Perspectives: Field Notes

Finding The True Cost of Data-Collecting Equipment -- Can You Really Afford It?

Consider all costs before you opt to install an instrument.

By Dirk Willard, Contributing Editor

I shudder to think about the cost. The gas chromatograph was the pet project of someone at corporate. It never was meant to be installed in a hot attic with 140 ft of tubing connecting it to a sample port above a fermenter. I went to a week-long class for maintaining it. The instrument provided excellent data on our exhaust fumes — for about three months. The tubing fouled; eventually the detector burned out and I replaced it, but the chromatograph was never used again. All that money spent for a few weeks of data!

During my career, I’ve seen enough bright ideas come and go to make me a little skeptical. Consider what that chromatograph really cost.

First, there were all the hidden labor costs invested in finding the right instrument: preparing a purchase order, reviewing the bids, answering vendor questions, etc.; a trip from St. Louis to Bakersfield, Calif., to decide the layout; and all those meetings. Let’s roughly tally these hours: instrument selection, 80; bid preparation, 40; bidding, 60; bid selection, 40; field trip, 40; basic design, 40; reviewing and amending design(s), 120; bids and hiring local contractor to complete the work or coordinating with maintenance, 60; managing equipment and parts delivery, 40; commissioning, start-up, and hand-over, 80; training, 80; and, of course, miscellaneous, 40. That totals 720 hours. Granted, these hours are generous but they’re not unrealistic.

Although most of these charges are expensed, they still cost something — the time to pursue other opportunities. Several engineers were tied up working on this instrument. The chromatograph required about 18 engineer-weeks, more than one-third of a man-year. As we’ll see, the construction labor pales compared to this.

Now, let’s consider the annual cost. Start with the project cost. Assuming a $12,000 delivery price for the chromatograph plus $9,000 for construction gives a total of $21,000. While the instrument could be stand-alone, it makes sense to connect it to a distributed control system, which adds about $12,000, far more than the construction cost. This brings the project to about $33,000. Of course, the tab would be much more if we factored in the engineering, which was expensed. Let’s use the average reported by the U.S. Department of Labor: $79,000/year (2006); this salary assumes an engineer with mid-level experience. At about 1,880 hr/yr, that’s a billing rate of about $42/hr. This adds about $30,000 to the project cost, so it totals $33,000 + $30,000 = $63,000. Assuming a typical life of about 15 years for the instrument, an interest rate of 10%, a modest salvage value, 40 hr/yr of engineering support, at $1,700, and some maintenance help keeping the tubing clean, at about $1,000/yr, gives an annual cost of about $10,900 — or around $163,500 over 15 years. Even assuming that the instrument lasted this long, the question that should have been considered was: “Are the data it could provide really worth this much per year?”

Perhaps those data were worth the investment. However, many times such spending really doesn’t make sense. How can you avoid mistakes in the future?

My first idea is to limit your losses. Don’t buy instruments for all your plants at once. Vendors sometimes offer tempting discounts for multiple purchases; resist this bargain — use one installation as a pilot program to assess costs, identify improvements and evaluate benefits. Don’t believe any process comparison. A manufacturing scheme sometimes can differ not only between companies but even between plants. A pilot program allows you to come up with a more realistic estimate. If the costs aren’t worth the investment, try another approach; in the case of a chromatograph, look for better laboratory tests.

Next, develop a database on equipment you use everyday: purchase price, replacement cost, downtime, maintenance man hours, engineering man hours and lessons learned. You don’t want to repeat a mistake. A number of programs are available for document control.

Here’s another idea: create a team. Instead of trying to individually duplicate success everywhere in your organization, use the same vendor, the same contractor and the same company engineer(s) to install instruments at various sites. The advantage of this skunk-works approach is that the team will accumulate knowledge with more installation experience. Make sure you capture this knowledge at the end of the project.
At one company I experienced first-hand how well the skunk-works approach can work. The firm assembled an impressive group of engineers and dedicated them to one goal: inventing a reactor that could minimize downtime and revolutionize quality. Each engineer on the team specialized in one or more aspects of the design. Our competition, a giant in the industry, tried and failed many years before. We were successful because management recognized the value of this approach. As with all things, creative, dynamic leadership is an absolute necessity for success.

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