Project Concept & Feasibility Stage
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Return to Achieving Reliability in New Assets
Project Concept or Idea
Project Ideas
At the project idea stage Bluescope Steel use a series of questions to challenge peoples thinking related to its justification. Many projects ideas don’t get past this stage. When Should Assets Be Replaced?
This key question was of concern to Sydney Water as they have a substantial aging asset base. One of the problems is that local asset owners and other stakeholders often want to have bright new shiny assets for a range of reasons. Sydney Water has a basic Flow Chart that tries to assists with this decision that takes into account existing maintenance & operating costs, improved technology available, renewal cost etc. Their philosophy is to make the replacement decision on the assets condition and its cost history. Key assessment parameter of proposals for replacement is on Net Present Value (NPV).
Bluescope Steel suggested that for a range of equipment, obsolescence is a key driver for replacement. It is a major business risk if key equipment breaks down and you can’t fix it. Formal Risk Analysis is a key tool is a key tool used to make this assessment.
Project Justification
There was a consensus that a rigorous financial justification should be carried out before any major cost commitments are made.
Data to Support the Analysis of Project Justification
There were a number of comments about problems getting good data to support analysis of project justification. One thing that greatly assists Sydney Water with this decision process for replacement of its assets is that it has now got 5 to 6 years of good data on maintenance costs, MTBF and other reliability parameters in its CMMS system. Typically the payback period has to be less than 5 years but Sydney water are also involved in using Life Cycle Cost analysis. One of the critical items of data is the cost of outages and loss of production.
Bluescope Steel suggested that the key to having good data available in CMMS systems is getting the users to input the required data that will be useful later on. They focus strongly on this for their SAP CMMS system. Bluescope have a project justification system as a part of their ‘Capital Process’ that focuses on returning value to the shareholder. They realise that competing in the international market. Increased asset infrastructure costs by adding or replacing assets is a major burden to an organisation. There are also a broad range of issues other than costs that have to be considered such as safety, environmental and community concerns. On recent major projects Bluescope has used a 25 year evaluation period to assess Life Cycle Costs.
There was discussion around the data OEM’s supply about actual ongoing maintenance and operating cost for supplied assets. OEM’s have a strong motivation to underplay these costs. It was suggested that wherever possible equivalent actual costs from in-house or from similar environments should be used and they are often substantially higher than supplied OEM data (also see RCM Analysis).
Life Cycle Costing Systems
Qantas have used a software system (supported by an ex-IBM engineer) to do Life Cycle Cost (LCC) analysis. They gave the example of the LCC comparison between two generator options where the cost over 10 years was double for one option compared to the other option. Qantas has a specification for LCC analysis.
