Evaluating the Real Cost of Operation

A manufacturing facility, petrochemical plant, power generation utility or any other industrial facility may contain many diverse unit operations and involve diverse resources such as raw materials, fuel sources, electrical supply, machinery and human resources. Given the complex nature of these facilities it can be difficult to understand all the costs involved in the production process and where these costs originate. However a detailed understanding of the individual production costs and how they contribute to the total operational cost is the key to making effective decisions in the day to day running of a facility.

In order to fully understand all the costs involved in the operation of a facility it is necessary to have a good level of familiarity with all the unit operations and understand all the costs involved in each operation.

In the process of putting together a comprehensive cost model for the facility the procedure is as follows:

1. List the unit operations involved in the operation of the facility.

2. For each unit operation identify all the cost inputs.

3. For each cost input identify the critical process indicators (KPIs) from which these cost inputs can be calculated on a daily basis.

4. Identify the on-going maintenance cost on a daily basis: including repair, replacement and manpower costs.

5. Identify all human costs in operating the facility including management, operational control and manual labour.

The simple process of going through this procedure of identifying the daily operating cost of operating a facility and understanding where these costs are coming from can provide important insights into how operational costs can be reduced. This analysis can be carried out by members of of the facility management working alone or in conjunction with an industrial consultant.

An ongoing benefit can be derived when the operational cost model is updated on a daily basis using process KPIs, material, fuel and electrical cost data along with maintenance data to calculate total operating costs. This information can be brought together in a management information system (MIS) or a simple excel spreadsheet application and the information presented can be used to aid daily decision making.

My name is Simon Meadowcroft and I have set up a company Positec Consulting LLC, http://www.positecconsulting.com which specialises in providing process optimization services primarily for the cement production industry.