRIFUGE, RECIPROCATING CONVEYOR 

 MATERIAL: 

 CAPACITY (lb/hr): 

 DIAMETER (in): 

CENTRIFUGE, SCREEN BOWL 

 MATERIAL: 

 CAPACITY (lb/hr): 

 DIAMETER (bowl, in.): 

 LENGTH (bowl, in.): 

 HORSEPOWER (hp): 

CENTRIFUGE, SCROLL CONVEYOR 

 MATERIAL: 

 CAPACITY (lb/hr): 

 DIAMETER (in.): 

 HORSEPOWER (hp): 

CENTRIFUGE, SOLID BOWL 

 MATERIAL: 

 CAPACITY (lb/hr): 

 DIAMETER (bowl, in.): 

 LENGTH (bowl, in.): 

 HORSEPOWER (hp): 

CENTRIFUGE, TOP SUSPENDED BATCH 

 MATERIAL: 

 CAPACITY (lb/batch): 

 DIAMETER (in.): 

 HORSEPOWER (hp): 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

26 of 62

CENTRIFUGE, TOP UNLOADING 

 MATERIAL: 

 CAPACITY (lb/hr): 

 DIAMETER (in): 

 HORSEPOWER (hp): 

CENTRIFUGE, TUBULAR 

 MATERIAL: 

 CAPACITY (lb/hr): 

 DIAMETER (in.): 

 HORSEPOWER (hp): 

CENTRIFUGE, VIBRATORY 

 MATERIAL: 

 CAPACITY (tph): 

 DIAMETER (in): 

 FEED SIZE (in): 

 HORSEPOWER (hp): 

CONVEYOR (Apron, Open Belt, 

 Closed Belt) 

 MATERIAL: 

 CAPACITY (tons/hr): 

 LENGTH (ft): 

 WIDTH (in.): 

 BULK PRODUCT DENSITY (lbs/cu ft): 

 DRIVER HORSEPOWER (hp): 

CONVEYOR (Bucket) 

 MATERIAL: 

 CAPACITY (tph): 

 LENGTH (ft): 

 HORSEPOWER (hp): 

 BULK PRODUCT DENSITY (lb/cu ft): 

 BUCKET SIZE (eg, in. width x in. depth): 

CONVEYOR (Pneumatic) 

 (As above except line size instead of width) 

CONVEYOR (Roller) 

 (As above except no bulk density but distance 

between centers) 

CONVEYOR (Screw) 

 (As above except screw diameter instead of 

width) 

CONVEYOR (Vibrating): 

 MATERIAL: 

 CAPACITY (tph): 

 LENGTH (ft): 

 PAN WIDTH (in.): 

CRANE 

 MATERIAL: 

 CAPACITY (tons): 

 SPAN (ft): 

 TYPE (bridge or beam): 

CRUSHER, CONE 

 MATERIAL: 

 CAPACITY (tph): 

 CONE DIAMETER (in.): 

 PRODUCT SIZE (in.): 

 HEAD TYPE (eg, standard or short): 

 HORSEPOWER (hp): 

CRUSHER, GYRATORY 

 MATERIAL: 

 CAPACITY (tph): 

 MANTEL DIAMETER (in.): 

 PRODUCT SIZE (in.): 

 TYPE CRUSHING (eg, primary or secondary): 

 HORSEPOWER (hp): 

CRUSHER, IMPACT 

 CAPACITY (tph): 

 FEED OPENING (eg, 48 in. x 50 in.): 

CRUSHER, JAW 

 MATERIAL: 

 CAPACITY (tph): 

 FEED OPENING SIZE (eg, 36 in. x 48 in.): 

 PRODUCT SIZE (in.): 

 HORSEPOWER (hp): 

CRUSHER, REVERSIBLE HAMMERMILL 

 MATERIAL: 

 CAPACITY (tph): 

 FEED OPENING SIZE (eg, 8 in. x 36 in.): 

 HORSEPOWER (hp): 

CRUSHER, ROLL RING 

 MATERIAL: 

 CAPACITY (tph): 

 FEED OPENING (eg, 18 in. x 28 in.): 

 HORSEPOWER (hp): 

CRUSHER, ROTARY 

 MATERIAL: 

 CAPACITY (tph): 

 HORSEPOWER (hp): 

CRUSHER, ROTARY BREAKER (BRADFORD) 

 MATERIAL: 

 CAPACITY (tph): 

 FEED OPENING (in. diameter x in. length): 

 PRODUCT SIZE (in.): 

 HORSEPOWER (hp): 

CRUSHER, SAWTOOTH 

 MATERIAL: 

 CAPACITY (tph): 

 DRIVER HORSEPOWER (hp): 

CRUSHER, SINGLE ROLL CRUSHER 

 MATERIAL: 

 CAPACITY (tph): 

 ROLL SIZE (eg, in. diam x in. length) 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

27 of 62

CRYSTALLIZER, BATCH VACUUM 

 MATERIAL: 

 CAPACITY (tpd): 

 CAPACITY (gal): 

CRYSTALLIZER, MECHANICAL 

 MATERIAL: 

 CAPACITY (tpd): 

 LENGTH (ft): 

 SPEED (rpm): 

 HORSEPOWER (hp): 

CRYSTALLIZER, OSLO 

 MATERIAL: 

 CAPACITY (tpd): 

DRYER, ATMOSPHERIC TRAY 

 MATERIAL: 

 CAPACITY (lb/hr): 

 AREA OF TOP TRAY (sq ft): 

DUST COLLECTOR, WASHED 

 MATERIAL: 

 CAPACITY (cfm): 

 DIAMETER (in): 

 HEIGHT (ft): 

EJECTOR 

 MATERIAL: 

 CAPACITY (lb/hr): 

 PUMPING MEDIUM AND PRESSURE 

(psig)/temperature (deg F): 

 MEDIUM PUMPED AND PRESSURE (torr): 

 NUMBER OF STAGES: 

ELECTRIC GENERATOR 

 MATERIAL: 

 CAPACITY (kva): 

ELEVATOR 

 CAPACITY (ton): 

 HEIGHT (ft): 

 TYPE (freight or passenger): 

EVAPORATOR, AGITATED FALLING FILM 

 MATERIAL: 

 CAPACITY (lb/hr): 

 CAPACITY (gal): 

 TOTAL HEATING SURFACE AREA (sq ft): 

 SPEED (rpm): 

 HORSEPOWER (hp): 

EVAPORATOR, FORCED CIRCULATION 

 MATERIAL, SHELL: 

 MATERIAL, TUBES: 

 CAPACITY (lb/hr): 

 CAPACITY (gal): 

 TOTAL HEATING SURFACE AREA (sq ft): 

 SPEED (rpm): 

EVAPORATOR, LONG TUBE FILM 

 MATERIAL, SHELL: 

 MATERIAL, TUBES: 

 CAPACITY (lb/hr): 

 CAPACITY (gal): 

 TOTAL HEATING SURFACE AREA (sq ft): 

 SPEED (rpm): 

EVAPORATOR, LONG TUBE VERTICAL 

 MATERIAL, SHELL: 

 MATERIAL, TUBE: 

 CAPACITY (lb/hr): 

 AREA (sq ft): 

EVAPORATOR, STANDARD HORIZONTAL TUBE 

 MATERIAL, SHELL: 

 MATERIAL, TUBE: 

 CAPACITY (lb/hr): 

 CAPACITY (gal): 

 AREA (sq ft): 

EVAPORATOR, STANDARD VERTICAL TUBE 

 MATERIAL, SHELL: 

 MATERIAL, TUBE: 

 CAPACITY (lb/hr): 

 CAPACITY (gal): 

 AREA (sq ft): 

EVAPORATOR, WIPED FILM 

 MATERIAL: 

 CAPACITY (lb/hr): 

 HEAT TRANSFER AREA (sq ft): 

FAN, CENTRIFUGAL 

 MATERIAL: 

 CAPACITY (cfm): 

 DISCHARGE PRESSURE (psig): 

 SPEED (rpm): 

 HORSEPOWER (hp): 

 TYPE (turbo, propeller, rotary blower, vaneaxial, 

standard industrial): 

