More than any single factor, growth in the oil analysis industry has been limited by the inability of its professionals to propose projects and report results to management using conventional financial language. The reliability professional of the future must have the skills to express their value to the organization using language to which management is accustomed.
Here, the benefits of oil analysis and the steps and formulas to determine the Return on Investment (ROI) are discussed to equip the oil analysis professional with the tools required for success.
Benefits of Oil Analysis
Applying oil analysis and other precision maintenance activities benefits the organization. Effective management of lubrication builds reliability into the system, and oil analysis has tremendous value when it warns of a failure event. The early warning system allows management to schedule the activity to avoid business interruption and have parts and labor lined up. Likewise, oil analysis provides information about the event, so the proper "fix" is implemented, removing the root cause of the problem. The following is a list of some costs that may be avoided when choices are made using oil analysis.
- Repair Costs
- Downtime Costs
- Lubricant Costs
- Energy Consumption Costs
- Quality Costs
- Increased Production
- Risk-based Costs
Oil analysis, in essence, influences the Overall Equipment Effectiveness (OEE), which assesses an asset's production quantity and quality concerning a theoretical around-the-clock production level with no pauses in output or quality level.
Determining the Return on Investment (ROI)
According to Noria, the financial evaluation should take into account the time value of money and produce one or all the following value indicators:
- Discounted Payback Period (DPP)
- Internal Rate of Return (IRR)
- Net Present Value (NPV)
Source: Noria Corporation
(Figure 1)
The benefits of implementing a proposed program are summarized in Figure 1 as an example. Likewise, the upfront and ongoing costs are outlined in the figure. Annually, the net cash flow is computed by subtracting the costs from the benefits. The net cash flow figures for each year are discounted to account for the time value of money. The accounting or finance department assigns the discount rate, generally showing the inflation-adjusted needed rate of return or cost to borrow capital.
Once all the cash flows are estimated and discounted, prepare a summary table identifying the project valuation calculations management uses to check the value of the project and compare it to other opportunities (see Figure 2).
Source: Noria Corporation
(Figure 2)
Reliability professionals must adopt a business philosophy to amend the technical philosophies we have adhered to before. It is a must for the reliability professional to speak the language of management and translate technical programs into business value propositions.
As oil analysis specialists, learning the skills outlined herein will enable you to avoid the mistaken dismissal of proposals that might have improved your firm's profitability. If you lack these skills, you should develop them yourself, add trained staff, or secure professional services from a consultant who can help you develop, justify, and implement your lubrication management and oil analysis program.
MachineDiagnostics™
Implementing programs to diagnose incipient machine failure through oil analysis entails cost. As such, thorough planning must ensure that your resources are well-spent.
With CRE, you can start your MachineDiagnostics™ Program knowing you will have our full support at every step. Our program also includes a supportive Machine Wear Analysis Basic seminar on January 26, 2023, to ensure that your people know the best lubrication practices. This one-day seminar aims to impart fundamental knowledge on the use of oil to determine the condition of your critical mechanical assets, complete with a lecture, video presentation, hands-on sampling, and case study applications that are relevant to the industries today. If interested, please send us an email to receive the registration form.
Source:
Troyer, D. D. (n.d.). Noria201001. Noria Corporation.