SCADA AND PLANT AUTOMATION: BALANCING RETURN-ON-INVESTMENT WITH STRATEGIC OBJECTIVES
Abstract:Often, automation projects are born out of strategic initiatives as opposed to simple cost savings. However, Utility Managers are then asked to provide a cost-benefit analysis to support the need for the project.
Engineering economic analysis is well defined and is widely practiced for projects in the wastewater industry. These commonly include a life-cycle cost analysis to assess project costs and benefits expressed as a Net Present Value (NPV) (US Federal Gov., 1992) Costs include capital expenditures, operating costs, maintenance, training, and salvage value amortized over the life of the project. Benefits can include labor savings, energy savings, chemical costs, reduction in fines etc. These can also be expressed as a present value. Other financial considerations include the cost of money, inflation rates, life of the project and lost opportunity costs.
Many agencies look to a Return on Investment (ROI) analysis in order to support automation expenditures as they would when comparing two or more investment alternatives. Experience shows that it is often difficult to justify automation projects on a Return on Investment (ROI) type of comparison, where decisions are based solely on a monetary cost-benefit.
Although ROI and NPV types of analyses are appropriate for many situations, they typically do not provide consideration for benefits that may be more difficult to quantify such as increased reliability, emergency response capabilities, avoided cost due to enhanced maintenance, improved operations, business process improvement and better regulatory compliance.
What is needed is an approach that combines traditional economic analysis with strategic value, accounting for the intangible benefits. This paper will discuss approaches that can be used to develop a cost-benefit analysis for automation projects that balance both the strategic reasons for implementing the project with the more traditional economic analysis. Regardless of the methodology, the goal is to identify techniques that can be used to sharpen the focus and provide a more complete lens through which to view automation decisions.
Document Type: Research Article
Publication date: January 1, 2005
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