The costs and difficulties associated with wiring and terminations have historically limited the sensors used in manufacturing and production processes to only the most essential measurements. Industrial Internet of Things (IIoT)-based wireless devices have fundamentally changed this reality.
However, more data from these sensors does not automatically translate into better business performance. It takes analysis and recommended actions & changes in work processes to improve performance in areas such as safety, reliability, efficiency & emissions, and production.
Connected Services by experts is an immediate way to turn this additional data into improved performance. In this recorded webinar, The Business Case for IIoT-powered Condition Monitoring, Emerson’s Mike Boudreaux addresses how to develop the business case for a formal reliability program aimed at reducing downtime through condition monitoring.
Mike highlights 4 steps in building this business case:
- Develop a condition-monitoring strategy
- Estimate the value
- Determine the cost
- Calculate the return on investment
Develop a condition-monitoring strategy
There are two common options for developing this strategy. The first is as part of a formal reliability program that is broad in scope and applied across the entire operation—within or across facilities—and the second is to build a business case for individual investments in condition monitoring on specific types of critical equipment.
The strategy should identify which equipment you will monitor and what methods you will use to perform the monitoring. You don’t want to do condition monitoring for all equipment because some equipment isn’t critical enough to justify the investment. Instead, target the equipment that generates the biggest problems.
This identification process should be based on criticality (the impact to operations if the equipment fails) and should consider factors such as which technology to use, frequency of data collection, online vs. offline collection, new tech vs. what is already installed on the equipment, and in-house vs. external expertise to do the monitoring.
Estimate the value
It’s important to understand the impact of downtime in terms of lost production, increased costs, depleted inventory, and increased safety risks to build the business case. The calculations need to be based on several inputs—equipment to be monitored, unplanned outage in past year, % of these outages due to critical equipment failures, and the estimated improvements in avoiding these unplanned outages with continuous condition monitoring in place.
These calculations are also applicable to shutdowns, turnarounds and outages (STO) projects. These assumptions are based on the fact that you can reduce the amount of maintenance during an outage by being able to decide if equipment needs it, based on condition monitoring information prior to the outage.
Determine the cost
The costs not only include the investments in technology but also in the costs associated with people, processes and technology.
For example, you need to consider the time required for implementing process improvements, the time for training people to work differently and how to work with new technologies, and recurring condition monitoring costs. It’s important to consider what existing technology can be leveraged as well as what new technology is required—new sensors and devices, gateways, infrastructure, services for installation and integration, etc.
Calculate the return on investment
You’ll need to perform calculation that sums the benefits for each year of the program, sums the costs for each year of the program, calculates the annual cash flow (benefits – costs), and calculates the cumulative cash flow (cumulative benefits – cumulative costs).
Use these factors to calculate the Internal Rate of Return (IRR) and compare to your company’s internal cost of capital. IRR estimates the profitability of potential investments, and it is an iterative function that can be performed in Excel. Your finance organization can tell you what target rate you need to hit for an investment.
Keep in mind that unplanned downtime reduction is a recurring item that happens each year, STO efficiency improvement happens periodically, condition monitoring is an annual cost, and implementation costs occur once.
Watch the webinar for Mike’s specific examples in these four steps. Request a Connected Services consultation to help your organization get on the path to more reliable operations and better business performance.