FEEDER BELT 

 MATERIAL: 

 CAPACITY (cu ft/hr): 

 HORSEPOWER (hp): 

FEEDER, BIN-ACTIVATOR 

 MATERIAL: 

 DIAMETER (ft): 

FEEDER, GRAVIMETRIC 

 MATERIAL: 

 CAPACITY (lb/hr): 

 HORSEPOWER (hp): 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

28 of 62

FEEDER, ROTARY 

 MATERIAL: 

 CAPACITY (lb/hr): 

 DIAMETER (in): 

 SPEED (rpm): 

 HORSEPOWER (hp): 

FEEDER, VIBRATING 

 MATERIAL: 

 CAPACITY (tph): 

 LENGTH (ft): 

 WIDTH (in): 

 HORSEPOWER (hp): 

FILTER, CARTRIDGE 

 MATERIAL: 

 CAPACITY (gpm): 

 PARTICLE RETENTION SIZE (mesh): 

 OPERATION (manual or automatic): 

FILTER, LEAF-DRY 

 MATERIAL: 

 CAPACITY (lb/batch): 

 LEAF AREA (sq ft): 

 

FILTER, PRESSURE LEAF-WET 

 MATERIAL: 

 CAPACITY (lb/batch): 

 LEAF AREA (sq ft): 

FILTER, PLATE AND FRAME 

 MATERIAL: 

 CAPACITY (lb/batch): 

 CAPACITY (frame): 

 PLATE SIZE (in x in): 

FILTER, ROTARY DISK 

 MATERIAL: 

 CAPACITY (lb/hr): 

 FILTER AREA (sq ft): 

 SPEED (rpm): 

 HORSEPOWER (hp): 

FILTER, ROTARY DRUM 

 MATERIAL: 

 CAPACITY (lb/hr): 

 FILTER AREA (sq ft): 

 SPEED (rpm) 

 HORSEPOWER (hp): 

FILTER, SCROLL 

 MATERIAL: 

 CAPACITY (tph): 

 SCREEN DIAMETER (in): 

 FEED SIZE (medium or fine): 

FILTER, SEWAGE 

 MATERIAL: 

 CAPACITY (lb/hr): 

 FILTER AREA (sq ft): 

FILTER, SPARKLER 

 MATERIAL: 

 CAPACITY (cu ft): 

 FILTER AREA (sq ft): 

 DIAMETER (in): 

FLAKER, DRUM 

 MATERIAL: 

 CAPACITY (lb/hr): 

 AREA (sq ft): 

 SPEED (rpm) 

 HORSEPOWER (hp): 

FLARE 

 MATERIAL: 

 CAPACITY: (lb/hr): 

 DIAMETER (in): 

 HEIGHT (ft): 

 TEMPERATURE OF FLARE GAS (deg F): 

 MOLECULAR WEIGHT OF FLARE GAS (lbmoles): 

 TYPE (guyed, derrick, self-supporting, 

horizontal): 

FURNACE, HEATER 

 MATERIAL: 

 DUTY (mm btu/hr): 

 DESIGN PRESSURE (psig): 

 DESIGN TEMPERATURE (deg F): 

 FUEL FEED RATE (scfm or gpm): 

 FUEL HEATING VALUE AND TYPE: 

 TYPE (heater, pyrolysis, reformer, vertical, box): 

HEAT EXCHANGER 

 MATERIAL, SHELL: 

 MATERIAL, TUBE: 

 CAPACITY (lb/hr): 

 HEAT TRANSFER AREA (sq ft): 

 TUBE LENGTH (ft): 

 TUBE PRESSURE (psig): 

 SHELL PRESSURE (psig): 

 TYPE (floating head, fixed tube sheet, U-tube, 

cross-bore, graphite tube) 

HEAT EXCHANGER, AIR COOLER 

 MATERIAL: 

 BARE TUBE AREA (sq ft): 

 TUBE LENGTH (ft): 

 DESIGN PRESSURE (psig): 

 NUMBER OF BAYS: 

HEAT EXCHANGER, FIN TUBE 

 MATERIAL: 

 TUBE LENGTH (ft): 

 NUMBER OF EXTERNAL FINS: 

 DESIGN PRESSURE (psig): 

 NUMBER OF TUBES PER BUNDLE: 

HEAT EXCHANGER, JACKETED 

 (AS PER FIN TUBE) 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

29 of 62

HEAT EXCHANGER, SPIRAL PLATE 

 MATERIAL: 

 HEAT TRANSFER AREA (sq ft): 

 TUBE PRESSURE (psig): 

HEAT EXCHANGER, SUCTION HEATER 

 MATERIAL: 

 HEAT TRANSFER AREA (sq ft): 

HEAT EXCHANGER, TANK HEATER (ELECTRIC) 

 MATERIAL: 

 CAPACITY (kw): 

HEAT EXCHANGER, TANK HEATER (STEAM COIL) 

 MATERIAL: 

 CAPACITY (lb/hr): 

 HEAT TRANSFER AREA (sq ft): 

 PIPE DIAMETER (ft): 

HEAT EXCHANGER, THERMASCREW (REITZ) 

 MATERIAL: 

 HEAT TRANSFER AREA (sq ft): 

HEAT EXCHANGER, TWO SCREW 

 MATERIAL: 

 HEAT TRANSFER AREA (sq ft): 

HEAT EXCHANGER, WASTE HEAT (WASTE HEAT 

BOILER) 

 MATERIAL: 

 CAPACITY (lb/hr): 

 HEAT TRANSFER AREA (sq ft): 

HEATING UNIT, DOWTHERM 

 MATERIAL: 

 CAPACITY (mm btu/hr): 

 CAPACITY (process flow, gpm): 

 PRESSURE (psig): 

 TEMPERATURE (deg F): 

HOIST 

 LOAD (tons): 

 TYPE (single speed electric, five speed electric, 

plain hand hoist, geared hand hoist): 

 WITH OR WITHOUT TROLLEY: 

HORIZONTAL TANK, CYLINDRICAL (ASME CODE) 

 MATERIAL: 

 CAPACITY (gal): 

 DIAMETER (ft): 

 PRESSURE (psig): 

 TEMPERATURE (deg F): 

HORIZONTAL TANK, MULTI-WALL 

 MATERIAL: 

 CAPACITY (gal): 

 DIAMETER (ft): 

 LENGTH (ft): 

 PRESSURE (psig): 

 TEMPERATURE (deg F): 

KNEADER 

 MATERIAL: 

 CAPACITY (lb/hr): 

 CAPACITY (gal): 

 HORSEPOWER (hp): 

 TYPE (stationary, tilting, vacuum): 

LINING 

 MATERIAL: 

 LINING AREA (sq ft): 

 MORTAR TYPE IF BRICK: 

 TYPE (acid brick, monolithic, other): 

 TYPE WALL (straight wall tank,small horizontal 

tank, large horizontal vessel): 

MILL 

 MATERIAL: 

 CAPACITY (tph): 

 INSIDE DIAMETER (ft): 

 INSIDE LENGTH (ft): 

 DRY OR WET GRINDING: 

 POWER (hp): 

 SPEED (rpm): 

 TYPE (rod, ball, autogenous, attrition, micropulverizer, roller): 

MIXER 

 MATERIAL: 

 CAPACITY (cu ft): 

 SPEED (rpm): 

 HORSEPOWER (hp): 

 TYPE (sigma, fixed propeller, portable propeller, 

extruder, muller, spiral ribbon, two-roll, pan): 

MOTOR 

 ENCLOSURE: 

 SPEED (rpm): 

 HORSEPOWER (hp): 

 TYPE (open drip proof, tefc class f insulation, 

explosion proof, variable speed): 

PUMP 

 MATERIAL: 

 CAPACITY (gpm): 

 HEAD (ft): 

 TEMPERATURE (deg F): 

 LIQUID SPECIFIC GRAVITY: 

 POWER (hp): 

 POWER SOURCE (elec., steam, engine): 

 TYPE (reciprocation, simplex, duplex, 

diaphragm, slurry, rotary): 

PUMP, CENTRIFUGAL 

 MATERIAL: 

 CAPACITY (gpm): 

