from Plant Engineering and Maintenance (PEM) magazine, April 2008.
When exploring automation opportunities in your facility, there are many factors to consider. These include cost versus benefit by automating, cash-flow impact, organizational readiness, ease of implementation, availability of resources, technological maturity and availability, as well as probability of success.
Most senior managers would be thrilled to discover a way to filter the never-ending stream of requests for what appears to be worthy automation projects. As one top executive said, “if we could recoup even half of all of the savings that have come forward on project business cases each year, we would have only revenue and no expenses!”
Middle managers wouldn’t dare request authorization of an expenditure on an automation project unless it had passed the rigorous standards set out by finance. This includes a standard format for structuring the business case, which allows management to compare apples to apples when evaluating requests for funding. Hurdle rates for internal rate of return, payback period and other financial measures must also be attained or exceeded prior to submission.
Most executives prefer to see “hard savings,” such as staff reduction, increased production volume, or reduced poor quality output. These hard savings are then compared to the hard costs of automation, in the form of the company’s standard financial ratios. But how hard is hard? Typically, true hard savings are difficult to find for information system projects. For example, suppose a Computerized Maintenance Management Software (CMMS) vendor suggested that you upgrade to its latest version that has all the bells and whistles available.
Perhaps, the vendor was even able to quote other companies that had upgraded, and they tell about saving hundreds of thousands of dollars as a direct result of installing the new version. In this scenario, would you put your credibility and career on the line to claim any hard savings from upgrading? Some maintenance professionals no doubt would, but most wouldn’t.
It depends on your level of confidence and control over extracting the hard savings out of a anagement-information system.
Implementing management-information systems that monitor various measures don’t, in and of themselves, guarantee any savings. The information system is but a tool for management, and is useless without interpretation and action taken by management to correct the identified problems. Hard savings will be unattainable if management is unwillingly or unable to take timely and appropriate action, or if the source data is deemed inaccurate. This isn’t the case, however, for information systems that have an automated control loop and don’t rely on human intervention.
In most circumstances, softer benefits are less of a priority than hard savings that have a direct and indisputable impact on the bottom line. Occasionally, however, companies go through periods where certain soft benefits are all the rage. For example, following a major on-the-job accident, automation projects with significant safety impact become high priority. As a result, they’re whisked through the approval process.
Similarly, most companies will from time to time favor projects with other soft benefits (i.e. reduced environmental risk, improved quality, ensuring regulatory compliance, increased customer satisfaction and greater employee acceptance). Where possible, savvy middle managers will incorporate these “trends” into their requests for automation.
Project cash flow
Another critical factor in determining the appropriate level of automation is just how much cash is available for such projects. If an organization is downsizing, in high growth mode, or heavily debt laden—it’s far more likely that a decision will be made to forego automating management-information systems. These types of trade-offs are commonplace. This is one reason why joint ventures, outsourcing and application-service providers (ASPs) are gaining in popularity, as companies search for new ways to raise capital, share responsibility for capital investment, or let someone else pick up the tab on the initial outlay of cash.
Companies that have attempted to implement the identical automation in multiple plants understand the huge differences that can exist regarding organizational readiness. If the people aren’t willing or able to make the automation project work, then there’s little question as to the end result. This is especially true when implementing a new or upgraded management information system (i.e. CMMS) because of the reliance on workers for accurate data entry and on management for definitive decisions and action.
Senior management must ensure there’s a well-defined strategy, clear accountability for the management team with supporting performance measures and targets, as well as appropriate rewards/ consequences for meeting/missing project targets. Anything less, and the business case is at risk.
Ease of implementation
When weighing the pros and cons of various projects, including automation related, one of the key considerations is ease of implementation. This may be, in part, because of the short-term nature of North American government and business. Managers don’t have a lot of time in a given job to show off their business acumen and advance their careers. They’re highly motivated to find the closest thing to a “quick-fix.”
An automation project that looks like it will drag on longer than three to six months will be far less likely to gain approval from top management. Middle managers are well advised to break a larger project into smaller, easily-implemented work packages that will show cost/benefit for each chunk of work, and not just for the project overall.
Availability of resources
Every organization has scarce resources and must strike a balance between running the business of today, while building for tomorrow through projects. If they require too many good people already burdened with line responsibilities or other worthy projects—automation projects are less likely to be approved. This is another reason to divide an automation project into more manageable chunks as described above, or seek help from outside business partners.
Higher risk may bring greater reward, but it may result in greater losses. If the automation technology is “bleeding” edge, then management is less likely to approve the business case—no matter how great the reward may seem. Even if the automation technology is proven in other industries, it may not be applicable or available to your industry. Furthermore, new automation technology and software applications are often introduced to large multi-nationals before becoming available to (or priced) for the middle market.
Probability of success
Senior management severely discounts projects with a higher return, but lower probability of success. When preparing the business case for automation technology, make sure you address the critical factors to success, as well as know how to overcome potential barriers.
David Berger, P.Eng. (Alta.) is PEM’s production/operations editor and a principal with Western Management Consultants. He’s also the founding president of the Plant Engineering and Maintenance Association of Canada (PEMAC). For more information call (416) 362-6863 ext. 237; email: [email protected] or visit www.wmc.on.ca.