- July 25, 2011
Automation.com, July 2011
By Bill Lydon, Editor
There is a continuing discussion about upgrading aging automation systems and TCO is one method used to make decisions. These investments should be analyzed as serious strategic business investments within a defined lifespan. There are a number of factors to consider in this analysis including business, technical, and operations.
By Bill Lydon, Editor
Decisions based only on TCO (Total Cost of Ownership) can be misleading.
There is a continuing discussion about upgrading aging automation systems and TCO is one method used to make decisions. But TCO is only one part of the puzzle. Vendors are all talking about helping users understand where to invest (subliminal message, “buy from our company”) in automation improvements, retrofits, and upgrades. These investments should be analyzed as serious strategic business investments within a defined lifespan. There are a number of factors to consider in this analysis including business, technical, and operations.
What is TCO?
In the past, simple return on investment was used to justify investments for improvements but this has changed since it does not look at the entire cost profile. Information Technology people do a good job of analyzing information technology investments using Total Cost of Ownership (TCO) analysis popularized by the Gartner Group in 1987. The goal of TCO is to quantify the financial impact of deploying a new technology system investment over its life cycle. A TCO analysis factors the total cost of acquisition and operating costs including software, hardware, and training. A TCO analysis can be used to gauge any capital investment. This analysis for the entire life of an asset is also commonly referred to as "cradle to grave" or "womb to tomb." This provides one measure to use in the upgrade and migration decision process.
What is this all about?
TCO is a narrow measure since it only considers that cost side of the equation. Automation investments are about improving the performance of a production operation. In the context of the entire production operations, including equipment being controlled and automated, there is a high level of complexity with many interacting systems and dynamics. The difficulty is in determining all the factors involved and where to invest for greatest gain. This should be a multidiscipline decision making process including automation people, operations, production and general management. Major changes in the automation systems will impact the performance measures of all these groups. Improving plant and process performance should be the overriding goal in making these investments. There are a number of factors to consider:
Migration of parts of a system may look financially attractive but if your competitors install a new system that improves their operations by applying new technology, your operations may be at a disadvantage. The application of technology should be considered as a way to outpace competitors.
Production uptime can be improved with lower Mean Time To Repair (MTTR) and longer Meantime Between Failure (MTBF). This also lowers overall maintenance cost. Improvements in these numbers can be used to calculate increased production output.
The future always holds a level of uncertainly and changes that improve production flexibility help to “future proof” operations. Lowering the time of changeovers from one product to another is a prime example that increases production output.
A large business benefit of open architecture is it insures interoperability between multivendor products. This allows user to select best of breed for applications and provides competitive options throughout the system lifecycle. Key open standards include industrial open networks (wired & wireless), OPC UA, S95, and S88.
Many migration strategies being promoted by vendors today focus on replacing operator consoles, servers, software, and controllers. These upgrades can add a great deal of value but sensors and instrumentation are critical to proper function of complete automation systems. Sensors and instrumentation do have a longer lifecycle than these other items, but when they are at the end of their lifecycle they have a major impact on operations.
How much upgrade work should be outsourced vs. done by in-house people is an issue that should be examined. Outsourcing has become popular but having in-house people involved in doing migration and upgrade planning, engineering, installation, and commissioning insures they understand the new system and their knowledge helps avoid mistakes made in the past. In-house people will also have more confidence in the system if they are involved.
Maintenance cost over the lifecycle is a major cost that can be lowered with proper selection of new technology. The entire replacement of an existing system with a new system may be justified based on maintenance savings.
Assessing which vendors will continue to supply and support the product in the long run should be part of purchase analysis to avoid being stuck with an orphaned product. I have been told firsthand by users that sometimes understanding the “true” obsolescence plan from vendors is really hard and creates a dilemma. In some cases, there seems to be a difference between sales obsolescence and technical obsolescence. Requiring a written statement of obsolescence policy and time schedules from one of the vendor’s corporate officers is good practice for both your existing system and with proposals for new projects.
It is important that automation people have an ongoing plan for upgrades, migration, and improvements to provide management with automation capital reinvestment numbers. Planning avoids fire drills with a panic to replace an aging system.
The objectives are to forecast and reduce the number of individual capital requests. A good practice is to develop 3-5 year automation system change roadmaps and include defining areas of greatest risk to prioritize changes. Planning helps people decide on strategic moves, like buying spare parts on eBay so they have them on hand for aging systems that need to be kept running longer.
Planning capital requests for systems migrations, upgrades, and replacement is sound business planning. Anyone with automation systems should be doing this.
Upgrade and Migration Investments
Vendors all want to help users make these decisions but you need to be in the driver’s seat and understand your organizations needs and goals. Some vendors have tools to assist in analysis that may be helpful but do your own analysis. At the end of the day, the performance of your plant is the major focus.
Did you enjoy this great article?
Check out our free e-newsletters to read more great articles..Subscribe