 HEAD (ft): 

 TEMPERATURE (deg F): 

 LIQUID SPECIFIC GRAVITY: 

 POWER (hp): 

 POWER SOURCE (electricity, steam, engine): 

 TYPE (single stage, in line, vertical, axial flow): 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

30 of 62

REACTOR 

 MATERIAL: 

 CAPACITY (lb/hr): 

 INSIDE DIAMETER (ft): 

 TYPE (single stage, double stage, fluidized bed): 

REBOILER 

 MATERIAL, SHELL: 

 MATERIAL, TUBE: 

 CAPACITY (mm btu/hr): 

 HEAT TRANSFER AREA (sq ft): 

 TUBE LENGTH (ft): 

 TUBE PRESSURE (psig): 

 TYPE (kettle, U-tube, thermosiphon): 

REFRIGERATION UNIT 

 MATERIAL: 

 CAPACITY (tons): 

 EVAPORATOR TEMPERATURE (deg F): 

 TYPE (mechanical, centrifugal): 

ROTARY DRYER 

 MATERIAL: 

 CAPACITY (lb/hr): 

 PERIPHERAL AREA (sq ft): 

 SPEED (rpm): 

 TYPE (direct, jacketed vacuum, vacuum, 

indirect): 

SCALE 

 MATERIAL: 

 CAPACITY (lbs): 

 BELT WIDTH (in), "ONLY BELT SCALE": 

 TYPE (beam, semi-frame, full-frame, tank, belt, 

track, truck): 

SEPARATION, WATER ONLY CYCLONE 

 MATERIAL: 

 CYCLONE DIAMETER (in), INDIVIDUAL: 

 NUMBER OF CYCLONES: 

 LINEAR OR RADIAL CONFIGURATION: 

STACK 

 MATERIAL: 

 HEIGHT (FT): 

 DIAMETER (in): 

THICKENER 

 MATERIAL (rake): 

 DIAMETER (ft): 

TOWER 

 MATERIAL: 

 CAPACITY (lb/hr): 

 DIAMETER (ft): 

 TRAY SPACING (in.): 

 NUMBER OF TRAYS: 

 PRESSURE (psig): 

TOWER, COOLING 

 MATERIAL: 

 CAPACITY (gpm): 

 COOLING RANGE (deg F): 

 APPROACH (deg F): 

 WET BULB TEMPERATURE (deg F): 

 MAIN HEAD LENGTH(S) (ft): 

 SUPPLY & RETURN LINE LENGTH(S) (ft): 

TOWER, PACKED 

 MATERIAL: 

 DIAMETER (ft): 

 PACKING HEIGHT (ft): 

 PACKING TYPE: 

 PRESSURE (psig): 

TRAY DRYING SYSTEM 

 MATERIAL: 

 CAPACITY (lb/hr): 

 TRAY SURFACE (sq ft): 

 POWER (hp): 

 HEATING MEDIUM (steam, air or other): 

 TYPE (turbo, batch vacuum, atmospheric): 

TURBINE, GAS 

 MATERIAL: 

 CAPACITY (hp): 

 

TURBINE, STEAM 

 MATERIAL: 

 CAPACITY (bhp): 

 SPEED (rpm): 

 STEAM PRESSURE (psig): 

 TYPE (condensing or non-condensing): 

VACUUM PUMP 

 MATERIAL: 

 CAPACITY (inlet cfm): 

 ULTIMATE PRESSURE (torr): 

 SPEED (rpm): 

 POWER (hp): 

 TYPE (mechanical, water-sealed, mechanicalbooster): 

VERTICAL TANK, PROCESS 

 MATERIAL: 

 CAPACITY (gal): 

 DIAMETER (ft): 

 HEIGHT (ft): 

 PRESSURE (psig): 

 TEMPERATURE (deg F): 

 TYPE (cylindrical, multi-wall, shell, spheroid, 

sphere, gas holder): 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

31 of 62

VERTICAL TANK, STORAGE 

 MATERIAL: 

 VOLUME (gal): 

 DIAMETER (ft): 

 HEIGHT (ft): 

 PRESSURE (psig) 

 TEMPERATURE (deg F): 

 TYPE (flat bottom/roof, fiberglass, light gauge, 

cone roof, open top, floating roof, cone bottom 

bin, lifter): 

VIBRATING SCREEN, RECTANGULAR 

 MATERIAL: 

 LENGTH (ft): 

 WIDTH (ft): 

 ENCLOSURE (no or yes): 

 POWER (hp): 

 NUMBER OF DECKS: 

VIBRATING SCREEN, RECTANGULAR (HUMMER 

TYPE) 

 MATERIAL: 

 CAPACITY (lb/hr): 

 SCREEN AREA (sq in): 

DEGREE OF SEPARATION (fine or coarse): 

 NUMBER OF DECKS: 

VIBRATING SCREEN, SIFTER CIRCULAR 

 MATERIAL: 

 CAPACITY (lb/hr): 

 SCREEN AREA (sq in): 

 SCREEN DIAMETER (in.): 

 POWER (hp): 

 NUMBER OF DECKS: 

WATER TREATMENT SYSTEM, BOILER 

 MATERIAL: 

 CAPACITY (lb/hr): 

 STEAM PRESSURE (psig): 

SATURATED OR SUPERHEATED STEAM: 

DEMINERALIZER WATER RATE (gph): 

SOFTENING SYSTEM WATER RATE (gph):
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

32 of 62

APPENDIX B: TABLE B-1 -- COMPONENTS OF TOTAL CAPITAL REQUIREMENTS 

 I. Total Plant Cost 

 A. Process Capital 

 1. Direct Cost 

 a. Material Costs 

 (1) Purchased Equipment Costs 

 (2) Installation Material Costs 

 Total Direct Material = a(1) + a(2) 

 b. Labor Costs 

 (1) Labor to Handle and Place Bare Equipment 

 (2) Installation Labor 

 Total Direct Labor = b(1) + b(2) 

 Total Direct Cost = 1a + 1b 

 2. Indirect Costs 

 a. Indirect Field Labor 

 b. Labor Benefits 

 c. Indirect Field Costs, (Construction Equipment, Construction 

 Support and Tools) 

 Total Indirect Costs = 2a + 2b + 2c 

 Total Process Capital = A1 + A2 

 B. General Facilities 

 C. Home Office, Overhead and Fee 

 D. Contingencies 

 1. Project 

 2. Process 

 Total Contingencies = D1 + D2 

 Total Plant Cost = A + B + C + D 

 II. Prepaid Royalties 

III. Start-up Costs 

 IV. Working Capital 

 V. Spare Parts 

 VI. Initial Catalyst and Chemicals 

VII. Land 

 TOTAL CAPITAL REQUIREMENTS = I+II+III+IV+V+VI+VII 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

33 of 62

APPENDIX B: TABLE B-2 -- EXAMPLE OF EQUIPMENT AND UTILITY SUMMARY 

Cooling 

water 

Treated 

Water 

Item Quantity Power 

required 

Delivered 

purchase 

cost 

Chemical 

Cost 

$/hr gpm mgph gpm mgph hp kwh/hr

Steam 

required 

mlbs/hr 

Steam 

produced 

mlbs/hr 

Net 

Steam 

mlbs/hr 

Fuel 

mmbtu/hr

Pretreatment 

section 

 

Ht. exch. 

1 

2 

Vertical 

columns 

 

1 

2 

etc. 

Reactor section 

Ht. exch. 

1 

2 

Furnace 

1 

2 

etc. 

Separation 

section 

 

Etc. 

