Estimate cost with PREDICT indices

As regular readers will know, each month Process Engineering publishes a series of plant cost indices for the UK and a dozen or so other countries around the world. The latest available figures are presented in the panel at the foot of the page and will appear there every month. For the benefit of new readers, however, a brief introduction to cost indices in general, and PE's own PREDICT indices in particular, may be helpful.

Put simply, a plant cost index offers a quick method of forecasting the likely cost of new process plant from a knowledge of the costs of similar plant in the past. Without going through a detailed estimating exercise, the engineer can arrive at a reasonable approximation of the cost of the new plant and, by extrapolating through a time-series analysis of historical cost indices, the cost of plant at some time in the future.

Expressed mathematically, what the estimator does is to solve for:

CP = CH(IP/IH)

where: CP is the present (unknown) cost of the plant; CH is the original historic (known) cost of a similar plant; IP is the present plant cost index; and IH the index at the time of building the original plant.

This seemingly simple equation needs to be approached with some caution, however. The cost engineer must be aware, for example, of the way the indices are made up. In the case of PE's PREDICT index, the figures for the UK are comprised of five carefully weighted components accounting for mechanical, electrical, construction, site and overhead costs.

Again, this can be represented mathematically by:

I = 0.37IM + 0.08IE + 0.10IC + 0.19IS + 0.26IO

in which:

* I is the composite PE Predict index;

* IM is an index for the mechanical engineering element of a project, including the fabrication and supply of bought-in items such as pumps, vessels, reactors, evaporators, filters, dryers and other unit operation equipment;

* IE is an index for all electrical and instrument engineering, including sub-stations, switchgear, cabling and wiring, and all control systems;

* IC covers all civil engineering and building work such as roads and other infrastructure, including steelwork;

* IS takes in other site engineering work such as piping assembly, welding and other mechanical engineering functions;

* and IO is the index embracing project overheads such as engineering design, supervision and adminstration.

The mechanical, electrical and construction elements (IM, IE and IC) above are each comprised of a further three subdivisions to include materials, wages and adminstration costs, but in our monthly presentation these are compounded in the figures given for the respective component indices.

PE has been publishing its indices continually since January 1973. The current series has a base of 1990(averaged) = 100. Quarterly figures for the composite index I since then are shown in Figure 1 (right). PE