July/August 2011

Another lost opportunity? Justifying automation projects

By Bill Lydon, InTech, Chief Editor

Automation professionals have a unique set of knowledge and skills to improve production efficiencies and plant operations. I have found in discussions with automation people, they sometimes express frustration when management does not fund ideas they know are great for the company. In my experience, improvements that look like an obvious investment to us must be explained explicitly to management defining all the benefits in order for them to understand the value of funding an idea. It is important to remember that at any point in time, management has a number of projects to consider and compares the bottom-line benefit of each to decide where to invest money.

In the past, simple return on investment was used to justify investments for improvements, but this has changed since it does not describe all the benefits. Information Technology people do a good job at this using Total Cost of Ownership (TCO) analysis popularized by the Gartner Group in 1987 for information technology investment analysis. The goal of TCO is to quantify the financial impact of deploying a new technology product over its life cycle. These technologies include software and hardware and training. A TCO analysis includes total cost of acquisition and operating costs. A TCO analysis is used to gauge the viability of any capital investment. This analysis is for the entire life of an asset, also commonly referred to as "cradle to grave" or "womb to tomb." While we love the "beauty" of the application of technology to improve production, we need to also speak to the management and accountants in terms they understand to get projects funded. From an engineering point of view, this is really putting together the entire analysis.

Several benefits can be estimated to justify a project. The goal is to invest the company's money wisely. Direct improvement in production output is an obvious benefit, and the challenge is to understand all the benefits of an improvement and determine if it is worth investing in a change.

The value of improving production quality can be challenging to quantify. Examining things like reduction of rework and product returns can be used to estimate the return on investment for an improvement by calculating avoided costs.

Lowering energy costs is becoming a big issue, and the future cost projections of energy should be considered in the analysis. Future energy costs are a risk factor most companies are concerned about, and the future is unclear.

Uptime can be improved with lower Mean Time To Repair and longer Meantime Between Failure. This also lowers overall maintenance cost. Improvements in these numbers can be used to calculate increased production output. The simplification of equipment can also lead to the need for less spare parts inventory, and the benefit of this can be estimated with the help of your accounting people.

Lowering the time of changeovers from one product to another also increases production output.

Increasingly, companies are embracing sustainability goals, and projects that have a positive impact on sustainability are welcomed. Sustainability factors include repair, maintenance, and disposal or recycling. The sustainability mindset can bring to light new ideas. At an industrial conference, for example, a Frito-Lay person explained how they now recover starch from processing potatoes and sell it for about $7 million a year.

Learn how to communicate with non-technical people to sell projects you believe are the best investment for your company.

Please share your thoughts at blydon@isa.org.