Subtotals XXXX XXX XXX XXX (A) XXX XXX 

Power for util. 

kwh/hr 

 (C) (D) (B) (E) 

Total power 

kwh/hr 

 A+B+C

+D+E 

 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

34 of 62

APPENDIX B: TABLE B-3 – DISTRIBUTIVE FACTORS FOR BULK MATERIALS 

Type of system: Coal Handling / 

Stockpiling 

Crushing, Grinding, 

Conveying 

Entrained 

Gasification 

Fluidized Bed 

Gasification 

Hot Gas 

Cleanup [a] 

Acid Gas 

Scrubbing [b] 

Foundations Material [c] 4 4 7 6 6 6 

 Labor [d] 133 133 133 133 50 133 

Structural Steel Material 4 4 7 6 5 6 

 Labor 50 50 50 50 50 50 

Buildings Material 2 2 2 2 5 4 

 Labor 100 100 100 50 50 100 

Insulation Material 1 1 4 4 3 2 

 Labor 150 150 150 100 150 150 

Instruments Material 6 4 7 7 6 7 

 Labor 40 40 40 40 40 40 

Electrical Material 9 8 9 9 9 9 

 Labor 75 75 75 75 75 75 

Piping Material 5 5 40 40 40 40 

 Labor 50 50 50 50 50 50 

Painting Material 0.5 0.5 0.5 0.5 0.5 0.5 

 Labor 300 300 300 300 300 300 

Miscellaneous Material 3 3 4.5 4 4 4 

 Labor 80 80 80 80 80 80 

[a]: ex. Zinc ferrate 

[b]: such as Seloxol and Benfield 

[c]: Bare equipment cost x factor. 

[d]: Material cost x factor. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

35 of 62

APPENDIX B: TABLE B-3 – DISTRIBUTIVE FACTORS FOR BULK MATERIALS (Continued) 

Type of system: Solids Handling Solids-Gas Processes Gas Processes 

Temperature: [400 

F 

>400 

F 

[400 F >400 F [400 F >400 F 

Liquid and Slurry 

Systems 

Pressure: [150 

psig 

>150 

psig 

[150 

psig 

>150 

psig 

[150 

psig 

>150 

psig 

[150 

psig 

>150 

psig 

[150 

psig 

>150 

psig 

Foundations Material 4 5 5 6 6 6 5 6 6 5 5 6

 Labor 133 133 133 133 133 133 133 133 133 133 133 133

Structural Steel Material 4 2 4 4 5 6 5 5 5 6 4 5

 Labor 50 100 100 100 50 50 50 50 50 50 50 50

Buildings Material 2 2 2 2 5 4 3 3 3 4 3 3

 Labor 100 100 100 50 50 100 100 100 100 100 100 100

Insulation Material -- 1.5 1 1 2 2 1 1 2 3 1 3

 Labor -- 150 150 150 150 150 150 150 150 150 150 150

Instruments Material 6 6 2 7 7 8 6 7 7 7 6 7

 Labor 40 40 40 40 40 75 40 40 75 40 40 40

Electrical Material 9 9 6 8 7 8 8 9 6 9 8 9

 Labor 75 75 75 75 75 75 75 75 40 75 75 75

Piping Material 5 5 35 40 40 40 45 40 40 40 30 35

 Labor 50 50 50 50 50 50 50 50 50 50 50 50

Painting Material 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5

 Labor 300 300 300 300 300 300 300 300 300 300 300 300

Miscellaneous Material 3 4 3.5 4 4 4.5 3 4 4 5 4 5

 Labor 80 80 80 80 80 80 80 80 80 80 80 80
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

36 of 62

APPENDIX B: TABLE B-4 -- DISTRIBUTIVE LABOR FACTORS FOR SETTING EQUIPMENT 

Equipment Type Factor Equipment Type Factor 

Absorber 20 Hammermill 25 

Ammonia still 20 Heater 20 

Ball mill 30 Heat exchanger 20 

Blower 35 Knockout drum 15 

Briquetting machine (with mixers) 25 Lime leg 15 

Centrifuge 20 Methanator (catalytic) 30 

Clarifier 15 Mixer 20 

Coke cutter 15 Precipitator 25 

Coke drum 15 Regenerator (packed) 20 

Condenser 20 Retort 30 

Conditioner 20 Rotoclone 25 

Cooler 20 Screen 20 

Crusher 30 Scrubber (water) 15 

Cyclone 20 Settler 15 

Decanter 15 Shift Converter 25 

Distillation column 30 Splitter 15 

Evaporator 20 Storage tank 20 

Filter 15 Stripper 20 

Fractionator 25 Tank 20 

Furnace 30 Vaporizer 20 

Gasifier 30 Water scrubber 20 

Factors to determine the labor cost to set equipment onto prepared foundations/supports includes costs for rigging, alignment, 

grouting, making equipment ready for operation, etc. The money allowed is to a great extent a matter of judgement. The following 

general rules are offered as an aid: 

 1. Equipment such as hoppers, chutes, etc. (no moving parts) require a setting cost of about 10% of the bare equipment 

purchased cost. 

2. Rotary equipment such as compressors, pumps, fans, etc. require a setting cost of about 25% of the bare equipment 

purchased cost. 

3. Machinery such as conveyors, feeders, etc. require a setting cost about 15% of bare equipment purchased cost. 

Historical workhour requirements are more desirable than these factors, if available. The factors do not work well for very large 

equipment. For example, a $750,000 compressor does not require 25% of the bare equipment cost to set same on the foundation 

and to "run-it-in." The listing above provides approximate factors for specific other types of equipment. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

37 of 62

APPENDIX B: TABLE B-5 -- SUMMARY OF INDIRECT FIELD COSTS 

Indirect Field Labor Labor Benefits 

 Supervision Craft Fringe Benefits 

 Accounting Travel 

 Field Engineering Daily Transportation 

 Staff Engineering Fringe Benefits 

 Warehousing Subsistence 

 Service Personnel Show-up Time 

Construction Support Payroll Taxes and Insurance 

 Temporary Buildings 

 Temporary Roads Construction Camp 

 Construction Utilities Camp Set-up 

 Utility Installation Camp Utilities 

 Utility Operation Camp Operations 

 Field Communications Camp Facilities 

Construction Supplies Equipment and Tools 

 Consumable Supplies Construction Equipment 

 Welding Supplies Earthmoving Equipment 

 Safety Supplies Batch Plant Equipment 

 Office Supplies Bldg. & Steel Erect. Equip. 

 Scaffolding Pipe Erection Equipment 

 Cars and Pickup Trucks 

Cleanup Small Tools 

 Equipment Servicing 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

38 of 62

APPENDIX B: TABLE B-6 -- EXAMPLE OF ESTIMATION OF INDIRECT FIELD COSTS 

Given: 

a. Total Direct Field Labor at $16/workhour - $400,000 

 [The sum of (1b) and (2b) of Table 3 for all major equipment] 

b. Labor benefits at 35% of Direct and Indirect Labor 

c. Direct Field Labor at $16/WH (average) 

Dollars 

Calculations (Thousands)

a. Direct Field Labor at $16/WH (given) 400 

b. Direct Field Labor at $20/WH = (400)(20/16) = $500 

c. Factor for Indirect Field Labor at $20/WH and 500,000 

 Direct Labor (Figure B-1) = 27% 

d. Indirect Field Labor at $16/WH = (0.27)(500)(16/20) 108

e. Total Direct and Indirect Field Labor = a + d 508

f. Labor Benefits at 35% (given) of Total Direct and Indirect 

 Field Labor = (0.35) (508) 179 

g. Indirect Field Cost Factor at $20/WH and $500 Direct 

 Field Labor = 60% (Figure B-1) 

h. Indirect Field Costs (excl. benefits and tools) at $16/WH = 

 (0.60)(400)(16/20) 192 

i. Small tools at 3.5% of 400,000 18

j. Total Indirect Field Costs = (f+h+i) = 179+192+18 389 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

39 of 62

APPENDIX B: TABLE B-7 -- SUGGESTED FORMAT FOR TOTAL PLANT COST DETAIL 

Plant Section Purch. Contingencies 

Equip. 

Inst. 

Mat'l. 

Direct 

Labor 

Indirect

Labor 

Subtotal Gen'l Facil. Home Office 

& Fees Proc. Proj. 

Total Plant Cost

Pretreating a 

Reaction b 

Separation c 

Utilities d 

Etc. 

