A Financial Justification for Pumped System Improvements
This month we will look at the value of starting a proactive Pumped System Improvement program in which major pumped systems are evaluated on an ongoing basis. Prior to starting any new program there must be financial justification; this article shows how using readily available plant production data.
There are two rules to follow when considering any process improvement:
- If you do not measure it, you cannot improve it.
- If you do not know how much a process costs, you cannot maximize its profitability.
Most businesses have accounting departments tracking the flow of money into (revenue) and out of (expenses) the company. The difference between revenue and expenses is the company’s profit. Periodically all revenue and expense transactions are grouped and reported on a balance sheet providing a concise picture of the financial health of the company.
Companies often do not take into account the revenue and expenses for each product. This is most likely because of the assumed complexity of a pumped system. One reason is the minimal amount of operation information available due to the expense of taking and recording the data. Another reason is that many people do not know how to use the data available to gain a better understanding of how it applies in a business sense as it rolls up. As a result, much of the operational information needed is not readily available.
Objective of a Pumped System Improvement Program
The objective of a pumped system improvement program is to have the same attention to detail on improving pumped system profitability as is currently expended in increasing total plant profitability.
Between 20% to 50% of the power consumed in a typical industrial plant is for pumping applications, and these systems have an average system efficiency of less than 45%. Is that sufficient incentive to look into improving the operation of pumped systems?
To demonstrate how to determine the value of implementing a pumped system improvement program we will look at a typical industrial plant in the Northwest.
Industrial Process Plant Case Study
In 2005, an industrial process plant scheduled to be operating for 340 days with 25 days set aside for planned shutdowns. At this schedule, the plant could operate 93% of the year. Operating records for 2005 show the plant operated for 7,440 hours (85% uptime) and during that time produced 138,500 tons of products. Based on tons produced and hours of operation the plant’s production rate was 18.6 tons/hr. resulting in a plant revenue of $72,000,000.
Using the plant’s financial data, along with the 2005 production numbers we arrived at revenue, expense, and profit numbers per ton of product, as outlined in Table 1.