TCO: understanding its role in process automation

If you are an operator in the resources industry, it is undeniable that the cost of doing business in Australia and New Zealand is rising. A higher price for labour, more taxes and greater regulation have all increased the cost of extracting resources from the ground. At Honeywell, we know that many of our clients are facing tighter budgets, with a need to return operating costs to levels seen before the global financial crisis.

For businesses, staying ahead in this environment clearly means doing more with less. It’s a careful balance; you must adopt strategies to drive down costs but at the same time increase yields and meet the rapid pace of market pressures. As a result, operators are not only looking to increase the efficiency of their production process, but also reduce the long-term total cost of ownership (TCO) of automation assets.

A concept first coined by the IT industry more than 20 years ago, TCO has become more important than ever for industrial organisations of all sizes. But unlike with traditional IT systems, determining TCO in the process automation field has unique requirements. It must account for long and variable life cycles, necessary reliability, platform switching costs, possible disruption to operations when changes are made, and the costs of training staff so users can be proficient with new equipment. It needs to consider risks and efficiencies in process applications, the value of flexibility and scalability, and also align with strategic process project goals.

For plant owners, it’s just as important to recognise what TCO doesn’t do as it is to understand its primary function. TCO does not calculate the overall value of a technological purchase, or return on investment. Rather, it shows manufacturers how much they can expect to spend during an automation asset’s full life cycle. It only looks at the cost side of the equation.

In order to avoid complications brought about by shorter life cycles, plants need an approach to TCO which closely aligns the automation life span with that of plant process assets. Focusing on product life cycle issues, for instance, can help users utilise legacy control hardware and software alongside newer distributed control systems.

By looking at the total value of ownership (TVO), plant owners can incorporate total benefits attained (TBA) such as increases in throughput, yield and productivity and balance this with the total cost of ownership (TVO = TBA – TCO). And by evaluating TCO in relation to TBA and TVO, users can migrate legacy control assets at their own pace. Additionally, facilities can remain with certain platforms for longer periods of time.

In many ways, TCO has become just as critical to plant operations as having the right instrumentation, process control system, advanced process control applications and manufacturing execution systems to create an interconnected facility that brings the right information to the right people. Maximising the life cycles of all these systems is the most important factor to lowering TCO and truly impacting the bottom line.

Garry Mahoney is the pacific director of Honeywell Process Solutions. He has over 35 years of experience in engineering, with a specific focus on instrumentation and process automation. Garry joined Honeywell Process Solutions in 1981 and has held a variety of positions during this time, from support to project delivery and business development.