Subtotals f g h i A B C D E F 

A. Total Capital 

Process 

 A 

B. Gen’l. Facil. B 

C. Home Office 

Ovhd. & Fee 

 C 

D. Proc. Cont. D 

E. Proj. Cont. E 

Total Plant F 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

40 of 62

APPENDIX B: TABLE B-8 -- ANNUAL OPERATING COST SUMMARY(*)

$000/yr 

 Subtotal Rounded 

Raw Materials Less Byproducts 

 Raw Material No. 1 (7884 x units/hr x $/unit) xxx 

 No. 2 xxx 

 Byproducts No. 1 (xxx) 

 No. 2 (xxx) 

 Total Raw Materials and Byproducts xxx 

 

Utilities and Chemicals xxx 

 Process Fuel (7884 x units/hr x $/unit) xxx 

 Fuel for Steam Production (7884 x units/hr x $/unit) xxx 

 Power (7884 x KWH/hr x $/KWH) xxx 

 Chemical No. 1 (7884 x units/hr x $/unit) xxx 

 No. 2 (7884 x units/hr x $/unit) xxx 

 Catalysts (7884 x units/hr x $/unit) xxx 

 Total Utilities and Chemicals xxx 

 

Labor, Direct 

 Direct Oper. Labor (365 x 24 x workers/shift x $/hr) xxx 

 Direct Superv. Labor at 15% of Dir. Oper. Labor xxx 

 Maintenance Labor at 3% of Total Plant Cost xxx 

 Total Direct Labor = (xxx) xxx 

 

Indirect Labor at 75% of Direct Labor xxx 

 Total Annual Labor xxx 

 

Other Costs 

 Payroll Overhead at 35% of Total Annual Labor xxx 

 Maint. Mat'l. Costs at 3% of Total Plant Cost xxx 

 Ind. Mat'l Costs at 25% of Total Direct Labor xxx 

 Prop. Taxes and Ins. at 2% of Total Plant Cost xxx 

 Admin. and Corporate at 60% of Total Labor xxx 

 Selling at 10% of Total Sales xxx 

 Total Other Cost xxx 

Total Annual Operating Costs xxx 

(*) At 90% Operating Time/Year: (0.9)(365)(24 hrs/day) = 7884 oper. hrs./yr. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

41 of 62

APPENDIX B: FIGURE 1 – INDIRECT FIELD COSTS 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

42 of 62

APPENDIX C - FINANCIAL ANALYSIS 

TABLE C-1 -- MACRS CLASS LIFE AS DETERMINED BY ADR CLASS LIFE 

Modified ACRS Class Life 

(years) 

ADR Class Life 

(years) 

5 More than 4 but less than 10 

7 10 or more but less than 16 

10 16 or more but less than 20 

15 20 or more but less than 25 

20 25 or more 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

43 of 62

APPENDIX C: TABLE C-2 --MODIFIED ACRS DEPRECIATION TABLES* FOR 1987 AND BEYOND 

THE YEARLY APPLICABLE PERCENTAGES FOR THE ASSET CLASS LIFE) 

 3 5 7 10 15 20 

1 33 20 14 10 5 4 

2 45 32 25 18 10 7 

3 22 19 17 14 9 7 

4 15 13 12 8 6 

5 14 11 9 7 6 

6 10 8 7 5 

7 10 8 6 5 

8 7 6 5 

9 7 6 5 

10 7 6 5 

11 6 5 

12 6 5 

13 6 5 

14 6 5 

15 6 5 

16 4 

17 4 

18 4 

19 4 

20 4 

Sum 100 100 100 100 100 100 

*

The depreciation schedules shown assume the midyear convention for depreciation. For the 3, 5, 7, and 

10-year MACRS class life property, the depreciation method is the 200% declining-balance method with a 

switch to straight-line depreciation at the time that maximizes the deduction. The depreciation method for 

15 and 20 years MACRS class life property is 150% declining-balance method with a switch to straightline depreciation at the time that maximizes the deduction. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

44 of 62

APPENDIX C: TABLE C-3 -- ADR CLASS LIVES FOR EQUIPMENT AND THEIR ESTIMATED LIVES 

 Estimated 

ADR Class Economic 

 Process Life, Years Life, Years

Petroleum refining 16 24 

Manufacture of textile mill products: 

 Knitwear and knit products 9 14 

 Textile mill products (except knitwear) 14 21 

 Finishing and dyeing 12 18 

Manufacture of paper products: 

 Pulps 16 24 

 Paper 12 18 

Manufacture of chemicals and allied products 11 17 

Manufacture of rubber and plastics: 

 Rubber products 14 21 

 Finished plastics 11 17 

Manufacture of leather 11 17 

Manufacture of stone, clay, glass and concrete: 

 Glass products 14 21 

 Cement 20 30 

 Stone and clay products 15 23 

Manufacture of primary metals: 

 Ferrous metals 18 27 

 Nonferrous metals 14 21 

Manufacture of fabricated metal products 12 18 

Manufacture of machinery: 

 Metalworking machinery 12 18 

 Electrical equipment 12 18 

 Other machines 12 18 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

45 of 62

APPENDIX C: TABLE C-4 -- MODEL METHODOLOGY 

The principal assumptions that may be used in the model are outlined in Table C-5. Key assumptions are 

those that are intrinsic to the methodology and would be difficult for a user to modify for a special 

application of the model. All other assumptions could be easily modified by the user if needed. For 

example, the cash flow equations presented assume uniform escalation relative to a reference base year. 

A more complicated cash flow pattern may be modeled by entering each individual year's estimated cash 

flow manually. The analytical methodology used in calculating cash flows, present values, and economic 

measures-of-merit are discussed below. 

Economic nomenclature used is shown in Table C-6. 

Cash Flow Calculations

During the construction period for CIn, one of many possible initial capital investment categories, the 

nominal dollar cash flow for year i (assuming uniform construction payout) is: 

(Equation 1) 

where CIni = nominal dollar cost in year i

 CIn = total "overnight" cost estimate in year CInp dollars 

 CT = construction time 

 CIng = escalation rate of CIn

 CInp = price year for CIn. 

Total Initial Capital Investment

Total initial capital investment in year i (CITi) is equal to the summation of all individual initial capital 

investments in year i. 

Interim Capital Investment (n)

Interim capital investments are assumed to occur in a single year (rather than being spread out over 

several years as for plant construction). During the year that an interim capital investment occurs, the 

nominal dollar cash flow for one of many possible interim capital replacements is: 

(Equation 2) 

where ICIni = nominal dollar cost in year i for an individual interim capital replacement 

ICIn = total cost estimate in year ICInp dollars 

ICIng = escalation rate for ICIn

ICInp = price year for ICIn

Total Interim Capital Investment

( ) *(1 ) CInp i

i CIng CT

CIn CIn − = +

( ) ( ) *(1 ) p i ICIn

i g ICIn ICIn ICIn − = +
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

46 of 62

Total interim capital investment in year i (ICITi) is equal to the summation of all individual interim capital 

investments in year i. 

Operation and Maintenance (O&M) (n)

O&M costs (including fuel expenses) begin in year 1 and occur throughout the plant's operating lifetime. 

For each of the many possible O&M categories, O&M costs in year i are calculated as: 

(Equation 3) 

where O&Mni = nominal dollar cost in year i

O&Mn = total cost estimate in year O&Mnp dollars 

O&Mng = escalation rate for O&Mn

O&Mnp = price year for O&Mn. 

Total O&M

Total O&M in year i (O&MTi) is equal to the summation of all individual O&M costs in year i. 

Revenue (n)

Plant revenues begin in year 1 and occur throughout the plant's operating lifetime. For each possible 

revenue category, revenues in year i are calculated as: 

(Equation 4) 

where Rni

 = nominal dollar revenue in year i

Rn = revenue estimate in year Rnp

Rng = escalation rate for Rn

Rnp = price for year Rn. 

Total Revenue

Total revenue in year i (Rti) is equal to the summation of all individual revenues in year i. 

Depreciation (n)

For initial capital investments, depreciation is assumed to begin in year 0. For interim capital investments, 

depreciation is assumed to begin in the year in which the investment takes place. Depreciation for both 

initial and interim capital investments continues until the end of the plant's operating life, or the assets 

depreciable life, whichever comes first. Depreciation for each possible initial capital investment and 

subsequent interim capital investments in year i is calculated as: 

(Equation 5) 

( & ) & & *(1 & ) O Mnp i O Mni O Mn O Mng− = +

( ) *(1 ) Rnp i Rni Rn Rng− = +

Dni = Dn * DPFi
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

47 of 62

where Dni is depreciation in year i, Dn is total asset cost (summation of all nominal dollar cash flows), and 

DPFi is the depreciation factor for year i (depends on asset life and depreciation tables). 

