Project Cost Justification

Are you having difficulty getting your automation project approved by your company management?  Are you aware of the unknown, the risks, the competitive pressures and competitor moves, technology disruptions, and market trends?  Do you have departments that are putting their own needs and wants ahead of those of Corporate?  You are not alone.  Developing a strong case for making investments in a project is not an easy task for anyone. 

Most manufacturers have an enormous challenge with justifying the cost for automation upgrade projects. Arguments for modernizing automation range from being purely business decisions to critical issues that affect plant and worker safety.  An older system can hinder the adoption of available new technologies that provide real economic advantages, such as IIoT, cloud, software-as-a service, virtualization, analytics, IT/OT convergence, mobile devices, advanced process control, etc.  When it comes to maintenance, the older systems can be burdened with a high volume of custom code and custom point–to-point integration that make long term support cost prohibitive.  Replacement parts for older systems are also become increasingly difficult to obtain. 

Older systems can have opportunity cost implications for the manufacturing plant as well.  This is the cost of a business opportunity that was missed because the system was not advanced, flexible, or functional enough to take advantage of a swiftly emerging or fleeting opportunity.  Having old or outdated systems installed can result in direct losses if the manufacturer lacks the visibility into plant operations that enables them to prevent abnormal situations and avoid supply chain disruptions.  However, the case for modernizing automation is most urgent when the old system reaches the point where an impending plant shutdown or incident is a real possibility, threatening to cause unplanned downtime. Automation modernization projects are most likely to get approved if they can demonstrate direct support for any of the following four business drivers: plant efficiency, maintenance cost reduction, modifications and expansion, and safety and security.  Decision makers care about these business objectives because of their significant impact on the plant’s profitability.  

Good modernization strategies leverage proven tools and rely on solid project management to reduce downtime and minimize risk. When a manufacturer decides to take a proactive stance regarding its aging control system, the project can quickly become overwhelming.  Auditing the installed base makes it easy to discover varying degrees of maturity as well as multiple generations of products and operating systems, all running on a single process.  Systems evolve over time with modifications, upgrades, expansions, etc. that may not be well documented by the users.  Standards and regulations also evolve over time and the multi-generation installed base may not be uniformly synchronized to meet today’s and tomorrows’ regulatory requirements. The evaluation process needs to start with the desired end state in mind. Nobody is better qualified to discuss the future role of the manufacturing plant that is evaluating modernizing automation than the plant management and operators.  Not all parts of a legacy control system will necessarily need to be replaced, and the real challenge is flexibility in solutions that allow the manufacturer to preserve the assets worth keeping. 

project-cost-justification-download.gifProject Cost Justification Questions

Your management wants to make sure they are getting a good ROI on their investment, how do you answer all of their questions, such as:

  • Which project gives the best ROI?
  • Which project delivers greater agility?
  • Which project offers the best risk profile?
  • Which project combinations make the most sense:  A or B & C?  A & B or C?  Only A?
  • What is the most effective project sequence?
  • Are assumptions correct?  How can sensitivity testing be done?
  • How are both Department and Corporate objectives met?
  • How are projects impacted by industry trends?
  • Are all the factors being considered?

You probably don’t have all these answers.  You can give it your best shot, but there is a way for you to be more confident in your decisions.  This is where ARC Advisory Group can help.

ARC has developed a process and a tool to help you cost justify major automation projects.  ARC brings years of industry experience and market research to assist with your strategic project decisions.  We are another voice on your team; a voice backed by research, an objective market view, and the experience of industry veterans.

ARC delivers expertise, research data, and a proven process to analyze projects and quantify the various aspects for justification.  ARC understands all the dimensions of analysis and will bring that vision to your team and strategic project.  ARC also understands the follow-on steps and can assist with supplier selection after projects are approved.

Project Cost Justification Models

There are many aspects to project justifications.  Which will you use?

  • Applied Cost Model
  • Lifecycle Cost Model
  • Risk Model
  • Operations Model
  • Staff Model
  • Predicting Future Costs
  • Future Technology Impacts
  • Competitive Risks
  • Market Risks
  • Threats to Production
  • Opportunity Creation
  • Agility Enhancement

Find Out More

ARC analysts are available for strategic projects, to deliver their expert, fact-based opinion in a confidential and personalized engagement.  They have access to the world’s largest repository of industry data, and they can collaborate with their peers to gain all the insights that you need for your strategic decisions.  Expertise can be delivered on-site or through remote engagements. Contact us for more information.

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