Most process plants runs for months or years between unit shutdowns. This leaves few opportunities to repair, modify or upgrade existing equipment. At some level, plant personnel should view every equipment intervention as an improvement opportunity. Indeed, some of the best-known reliability engineers consider that approach as a best-practice methodology for continuous plant improvement. Nevertheless, one intractable problem often arises — how to pay for the modifications and from whose budget? This applies to modifications included as part of normal maintenance activities as well as for capital project spending.
Finances often depend on the answer to a crucial question. Is the work part of the minimum requirements for getting project tasks done or an extra effort to improve things?
Anything necessary to meet minimum requirements should get straightforward approval. However, other items require justification and sometimes may generate heated debate. Adding an individual improvement may incur a low incremental cost but the cumulative effect of multiple ones can sink a project. Moreover, developing the reputation as someone who always promotes “pet” modifications to projects can undermine your credibility when you say that including something truly is essential. Conversely, making improvements to equipment and the process are the only ways the plant ever will improve. Waiting two, three or more years until the next opportunity occurs may prove short-sighted both operationally and financially.
A good approach for evaluating whether to add plant improvement ideas to a project is to explicitly and carefully answer three questions: First, how much will the improvement cost? Second, what type of benefit will accrue? And third, how quickly will the benefit pay for itself? You don’t need to quantify everything — but if you can’t clearly explain something it’s probably not justified. Capital allocation is a legitimate management function. The engineer’s job is to give management the tools needed to make sound financial decisions.
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First, quantify the cost of the improvement to the level necessary to make a decision. The precision required depends upon management, technical and economic factors. If the manager making a decision has authority to sign-off on a $10,000 change, an accuracy of ±$1,000 for a $5,000 expense may suffice. However, if that approving manager only can okay spending of up to $5,000, you may need more precision.
Second, state what creates the benefit — for instance, lower maintenance costs, longer run-length, higher equipment utilization or fewer shutdowns. Knowing the source of the benefit improves the credibility in evaluating the economic return.
Third, estimate how long it will take to recoup the cost. The likelihood of approval of a modification increases the shorter the payback period. As a rule-of-thumb, I’ve never hesitated to bring forward a modification that had a payback period of less than six months. Most of us work in industries where what will happen in the next six months is reasonably predictable. As such, risk of not recapturing the investment is low. For payback periods of six months to one year, you should expect that a large percentage of the smaller ideas get implemented. If your firm is so short-term-bound or cash-starved that it doesn’t implement a lot of investments with short-period returns, keep your resumé updated and an eye open for opportunities elsewhere.
As part of this cost analysis, also understand the differences between capital and expense funds. Depending upon the jurisdiction, potential improvements may have legal implications as well. Determine whether the expenditure counts as capital or expense and the tax implications of that decision. (For more on economic analysis, see my previous columns: “Properly Assess Economics,” and “Does Using Payback Analysis Pay?”)
Finally, make your pitch to the right person. For example, one company may have different pools of money for maintenance, compliance, small projects and large projects. So, target the approver for the bucket of money where your proposed change belongs.
While these guidelines aren’t foolproof and don’t fit every situation, they give a good idea of some basic steps to take to improve plant performance. Plants — and companies — don’t get to best-in-class performance and profitability without thinking about the future.
