1. Based on the information given, do you think it possible to develop a cost model to estimate costs of large scale projects such as the Lake Charles project?
2. When the plant is operational, do you think it is possible to develop a cost estimation model for production outputs?

South African energy and chemicals company Sasol, like many companies dealing with large-scale projects, needs to prepare cost estimates. Sasol specialize in high value liquid fuels, chemicals and low-carbon electricity. In 2014, the company decided to invest $8.9 billion in the Lake Charles Chemical Project in Louisiana, USA. The project would create a ‘a world-scale 1.5 million ton per year ethane cracker, and six downstream chemical units’ (Sasol, 2016).
By the third quarter of 2016, the total estimated cost of completing the plant had risen to $11 billion. An investor project fact sheet for the Lake Charles project (see Sasol 2016) revealed the reasons for the increased cost. First, costs of construction increased due to poor soil and sub-surface conditions, which was compounded by poor weather. Second, the cost of contract labour proved to be higher than expected due to higher wage rates, higher engineering hours and lower productivity than planned. Third, the total labour cost was higher than estimated due to the use of higher skilled labour, which in turn implied higher wages rates. Despite the higher costs, the company expects the project to be completed on time and the press release notes they still regard the Lake Charles project as a sound strategic investment.