3.1 Planning and Engineering
Planning and engineering services include labor and expenses for both utility and consultants in the planning, preparation, and production of design-plan specifications for construction of the project and the development of control strategies for programming efforts.
3.2 Equipment Procurement
Equipment procurement covers costs associated with the purchase of hardware and software including programmable logic controllers (PLCs), instrumentation, SCADA computers, software, and electrical support equipment (conduit and wiring, etc.). Estimations of control system hardware and software pricing should include vendor quotes, contractor overhead, profits, and bonding and insurance. The level of detail required for accurate quotes includes unit quantities, input/output point counts, operator interface requirements, and construction sequencing or schedule constraints.
Application programming includes programming of PLCs or remote terminal units and development of process graphic displays, reports, and network configuration. Depending on the level of complexity of process control strategies, the actual costs incurred from this work can be highly variable. Application programming also represents the most difficult area of work to estimate correctly.
3.3 Installation, Commissioning, Testing, and Training
This category includes costs associated with installation of automation equipment, construction administration, PLC and human–machine interface software development, system testing, and operator and maintenance training. Installation costs primarily include labor and materials, with labor representing the most significant element, particularly for control system projects.
Commissioning involves preparing the systems for operation including factory acceptance testing, site acceptance testing, instrument and device calibration, loop testing, system checkout, and startup. Training is dependent on the level of familiarity of the owner’s operations and maintenance staff, and the type of training typically depends on the complexity of the project and may be done formally or informally.
3.4 Post Acceptance Support and Maintenance
Post acceptance support and maintenance includes ongoing preventative and corrective maintenance costs, instrument technicians, calibration and maintenance, software maintenance contracts, periodic hardware and software upgrades, training, and so on.
3.5 Intangible Costs
Intangible costs include operational and technology risk, operational changes, staff concerns, and change management costs as a utility adjusts to new technologies and practices. Although these costs are not quantifiable, they do affect the organization.
3.6 Hardware and Software Life Expectancy
Automation systems include components with varying life spans and require replacement at different times. Table 2.2 provides an estimate of typical life spans for various automation components.
4.0 COST–BENEFIT ANALYSIS
Payback period, return on investment (ROI), and net present value (NPV) are commonly used analyses that incorporate tangible costs and benefits. These analyses are commonly used in the private sector and focus on the financial benefits or payback of a particular investment. The focus on immediate and measurable returns has deemphasized the incorporation of intangible costs and benefits to the analysis. Although comprehensive coverage of the topics of financial analysis is beyond the scope of this chapter, this section discusses different types of analysis and how they apply to automation projects.
4.1 Financial Analysis
The following dissolved oxygen control example, in which the following cost estimates were made, will be used to demonstrate the financial concepts in this section:
• Initial investment = $500,000,
• Power savings = $200,000 per year,
TABLE 2.2 Life expectancies of typical control system devices.
• Additional maintenance requirements = $50,000 per year,
• Equipment life = 10 years, and
• Discount rate = 5% per year.
4.1.1 Simple Payback Period
The simple payback period is a relatively straightforward calculation in which the initial investment is divided by net annual savings. The underlying assumption is that the interest rate is 0%. The calculation is as follows:
Payback periods of less than 5 years typically are considered good investments. If the payback period is more than 6 or 7 years, however, the project task force should thoroughly evaluate the accuracy of all estimates before making a strictly economic decision.
4.1.2 Return on Investment
Many agencies look to a ROI analysis 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 an ROI type of comparison, where decisions are based solely on a monetary cost–benefit.
The ROI formula for the dissolved oxygen control example is
4.1.3 Life Cycle Costs and Net Present Value
In the NPV approach, costs and benefits are evaluated over the life cycle of the investment and are expressed in terms of a net present cost or value. 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, and so on; 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.
All costs and benefits need to be calculated in terms of present dollars. Most books on engineering economics will have various formulae for calculating present worth and related parameters. The formula relating future values to present worth is
Where
P = present worth of money,
F = future payment or savings,
I = interest rate per interest period or discount rate, and
n = number of interest periods.
In this instance, the present worth of the net benefit is $1,158,260.24 (Table 2.3), which compares to