Estimating capex means building the plant’s one-time capital up from the ground: cost the dominant equipment per unit operation, sum to a purchased-equipment base, then gross that base up through a stack of factors — installation, off-sites, indirects, contingency, and working capital — to total capex. It is a factored estimate (±30–50%), and because every layer multiplies the one beneath, the equipment base is the number to get right. This page is the method; accounting places the resulting figure in the wider cost ledger that the capital recovery factor annualizes into levelized cost.
Equipment first
The base of the whole estimate is the purchased-equipment cost, built unit operation by unit operation:
Per unit operation, pick the 2–3 items that dominate cost; approximate the rest.
Size each to its design (nameplate) duty — the class-specific measure cost tracks: area for exchangers, power for compressors and pumps, volume for vessels and reactors, plus a design margin (~10–20%).
Scale each from a reference cost with the six-tenths rule, using the class exponent. Past a class’s largest standard unit, capacity is met by numbering up — N identical units in parallel, cost ~linear in N (no economy of scale) — rather than one larger item.
Sum to purchased-equipment cost.
Gross up to installed, then roll up to total
Multiply by an installation factor (piping, steel, labor, field indirects; ~2–4 by class, or a single blended Lang factor of ~3.1–4.7 by plant type) for installed cost.
That installed figure is the inside-battery-limits (ISBL) cost — the process plant proper. The roll-up to the figure that actually gets annualized:
+ OSBL — off-site infrastructure (utilities, storage, site works). ISBL + OSBL = direct field cost.
+ Indirects — engineering, construction management, contractor fees, as factors on direct field cost.
+ Contingency — the expected cost of what the estimate hasn’t resolved yet, sized to its accuracy class — not a discretionary buffer.
= Total fixed capital, + working capital (inventories, spares, start-up cash) = total capex.
Each layer multiplies the one beneath — installation factors the equipment base, indirects factor direct field cost, contingency factors that. The total — not the bare ISBL or purchased-equipment cost — is the defensible “capex,” and what the capital recovery factor carries into levelized cost.
Limits & typical error
It’s an accuracy class, not a point — a factored estimate is ±30–50% (FEL-1/2; see uncertainty & accuracy class). More significant figures imply precision the method can’t supply.
The factored stack multiplies the base error — each layer (install factor, OSBL, indirects, contingency) rides on the one beneath, so a 25% error in the equipment base is still ~25% at the total. A single-point total implies a precision the method can’t deliver.
Quoting the wrong line understates the plant — purchased-equipment cost is only ~a quarter to a third of installed (off by the ~3–4× installation factor); ISBL is ~half of total fixed capital (off by ~2×). Dropping contingency reports an unlikely best case.
Scope errors double-count or drop cost — a Lang factor (already bundling OSBL and indirects) plus OSBL again, an interface item booked in both ISBL and OSBL, or working capital omitted. Each layer and crossing is counted exactly once, and only the total where everything is counted is invariant.