Total Depreciation

Total depreciation in year i (DTi) is equal to the summation of all individual depreciation expenses in year 

i. 

Salvage Value (if considered) 

All salvage value occurs in the year following the last year of plant operation. Salvage values are 

possible for all categories of initial capital investment. The salvage value for each initial capital 

investment category, CIn, is calculated as: 

(Equation 6) 

where SCIn = the nominal dollar salvage value for CIn

CIn = total "overnight" cost estimate in year CInp dollars 

svf = salvage value fraction 

CIng = escalation rate for CIn

L = plant operating life 

CInp = price year for CIn. 

Total Salvage Value

The total salvage value (SCIT) is equal to the summation of all individual salvage values. 

Property Tax

Property tax payments begin in year 1 and continue throughout the plant's operating life. Property tax 

payments are calculated as: 

(Equation 7) 

where PTi = property tax payment in year i

CIT = total capital investment for property tax assessments. This is calculated as the summation 

of all nominal dollars for all categories of initial capital investment 

ptf = property tax fraction rate. 

Taxable Income

Taxable income in year i (TIi) is calculated as: 

(Equation 8) 

where RTi, SCITi, O&MTi, DTi, and PTi were defined previously. 

( 1 ) ( ) * *(1 ) L CInp CIng SCIn CIn svf + − = +

PT CIT ptf i = ∗

TIi = RTi + SCITi − O & MTi − DTi − PTi
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

48 of 62

Income Taxes

The income tax payment in year i (ITi) is calculated as: 

(Equation 9) 

where itf is combined state and federal income tax rate, and TIi was defined in Equation 8. 

After-Tax Cash Flow

The after-tax cash flow in year i (ATCFi) is calculated as: 

(Equation 10) 

where TIi

, DTi, ITi, CITi, and ICITi were defined previously. 

Present Value (PV) Calculations

PV OF CAPITAL INVESTMENT 

The present value of a capital investment occurring in year i is calculated as: 

(Equation 11) 

where CINpvi is the present value of CIni, CINk is the discount rate for capital investment n, and CIni was 

defined in Equation 1. 

The total present value for each initial capital investment category (CInpv) is equal to the summation over 

all i of CInpvi. The PV for all initial capital investments (CITpv) is equal to the summation over all of CInpv. 

PV OF CAPITAL INVESTMENT-RELATED INCOME TAX 

The present value of the income taxes generated by initial capital investment cash flows is accounted for 

by the depreciation streams. 

PV OF INTERIM CAPITAL INVESTMENT 

The present value of an interim capital investment occurring in year i is calculated as: 

(Equation 12) 

where ICInpvi is the present value of ICIni, ICInk is the discount rate for interim capital investment n, and 

ICIni was defined in Equation 2. 

IT TI itf i = i∗

i i i i i i ATCF = TI + DT − IT −CIT − ICIT

i

k

i

pvi CIn

CIn CIN

(1+ ) =

i

k

i

pvi ICIn

ICIn ICIn

(1+ ) =
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

49 of 62

The total present value for ICIn (ICInpv) is equal to the summation over all i of ICInpvi. The PV for all 

interim capital investments (ICITpv) is equal to the summation over all n of ICInpv. 

PV OF INTERIM CAPITAL INVESTMENT-RELATED INCOME TAX 

The present value of the income taxes generated by interim capital investment cash flows is accounted 

for by the depreciation streams. 

PV OF O&M 

The present value of an O&M expense occurring in year i is calculated as: 

(Equation 13) 

where O&Mnpvi is the present value of O&Mni, O&Mnk is the discount rate for O&M category n, and 

O&Mni was defined in Equation 3. 

The total present value for O&Mn (O&Mnpv) is equal to the summation over all i of O&Mnpvi. The PV for 

all O&M expenses (O&MTpv) is equal to the summation over all n of O&Mnpv. 

PV OF O&M-RELATED INCOME TAX 

The present value of the income taxes generated by O&Mn (O&Mnpvt) is calculated as: 

(Equation 14) 

where O&Mnpv was defined above and itf was defined in Equation 9. 

The negative sign indicates that O&M expenses generate income tax savings. The PV for all income 

taxes generated by O&M expenses (O&MTpvt) is equal to the summation over all n of O&Mnpvt. 

PV OF REVENUE 

The present value of a revenue occurring in year i is calculated as: 

(Equation 15) 

where Rnpvi is the present value of Rni, Rnk is the discount rate for revenue category n, and Rni was 

defined in Equation 4. 

The total present value for Rn (Rnpv) is equal to the summation over all i of Rnpvi. The PV for revenues 

(RTpv) is equal to the summation over all n of Rnpv. 

PV OF REVENUE-RELATED INCOME TAX 

i

k

i

pvi O Mn

O Mn O Mn

(1 & )

& &

+ =

O Mn O Mn itf & pvt = − & pv∗

i

k

i

pvi Rn

Rn Rn

(1+ ) =
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

50 of 62

The present value of the income taxes generated by Rn (Rnpvt) is calculated as: 

(Equation 16) 

where Rnpv was defined above, and itf was defined in Equation 9. 

The positive sign indicates that revenues generate income tax payments. The PV for all income taxes 

generated by revenues (RTpvt) is equal to the summation over all n of Rnpvt. 

PV OF DEPRECIATION 

The present value of depreciation occurring in year i is calculated as: 

(Equation 17) 

where Dnpvi is the present value of Dni, Dnk is the discount rate for depreciation, and Dni was defined in 

Equation 5. 

The total present value for Dn (Dnpv) is equal to the summation over all i of Dnpvi. The PV for all 

depreciation (DTpv) is equal to the summation over all n of Dnpv. 

PV OF DEPRECIATION-RELATED INCOME TAX 

The present value of the income taxes generated by Dn (Dnpvt) is calculated as: 

(Equation 18) 

where Dnpv was defined above, and itf was defined in Equation 9. 

The negative sign indicates that depreciation expenses generate income tax savings. The PV for all 

income taxes generated by depreciation (DTpvt) is equal to the summation over all n of Dnpvt. 

PV OF SALVAGE VALUE 

The present value of salvage value occurring in year i is calculated as: 

(Equation 19) 

Rn R itf pvt = + npv ×

( )i

k

i

pvi Dn

Dn Dn

+ = 1

Dn Dn itf pvt = − pv×

( )i

k

i

pvi SCIT

SCIT SCIT

+ = 1
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

51 of 62

where SCITpvi is the present value of SCITi, SCITk is the discount rate for salvage value, and SCITi was 

defined previously. 

PV OF SALVAGE VALUE-RELATED INCOME TAX 

The present value of the income taxes generated by salvage value (SCITpvt) is calculated as: 

(Equation 20) 

where SCITpv is SCITpvi (all salvage occurs in the same year), and itf was defined in Equation 9. 

The positive sign indicates that salvage value generates income tax payments. 

PV OF PROPERTY TAX 

The present value of property tax occurring in year i (PTpvi) is calculated as: 

(Equation 21) 

where PTpvi is the present value of PTi, PTk is the discount rate for property tax value, and PTi was defined 

in Equation 7. 

The total present value for all property tax payments (PTpv) is equal to the summation over all i of PTpvi. 

PV OF PROPERTY TAX-RELATED INCOME TAX 

The present value of the income taxes generated by property taxes (PTpvt) is calculated as: 

(Equation 22) 

where PTpv was defined above, and itf was defined in Equation 9. 

The negative sign indicates that property tax expenses generate income tax savings. 

PV OF INCOME TAXES 

The present value of all income tax expenses (ITpv) is calculated as: 

SCIT SCIT itf pvt = + pv×

( )i

k

i

pvi PT

PT PT

+ = 1

PT PT itf pvt = − pv×
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

52 of 62

(Equation 23) 

where OMTpvt, RTpvt, DTpvt, SCITpvt, and PTpvt were defined previously. 

