Find the right data to justify electrical system upgrades
41% of all respondents in a recent ARC Advisory Group survey cited “lost production” and “failure costs” as the primary justification for projects to upgrade electrical power systems.
In recent years, it has been notoriously difficult to justify and obtain approval for electrical power systems projects, and the global recession has only made this situation worse. While the sizeable and rapidly aging installed base clearly must be upgraded, management teams generally only approve projects that have specific beneficial econometrics associated with them. That is why 41% of all respondents in a recent ARC Advisory Group survey cited “lost production” and “failure costs” as the primary justification for projects to upgrade electrical power systems.
Justification based simply on upgrading to the latest version is not a successful strategy, nor a wise one. Justifying replacing electrical power systems based on asset amortization is also a flawed strategy. Almost all the end users ARC spoke with use the electrical power systems well past the point of full depreciation, so only 6% of the respondents cited amortized cost as a justification to upgrade.
In the current environment of scarce funds for capital expenditure, ARC recommends that users justify electrical power systems upgrades or replacements by emphasizing the costs of lost production and the cost of failure. This is a far more effective strategy with the CEO or CFO than focusing on amortization costs, or even trying to use arguments regarding obsolescence, improved performance, or even failure frequency.
Planning a project
Planning a migration project can be tricky. Some industry leaders will have lifecycle management policies to facilitate the planning process. However, the majority of the respondents, 72%, did not have such a lifecycle management policy, and “lost production” was the primary reason cited by 28% of the respondents to trigger the upgrade planning process.
Another planning issue was upgrading protection and control systems based on devices not currently made or supported by the suppliers, such as electromechanical relays. The survey found 63% of the respondents do have plans to upgrade their protection and control systems with devices not currently made or supported by the suppliers as long as those systems are based on devices that can be replaced by identical form-function components, such as relays. The current status of the devices is not a deciding factor in the upgrade decision. The most important factor is the reputation for reliability and durability of the device, even if it is no longer manufactured, as the lifecycle of the device will be many years into the future.
One encouraging finding was that 78% of respondents replaced their obsolete protection and control systems as part of their power equipment replacement, especially when this is done as part of a scheduled shutdown based on preventive maintenance, equipment upgrade, etc. These protection and control systems typically would not be replaced earlier, as the time, cost, and effort to replace these systems, along with potential production downtime, do not justify early replacement, especially if the reason for replacement is solely for upgrade versus equipment failure.
ARC recommends that users do not follow the majority of the respondents who did not have lifecycle management policies to facilitate the planning process. Users should establish lifecycle management policies by establishing a team with representatives from multiple disciplines ranging from plant management to operations, engineering, and maintenance.
Users should also not follow the majority of respondents, and should upgrade their protection and control systems based on devices that are currently made or supported by the suppliers to ensure accessibility to spare parts. However, users should follow the majority of respondents and replace their obsolete protection and control systems as part of their power equipment replacement.
The scope of a migration or upgrade project is another key issue. For example, roll-in replacement options for switchgear are well accepted by 64% of the respondents, who feel that this offers a good balance of installation ease and lower costs, without compromising the integrity of the solution. Also, 74% of respondents do conduct a systems and equipment condition assessment before an upgrade as an essential step, especially to take advantage of the scheduled downtime by upgrading all that needs to be done to best prevent potential future unscheduled downtime incidents.
Many users found that projected failure rates can be correlated somewhat to the results found based on a condition assessment, so this offers the opportunity to plan proactively to prevent future loss of production rather than having to react later after the fact.
Many plants have multiple parallel processing trains. However, 84% of the respondents will only consider upgrading one train at a time due to concerns over lost production time. This is consistent with the overarching concern regarding the large impact that downtime has on profitability. Also, an overwhelming 95% of respondents prefer to do upgrade and migration projects in a phased manner versus an all-at-once or total rip-and-replace approach.
ARC recommends that users conduct condition assessments before any upgrade so they can base decisions on a qualitative assessment of the state of obsolescence, physical condition, and expected operating life of the plant. This will maximize the efficiency of any planned downtime, and help prevent future costly, unplanned downtimes. Also, all migrations need to be done in phases, as the risks of all-at-once migrations, especially regarding possible extension of the planned downtime, far outweigh the cost savings.
To view an accompanying ARC video on Electrical Power Systems Lifecycle Management Strategies that the author of this report recorded at the 2011 ARC World Industry Forum in Orlando, visit the ARC channel on YouTube.
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2012 Salary Survey
In a year when manufacturing continued to lead the economic rebound, it makes sense that plant manager bonuses rebounded. Plant Engineering’s annual Salary Survey shows both wages and bonuses rose in 2012 after a retreat the year before.
Average salary across all job titles for plant floor management rose 3.5% to $95,446, and bonus compensation jumped to $15,162, a 4.2% increase from the 2010 level and double the 2011 total, which showed a sharp drop in bonus.