Chapter 3 Decision Support Model (IUWS-DSM) - Tubdok

72 New Conception and Decision Support Model for IUWS
3.4.2 Cost estimation
Cost estimation is the most critical criterion in decision making. Depending on the
specificity of design, the economic assessment can be distinguished in several levels with
certain accuracies (Humphreys 1991):
a. order-of-magnitude +50% to -30 %
b. budget +30% to -15%
c. definitive assessment +15% to -5%
Because the IUWS-DSM is the tool for planning IUWS in the early project phase, the first
level order-of-magnitude assessment can meet the requirement. The methods of cost
estimation are thereby suggested.
3.4.2.1 general methods
In economic assessment, two sorts of cost are involved that are investment cost and
annual costs, where the revenue represents the profits. In order to compare different system
options, investment cost, annual costs and annual revenue are together expressed as either
present value (P0) (i.e. the value at the beginning of the project or the calculation period), or
future value (Fn) (i.e. the value at the end of the calculation period), or annuity amount (A) (i.e.
the value in each year during the calculation period) (Kleinfeld, 1993). In urban water projects,
investment cost refers to the construction cost, where annual cost is the costs of operation
and maintenance (O&M). As the municipal projects, the profits are usually not considered.
Likewise, the IUWS-DSM includes only construction cost and O&M costs, too.
Cost estimation of package plants is simple, as all cost information must be provided by
manufacturers. It needs to update the information from manufacturers in due course.
If the structures and facilities are constructed on-site, the cost estimation can be achieved
by the classic economic calculation, which has higher accuracy but requires detailed project
information and professional knowledge of economics. If the required accuracy is not high,
the simpler methods can be used, whereby the empirical cost functions are suggested in the
IUWS-DSM. The empirical cost functions are generated base on the statistical data of the
existing projects, where the costs of facilities or structures are the functions of the critical
parameters. It is a simple method but providing appropriate cost estimation, especially for the
projects in their early phase. In the viewpoint of economics, three sorts of cost functions can
be generated:
1. construction cost and O&M costs have individual cost functions;
2. construction cost has the cost function, and O&M costs are represented as the percentage
of construction cost;
3. construction cost and O&M costs are lumped together represented by single cost function.
On-site constructed plants consists many components with the variations of treatment
trains. Hence, in the viewpoint of treatment facilities, the cost functions of both construction
and O&M fall into three cases:
1. the water treatment processes are classified into steps and each step has the cost function;
2. cost functions are generated for each treatment train or each structure;
3. cost functions are generated for the major components, where the costs of ancillary works
or minor facilities are represented as percentage of the major parts.