PV OF AFTER-TAX CASH FLOW 

The present value of all after-tax cash flows (ATCFpv) is calculated as: 

(Equation 24) 

where RTpv, SCITpv, O&MTpv, PTpv, ITpv, CITpv, and ICITpv were defined previously. 

Measure of Merit Calculations

NET PRESENT VALUE 

The net present value (NPV) of the project is equal to ATCFpv, described above. 

PROFITABILITY RATIO 

The profitability ratio is defined as the project's net present value divided by the present value of the initial 

capital investments; the higher the profitability ratio, the better. The profitability ratio is calculated as: 

(Equation 25) 

where ATCFpv and CITpv were defined previously. 

Internal Rate of Return

The internal rate of return is equal to the discount rate that would result in a present value of zero for the 

after-tax cash flows. The internal rate of return may be calculated using the Lotus @IRR function. 

Payback Period

The payback period is the first year that the cumulative after-tax cash flows for the project are positive. 

Discounted Payback Period

pv O MTpvt RTpvt DTpvt SCITpvt PTpvt IT = & + + + +

( ) ( ) ( ) pv pv pv pv pv pv pv pv ATCF = RT + SCIT − O & MT + PT + IT − CIT + ICIT

pv

pv

CIT

ATCF

Profitability Ratio =
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

53 of 62

The discounted payback period is the first year that the cumulative present value of the after-tax cash 

flows for the project are positive. 

Nominal Annualized Production Cost

The nominal annualized production cost is a constant cost in nominal dollars that, over the lifetime of the 

project, would result in a present value equal to the present value of all project costs. The nominal 

annualized production cost is calculated as: 

(Equation 26) 

where 

NAPC = nominal annualized production cost, $ per unit of output 

CITpv = present value of initial capital costs 

ICITpv = present value of interim capital costs 

O&MTpv = present value of O&M costs 

PTpv = present value of property taxes 

itf = combined state and federal income tax fraction 

DTpv = present value of depreciation 

CRF = capital recovery factor, % fraction (defined below) 

PR = annual production rate (assumed constant in each year). 

The CRF in the equation for NAPC is calculated as: 

(Equation 27) 

where k is the appropriate overall discount rate to use in these types of calculations, and L is the project's 

operating life. 

Real Annualized Production Cost

The real annualized production cost (RAPC) is a constant cost in real dollars that, over the lifetime of the 

project, would result in a present value equal to the present value of all project costs. The real annualized 

production cost is calculated as: 

(Equation 28) 

[ ( ) ( ) ]

( ) itf PR

CIT ICIT O MT PT itf DT itf CRF

NAPC pv pv pv pv pv

− ×

+ + + × − − × × = 1

& 1

L k

k CRF − − + =

1 (1 )

( )

( ) ( )

( ) ⎥

⎥

⎦

⎤

⎢

⎢

⎣

⎡

⎟

⎟

⎠

⎞ ⎜

⎜

⎝

⎛

+

+

+ × −

− = ×

L

k

g g

k g

CRF

NAPC RAPC

1

1 1 1
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

54 of 62

where RAPC is the real annualized production cost in $/unit of output; g is the general inflation rate; and 

NAPC, CRF, k, and L were defined previously. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

55 of 62

APPENDIX C: TABLE C-5 -- SUGGESTED MODEL ASSUMPTIONS 

 KEY ASSUMPTIONS 

• All cash flows are expressed in nominal year dollars. 

• All cash flows are assumed to occur at the end of the year. 

• The base year for discounting cash flows is year 0. All cash flows occurring in year 0 are not 

discounted (i.e., the present value equals the cash flow), with cash flows occurring in all other years 

being discounted appropriately. 

• An effective combined income tax rate is used to cover both state and federal income taxes. 

• The project owner is assumed to have other income that can be shielded by tax losses. This results 

in negative income tax payments being treated as positive after-tax cash flows. 

 ASSUMPTIONS THAT CAN BE EASILY MODIFIED BY USER

• Capital costs during construction are assumed to be split equally among each of the construction 

years. Otherwise, where uniform construction payout is not valid, the cash flows can be manually 

entered (in nominal dollars) in each year. 

• Interim capital costs are assumed to take place within a single year. 

• Property taxes are constant throughout the life of the plant and are calculated as a fraction of the total 

nominal dollar cost of the initial project capital investment. 

• All revenues and operating expenses will commence in year 1 and continue for the life of the project. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

56 of 62

APPENDIX C: TABLE C-6 -- ECONOMIC NOMENCLATURE for MODEL 

 

APC annualized production cost ($/unit of annual output) 

ATCF after tax cash flow ($) 

CIn initial capital investment for one of the cost categories, measured as "overnight" 

costs, i.e., costs excluding interest and escalation during construction ($) 

CIT total initial capital investment, the sum of all CIn($) 

CRF capital recovery factor 

CT construction time (years) 

Dn total investment for an initial capital investment or an interim capital investment ($) 

DPF depreciation factor 

DT total depreciation ($) 

ICIn an interim capital investment ($) 

ICIT total interim capital investment ($) 

IT income tax payment ($) 

L plant operating life (years) 

NAPC nominal annualized production cost ($/unit of annual output) 

NPV net present value ($) 

O&MT total operation and maintenance expenses ($) 

O&Mn an annual operation and maintenance expense ($) 

PR annual production rate (units/year) 

PT property tax payment ($) 

RAPC real annualized production cost ($/unit of annual output) 

Rn one of five revenue streams ($) 

RT total revenue ($) 

SCIn salvage value for CIn ($) 

SCIT total salvage value ($) 

TI taxable income ($) 

g general inflation rate (%) 

i the year i or the i th year 

itf income tax rate (%) 

k overall discount rate 

ptf property tax rate (%) 

svf salvage value fraction (%) 

Subscripts

dedi deductible as an expense in year i

g escalation rate for a cash flow stream 

i a cash flow stream occurring in year i

k discount rate for a cash flow stream 

p reference price year for a cash flow stream 

pv present value of a cash flow stream 

pvi present value of a cash flow stream occurring in year i

pvt present value of income taxes generated by a cash flow stream 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

57 of 62

APPENDIX D - Report Content: TABLE D-1 -- CHECKLIST OF REPORT REQUIREMENTS 

Design

____ Plant size and basis for selecting 

____ Detailed process flow block diagram and stream summaries showing rates and compositions of 

all streams, temperatures, and pressures, residence or reaction time for all reactors, etc. 

____ Energy flow diagram 

____ Equipment list (see Appendix A for examples) 

____ Deviations from design premises (Table D-3) 

Capital Costs

____ Major equipment cost references 

____ Equipment and utility summary (Table B-2) 

____ Craft labor rates, equipment setting, concrete, steel, etc. $/work-hour 

____ Productivity factor for location relative to Houston-Gulf Coast 

____ Material and labor factors used if different than those in Tables B-3 and B-4 and reported in Table 

D-3 

____ Direct field labor average, $/work-hour 

____ Fringe benefits as a % of labor costs if different than 35% 

____ Percent factor used for small tools portion of Indirect Plant 

____ Percent factor used for General Facilities if different than 15% of Total Process Capital 

____ Percent factor used for Home Office, Overhead and Fee (contractor + client) if different than 15% 

____ Contingency factor breakdown 

____ Prepaid royalty factor(s) if different than 0.5% of total process capital. 

____ Working capital basis if different than 2 months of total annual operating expense 

____ Spare parts inventory factor if different than 0.5 of 1% 

____ Initial catalyst and chemicals basis 

____ Land Cost - acres required and $/acre 

____ Storage time of raw materials, chemicals and fuels 

Operating Costs

____ Raw material and byproduct unit costs used and source of data 

____ Documentation of yields to arrive at quantities 

____ Utility and chemical requirements (totals of Table B-2) 

____ Purchased power costs, $/KWH 

____ Fuel requirements and unit cost used 

____ Chemical unit costs 

____ Basis for operating labor requirements (Wessel article, experience, other) 

____ Average operating labor rate used 

____ Supervisory labor percent of direct labor if other than 15% 

____ Maintenance labor if other than 3% of total plant cost 

____ Maintenance material if other than 3% of total plant cost 

____ Indirect labor if other than 75% of direct labor 

____ Indirect material if other than 25% of direct labor 

____ Payroll overhead same as fringe benefits under capital costs. If different than fringe benefits 

and/or 35% of total labor, so specify 

____ Property taxes and plant insurance, if different than 2% of total plant cost 

____ Was general equation used? (See text) 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

58 of 62

Financial Analysis

____ Timing of cash flows if different than recommended 

____ Total capital requirement timing if different than divided equally over the construction period 

____ Timing of depreciation if different than last year of construction; revenue, total expense and taxes 

if other than the year after capital is expended 

____ Table of unescalated cash flows 

____ Escalating factors used, if any 

____ ADR class life assumed (Table C-3) 

____ Federal tax rate if different than 34% 

____ Combined federal and state (after assuming federal tax credit for state) if different than 39.1% 

____ Is salvage considered? 

____ Is debt interest included in cash flow? 

____ Weighted cost of capital (after tax) if other than 9.3% 

____ Debt and equity fraction if other than 32% and 68%, respectively 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

