Martin holds a Ph.D. in industrial engineering and has written a book on the subject of figuring out those correct averages, “Bottom-Line Automation,” published by ISA—the Instrumentation, Systems and Automation Society.
Track the cash
Tracking the payback of an investment in automation is best done by calculating cash flow rather than finding a way to measure instantaneous and cumulative return on investment (ROI), according to Martin. ROI can be extracted from cash flow. But the real problem, says Martin, is that operators and plant management have no way to determine which processes, if any, are profitable at any point in time. They also are given no measures to determine if changes in the process impact profitability—either for good or bad.
“We began a research project 15 years ago trying to determine what issues were on the minds of corporate executives regarding their plants that we could apply technology to solve,” says Martin. “Over the intervening years, over 2,000 executives have been interviewed in the research. One thing that came up every time, either as first, second or third choice, was visibility into the plant floor. The accounting system always stopped at the whole plant level, typically with monthly variance reports. That just wasn’t good enough for these executives.
“Meanwhile, the engineering people were busy trying to develop their own key performance indicators (KPIs), but these had no credibility with those in the executive suite because the KPIs were not tied directly to profitability. In fact, one chief executive told me, ‘If one more engineer puts in one more KPI to prove value, I’ll fire him.’ We looked at the situation and figured out that there is a huge database of information coming directly from the extensive network of instrumentation. Why not use this and link to real-time accounting? The result was a system we call Dynamic Performance Measures (DPMs).”
Martin and his team discovered that the only way to track whether an investment in automation was paying off was to change the accounting system. Five steps were determined:
- Develop and implement a real-time accounting system throughout the industrial plant
- Operate the real-time accounting system for a period of time to establish an operating baseline
- Implement the automation system
- Evaluate the historical real-time accounting information to determine the economic value generated (EVG) by the automation system
- Totalize the EVG over time to determine when 100 percent ROI occurs.
Once real-time accounting information is available, management can prioritize metrics and decompose them to plant unit level. Now, operators can see the financial performance of every change they make to the process system. Further, maintenance can determine optimum times for conducting preventive maintenance work and engineers can get real-time feedback on operations as they plan upgrades and improvements.
According to Martin, Dynegy Midstream Services, a gas-liquids subsidiary of Dynegy, of Houston, credits DPM for helping it reduce operating expenses by $58 million and maintenance costs by $7 million during the first year of use. Analyst Tom Fiske with ARC Advisory Group, an analyst firm in Dedham, Mass., states, “DPM provides critical and timely information to maintenance workers, operators, managers and top executives to allow them to make more knowledgeable and faster decisions.”
Whether Invensys’ DPM method is used, or an equivalent system is constructed, paying attention to financial metrics while operating a plant is sure to put profits right to the bottom line.
