Total Cost of Ownership: Understanding Its Role in Process Automation | Automation.com

Total Cost of Ownership: Understanding Its Role in Process Automation

December 052011

By: Jerry Belanger, Honeywell Process Solutions

In today’s competitive environment, staying ahead in manufacturing and technology means doing more with less. This includes strategies to drive down costs by eliminating waste and enhancing productivity—all while increasing yields and meeting the rapid pace of market pressures.

Industrial plants need solutions guaranteeing their controls system investments are optimally safeguarded. They not only seek to increase the efficiency of production process, but also reduce the long-term total cost of ownership (TCO) of automation assets. A longer product lifecycle means a lower TCO that plant owners can expect to pay each year.
 
Why is TCO so important?

TCO was first applied to the information technology (IT) industry in 1987 by the analyst firm Gartner Group. Since then, it has become extremely important to industrial organizations of all sizes, especially those with aging Brownfield facilities or new Greenfield projects. TCO is a model for capturing all of the costs associated with a technology investment over the life of its installation.

TCO has different implications for plant automation systems than a traditional IT infrastructure. Process applications and equipment lifecycles can vary from 6-10 years to as much as 40 years, and this variance can have a huge impact on overall costs. Additionally, industrial facilities can’t just upgrade process devices every four to six years like PCs; displays may last for 20 years, controllers can run for 14 years, I/O terminal panels may be good for 18 years, and wiring may last for 38 years. This situation results in significant lifecycle variance in process plants, with TCO becoming a moving target.

Determination of TCO in the process automation field has unique requirements: it must account for long and variable lifecycles; necessary reliability; platform switching costs; possible disruption to operations when changes are made; and the costs of training staff so users can be proficient with new equipment. Other factors that must be considered are risks and efficiencies in process applications and the value of flexibility and scalability. It is also important to align with strategic process project goals.

Considerations for plant owners

Although the premise of TCO has existed for some time, there is no well-established methodology for calculating TCO in the automation industry. The likely reason for this is the overall complexity of automated systems themselves. While most manufacturers generally look at TCO in some regard, they don’t comprehensively examine all the costs and impacts.

For plant owners, it’s just as important to recognize what TCO doesn’t do as it is to understand its primary function. TCO does not calculate the overall value of a technological purchase, or return on investment. Rather, this modeling tool shows manufacturers how much they can expect to spend during an automation asset’s full lifecycle. It only looks at the cost side of the equation.



As it applies to automation assets, TCO generally consists of three phases:

  • Procurement/Deployment
  • Operations/Maintenance
  • End-of-Life Management

All three of these areas must be carefully examined to identify direct and indirect costs to manage.

Elements unique to automation systems that factor into TCO include technology lifecycles, reliability factors, potentially disruptive costs brought on by platform switches, variable lifespan within a system, complex operations requiring staff retraining, and hardware/software upgrades. These costs can be difficult to quantify and calculate, even using tools such as the Monte Carlo analysis.

Furthermore, TCO does not easily capture the valuation of intangible, “hidden” assets such as knowledge base, IP investment, integration, etc. That is why costs outside the automation investment are frequently missed. Examples include costs incurred from reconfiguring advanced process control (APC) or manufacturing execution system (MES) solutions. TCO also does not assess the risk and efficiency of an overall system, nor does it place value on options such as scalability and flexibility. All told, these factors make TCO difficult for companies to align with strategic goals and quantify in complex situations where a large installed base is involved.



An ideal approach to TCO
 
In order to avoid complications brought about by shorter lifecycles, plants need an approach to TCO which closely aligns the automation lifespan with that of plant process assets. Focusing on product lifecycle issues, for instance, can help users utilize legacy control hardware and software alongside newer distributed control systems.

By looking at the total value of ownership (TVO), plant owners can incorporate total benefits attainted (TBA) such as increases in throughput, yield and productivity and balance this with the total cost of ownership. TVO = TBA – TCO.

Current industry offerings employ some of the following characteristics to help manufacturers reduce their automation TCO while improving their TVO:

Unattended install

Unattended install leads to reduced engineering costs for both the initial installation and a lower cost of ongoing upgrades. Having the installation process itself automated means the installer doesn’t need to sit at a console answering countless questions of a set-up wizard.

Simple service packs

With the sheer amount of equipment on the market, companies must identify appropriate hot fixes that are available, determine whether they have been tested, and ultimately install the hot fixes. Honeywell makes this process easier in several ways. First, it tests all Microsoft hot fixes as soon as they are released. The hot fixes are then published online as an informational resource for customers. Users can also obtain services to perform patch management, either locally onsite or remotely from other locations.

Flexible migration paths

Industrial operations need easier paths to migrate or upgrade their control equipment. Previously, the migration process required upgrading through subsequent versions, one at a time, until the desired generation was achieved. This time- and money-intensive process can be significantly lessened with technologies that allow users to “skip over” releases and migrate to the desired version faster.

Intelligent interfaces & wireless

Communications protocols such as Modbus TCP and Profibus help reduce costs in Greenfield and Brownfield expansions, as well as retrofits. They also provide a richer set of information to assist with process troubleshooting, resulting in quicker problem resolution. Wireless helps plants add cost-effective instrumentation in areas where the justification may not support wired instruments. Additionally, solutions like Honeywell’s OneWireless infrastructure provide a secure, reliable infrastructure for mobile applications.

Virtualization

Virtualization has gained greater attention in the process industries by eliminating the need for multiple servers to run applications. The reduced hardware certainly leads to cost savings. While most people think about the hardware, though, there is also substantial savings to be reaped in ongoing administration costs. Performing functions such as patch management, for instance, on fewer servers dramatically reduces the time needed to complete them. Making future upgrades also is far easier due to platform independence.

Extended OS lifecycle

Most industrial facilities prefer to stay on the same operating system (OS) for as long as possible unless some significant functionality is provided. Plus, they would rather schedule technology migrations only when they provide a clear value, rather than being forced by obsolescence.

Automated OPM preparation

Gathering the pertinent data to perform on-process migration (OPM) has now been automated to lower the cost and risk of upgrading to newer software releases. This not only saves significant time in the migration process, but also reduces the likelihood of issues during the upgrade.

This approach to TCO is clear: allow users to migrate legacy control assets at their own pace, versus having the supplier tell them when to upgrade their systems. Additionally, its technological approach allows facilities to remain with certain platforms for longer periods of time.

Plant owners should keep in mind that TCO is only part of the overall picture. TCO is derived from costs, independent of their contribution to profit. A more appropriate way to examine automation expenses is to balance them against benefits.

Conclusion

In many ways, TCO has become just as critical to plant operations as having the right instrumentation, process control system, APC applications and MES to create an interconnected facility that brings the right information to the right people. Maximizing the lifecycles of all these systems is the most important factor to lowering TCO and truly impacting the bottom line.
 

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