59 of 62

APPENDIX D - Report Content: TABLE D-2(*) -- MINIMUM REQUIREMENTS FOR REPORT 

(*) To be used for publication in trade journals or other special circumstances. 

Process Flow Diagram 

Table B-1 

Table B-2 (without the detail of each piece of equipment) 

Table B-7 

Table B-8 

Table D-3 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

60 of 62

APPENDIX D – Report Content: TABLE D-3(*) -- TABLE OF DEVIATION FROM PRACTICE 

(*) See text for discussion of individual factors recommended 

 Recommended Deviation

Design Premises 

 Plant location U.S. Gulf Coast (Houston) 

 Sparing 

 • 

 • 

 • 

90% availability (excl. planned 

maintenance) 

Capital Costs 

 Material and labor factors See Tables B-3 and B-4 

 Fringe benefits 35% of total labor 

 Small tools factor 3-5% direct field labor 

 General facilities factor 15% of total process capital (TPC) 

 Home office overhead and fee 

 (contractor + client) 

15% of TPC 

 Prepaid royalties 0.5% of TPC 

 Working capital basis 2 months annual operating cost 

 Spare parts inventory 0.5% of TPC 

 Storage time 

 Fuel 90 days 

 Chemicals 90 days 

 Raw materials 90 days 

Operating Costs 

 Supervisory labor 15% of direct labor 

 Maintenance labor 3% of total plant cost 

 Maintenance material 3% of total plant cost 

 Indirect labor 75% of total direct labor 

 Indirect material 25% of total direct labor 

 Payroll overhead Same as for capital costs 

 Property taxes and insurance 2% of total plant cost 

 Corporate overhead 60% of total labor 

 Selling expense 10% of sales 

Financial Analysis 

 Cash flow timing 

 Total cap. requirement Divided equally over the years of 

construction 

 Revenue, oper. costs, and taxes One year after capital expended 

 Depreciation Starts in last year of capital expenditure 

 ADR class life See Table C-3 

 Federal tax rate 34% 

 Combined federal and state tax rate 39.1% 

 Salvage Not considered 

 Debt interest Not included if weighted cost of capital 

used in NPV calculation 

 Weighted cost of capital (after tax) 9.3% (see text) 

 Debt fraction of corporation 32% 

 Equity fraction 68% 

 Escalation factors 

 [Assume an Annual Growth Rate (specify*)] 

 

 Capital AGR 

 Labor for oper. costs AGR + 1% 

 Fuel and power AGR + 1% 

 All other oper. exp. AGR 

 

 (*) e.g. the Consumers Price Index (CPI) Annual Growth Rate or other rate as deemed appropriate. 
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

61 of 62

APPENDIX D – Report Content: TABLE D-4 -- SUMMARY OF REPORT DESCRIPTIVE MATERIAL 

1. Summary and Conclusions(1)

 1.1 Summary of Plant Requirements and Goals

 1.2 Performance Summary

 1.3 Cost Summary

 1.3.1 Capital Cost, $MM 

 1.3.2 Operating Cost, $MM/yr 

 1.3.3 Operating Cost, $/unit of production 

 1.3.4 Measures of Merit 

 1.3.4.1 NPV 

 1.3.4.2 IRR 

 1.3.4.3 Payback Period 

 1.3.4.4 Others 

 1.4 Sensitivity study results 

 1.5 Conclusions as to viability of process/plant 

2. Process/Plant Description(2)

 2.1 Plant Design Objectives and Requirements

 2.1.1 Overall Plant Objectives 

 2.1.2 Performance Objectives and Requirements 

 2.1.3 Plant Interface Requirements 

 2.1.4 Operational Objectives and Requirements 

 2.1.5 Configuration 

 2.1.6 Environmental Considerations 

 2.1.7 Safety 

 2.1.8 Maintenance 

 2.1.9 Instrumentation 

 2.1.10 Plant Facilities 

 2.1.11 Codes and Standards 

2.2 Plant Sections/Major Systems

 2.2.1 Pre-treating Section(s) 

 2.2.2 Reaction Sections 

 2.2.3 Separation Section(s) 

 2.2.4 Environmental Section(s) 

 2.2.5 Plant Utilities 

 2.2.6 Plant Facilities 

 2.2.7 Plant Facilities 

 2.3 Plant Performance and Operation

 2.3.1 Plant Process Description 

 2.3.2 Plant Performance Evaluation 

 2.3.3 Plant Operation and Control (Normal and Start-up) 

 2.4 Plant Site Description

 2.5 Other Descriptions) 

3. Assumptions(3)

 3.1 Technical

 3.2 Cost

4. Capital Investment(4)

5. Sensitivity Studies(5)
Copyright 2003 AACE, Inc. AACE International Recommended Practices

Conducting Technical and Economic Evaluations – As Applied for the Process and Utility 

Industries 

April 1991

62 of 62

6. Tables and Flowsheets(6)

 6.1 Plant Capital Cost Summary (Table B-1) 

 6.2 Capital Costs by Section (Table B-7) 

 6.3 Equipment, Utility and Chemical Summary (Table B-2) 

 6.4 Annual Operating Cost Summary (Table B-8) 

 6.5 Financial Analysis Summary Tables 

 6.6 Detailed Equipment List 

 6.7 Flow Sheets 

 6.8 Sensitivity Study Tables and Figures 

 6.9 Table of Recommended Practice Deviations (Table D-3) 

(1) The summary and conclusions should be as concise as possible and appear in the front of the report. 

A brief description of the plant size, requirements and goals should be followed by a cost summary 

table containing the information shown. Following this table a general description of conclusions 

reached as a result of the sensitivity study may be given. Finally, concluding remarks concerning the 

viability or feasibility of proceeding further in the development of the process should be made. 

(2) Process/plant description (also see Sections 8.2, 8.3, 12.1, 12.2, 12.3) This section provides a 

description of the objectives and goals of the study and a description of the functions and major 

components of the major plant systems. Major design considerations should be included here along 

with special discussions of specific plant sections or equipment items as necessary. 

(3) Assumptions (also, see Sections 9, 12.1) This section should be used to summarize major process 

assumptions, especially those made in areas of emerging or non-standard technologies. This section 

should also be used to summarize cost engineering assumptions (i.e. equipment cost build-up 

procedures, equipment costing techniques, etc.) especially in those areas where deviations from the 

Practice have been made. 

(4) This section should be used to discuss any problems or weaknesses encountered in the costing 

process to arrive at an estimate of total plant investment cost. 

(5) Sensitivity Study (also see Section 12.7) This section should be used to describe the method and 

results of the sensitivity study. Each parameter analyzed should be discussed and comparisons 

made wherever possible to the base line study. 

(6) Tables and Flowsheets. Selected process flow sheets, related drawings, special figures and tables 

should appear all together in this section of the report and not next to the page where the flow sheet 

or table may actually be first discussed. Although this requirement may violate a general rule of 

technical writing, it is in keeping with a more important purpose of this practice to present information 

in a manner so that comparisons can be made in the most expeditious manner between reports.