It’s the Catch-22 of successful predictive analytics: When unexpected events such as unplanned downtime have been all but eliminated, what’s the value of prediction? How much continuing investment does an unpredictable future justify? The hard lesson of so many catastrophic events—industrial accidents and terrorist attacks alike—is that they were avoidable. With 20/20 hindsight, the data was available to predict the events, and there was time to intervene and head off disaster. How much have the avoidable catastrophic events of the 21st century cost us, and how much would we have willingly spent to prevent them?
Events that don’t happen have value, and sophisticated industrial operators know how much. But the ripple effect of unanticipated events such as mechanical failure can carry so widely and subtly through the cost structure of production operations that most companies don’t estimate them. Not so for one company I’ve worked with, which wishes to remain anonymous—for our purposes we’ll call it the ABC Company. The ABC Company doesn’t merely estimate costs for unplanned events; it applies forensic accounting to measure dozens of variables that drive up costs as these events unfold. Understanding these variables and costs has been vital to the ABC Company’s strategy for financially outperforming its competitors. The ABC Company knows exactly what an event that didn’t happen is worth and invests in prediction, among other operating strategies, to prevent these incidents.
Most mechanical failure cost-avoidance estimates rely on notional guidelines about major repair and capital equipment replacement costs. They may even estimate opportunity costs such as lost revenue. Few estimating models go further, but they should because reality is more complicated. What about the unproductive labor hours and energy costs that accumulate during unplanned shutdowns? What about incident investigation, insurance claim processing, and remediation costs? What about wasted raw materials, potential finished product spoilage, and contractual costs, which may include penalties for failing to meet contractual obligations or costs to procure substitutes, like buying power off the grid during peak energy demand to deliver on the commitments of a baseload power plant that goes down.