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Pilot Plant Cost Estimating: Make Intelligent Use of Contingency

By Richard Palluzi ExxonMobil Research & Engineering Co. |

    The first two installments of this three-part series (CE, November 2005, pp. 40–45, and December, pp. 42–47) dealt mainly with the major methods for estimating the capital costs of pilot plants. This final installment begins with a look at the making of provision for contingency, a concept sometimes misunderstood and even more often misapplied in pilot-plant cost estimating.   PROVIDING FOR CONTINGENCY There are many different types of contingency, each with its own purpose (Table 1). Variations in terminology arise among different organizations. In particular, some of the kinds of contingency listed in that table are instead called “allowances” by some firms, to underscore the fact that these can only be best guesses, based on historical information rather than on any engineering assessment.   Lumping has drawbacks Some companies, particularly smaller ones, combine many or all of the types of contingency into broader ones or — more commonly — a single number. This broadening can pose a problem if all the elements that go into each category (or into the single total) are not individually assessed, estimated and appropriately applied, as discussed below. The broadening also…
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