Digitalization Projects: Quantifying your Financial Payback

By Heath Stephens, PE – Digitalization Leader at Hargrove Controls & Automation

If your manufacturing facility operates with mostly manual processes and little data tracking, implementing digitalization solutions to leverage your data across multiple platforms may feel overwhelming. Large projects like an enterprise rollout of AI predictive reliability software—or even small projects such as installing a process historian at your site—can make a big impact, both operationally and financially. Whether you are already involved with a digitalization project or looking to implement a new one, how do you quantify the financial payback?

Implementing Industry 4.0

Digital technologies can have long-term value for your operation’s efficiency and profitability.
Digitalization solutions like predictive reliability or Advanced Process Control (APC) can help you process, manage, and analyze your data, allowing you to make informed decisions to improve predictive maintenance and product quality.

There are multiple ways to improve your operations. With certain improvements, not implementing them may allow your systems to run and your facility to make your product. So, there’s not always the urgency to address them, especially when other projects are considered more critical to your operations. However, those unaddressed improvement projects could lead to better operational decisions and more consistent automated processes.

Short-term decisions create long-term value. With other opportunities for operational improvements at your facility, choosing which projects to tackle should be strategic and aligned with your organizational goals.

Project Justification

Justifying your project will depend on your situation. While some projects are mandated, most will need to show an attractive investment payback period – typically a year or less. It is important to consider all costs that will be reduced and savings that will be achieved. Projects may increase profits, reduce current spending, or both. Below are some areas of justification to consider.

Reliability Cost Savings – With increased uptime, savings are from additional product sold (if the product line is sold out), more product per shift (less labor and utilities per pound, aka lowered unit cost), and decreased maintenance (savings in maintenance labor, spare parts/consumables). Often you can claim credit for more than one category here. If you can reduce maintenance on a piece of equipment from four times a year to two times a year, how much money are you saving? Multivariate equipment condition monitoring solutions are a great example of Industry 4.0 tools that target this area.
Quality Cost Savings – With a reduction of off-spec product or higher conversion rates, savings should include not just the cost of wasted raw materials but also wasted labor and utilities for producing off-spec product. Improved conversion rates generally also mean less waste byproducts that must be treated/recovered either internally or by third parties. Again, there are multivariate quality analysis monitoring tools that can help predict early whether current process conditions should result in good product. APC projects also help to improve quality. However, many companies could benefit from simpler things like better visibility into laboratory quality data and improved KPI metrics for operations.
Efficiency/Labor Cost Savings – Some digitalization projects are designed specifically to address labor-intensive manual or paper-based processes. A direct reduction in labor will reduce overhead costs. Projects like paper-to-glass that move paper checklists and instructions to tablets and mobile devices can increase efficiency by eliminating data transcription tasks, making data timelier, and speeding up task execution.
Environmental/Safety – Less common, but some digitalization projects are justified to address environmental or safety concerns, either by preventing an Environmental, Health & Safety (EHS) issue or reducing labor manpower required to document compliance. These projects may be IIoT or process historian projects. Payback may not be as important for these projects, but ROI should still be examined.

Opportunity Cost Savings

It’s important to highlight the compounding nature of delaying your digitalization transition. Lack of efficiency or quality & reliability issues equate to lost funds every year, and every year you don’t make these efficiency improvements, you’re losing money. If you had tackled those efficiency improvement projects last year, you could have taken the money you saved and rolled it into other projects for this year that you wouldn’t have afforded otherwise. Non-value-added tasks, bad batches, and poor conversion could have been avoided if you had optimized operations, resulting in more money to your bottom line.

Common Obstacles

With any kind of “savings” (one designed to avoid costs or reduce recurrent spending) project at your plant, various factors can obstruct your progress. Impediments can include the following:

Do you have a good financial understanding of the current inefficiency you want to address?
How long will it take before you can measure success? If you are addressing something that only happens once a year, it could take two years or more to demonstrate improvement clearly.
Can you plainly outline the success metrics before the project starts? This may mean looking at historical data you already have or beginning to record data as a baseline before the project starts.
Who will own and support the project after installation? Project ownership should be planned upfront. Projects led by a single champion often fail when that individual is promoted or leaves the company unless there is also broader team support. Some combination of internal and external support may be required.
Do you have buy-in from all stakeholders? If you are asking someone to change their work process, they need to understand the “why”, and ideally, they need to have input into the project development process.
If you are wanting to do an advanced Industry 4.0 project, do you have a solid foundation of Industry 3.0 technology? AI and Machine Learning have garnered a lot of interest, but they require sufficient, high-quality data to feed them. Make sure you have reliable, sufficient data. If you don’t have good, dependable instrumentation on a process, AI/ML won’t be able to make consistent predictions, giving false alerts or missing important issues.

OT Infrastructure and Cybersecurity

When you implement digitalization projects, pay proper attention to OT & cybersecurity. Make the investment in safeguarding your systems. Install a proactive OT cybersecurity platform – a specific software platform designed to work with programmable logic controllers (PLCs), variable-frequency drives (VFDs), and other OT equipment designed to provide real-time alerts and protection – and diligently monitor and update your systems.

Depending on the scope, these costs shouldn’t necessarily be included in a digitalization project cost analysis. A robust and secure OT infrastructure should be a must, not a negotiable option, and some portion of these expenses should be covered as basic business operating expenses.

Conclusion

Implementing digitalization solutions can help your facility improve communication between platforms, gain better visibility into your problems, and improve your asset reliability and maintenance strategies.

Our Digitalization Team will work with you to determine which digital technologies will have the greatest long-term value for your operation’s efficiency and profitability to create a modern, sustainable facility. Contact our Team today.

Heath Stephens, PE is the Digitalization Leader for Hargrove Controls & Automation, a certified member of the Control System Integrators Association (CSIA). Heath has over (27) years of experience in chemical engineering, process safety, automation, and controls. He has extensive experience in batch specialty chemicals, as well as refining, pipelines, and pulp and paper.

His expertise extends to startup experience, project management, and team leadership at facilities in multiple countries. Heath’s current role helps clients implement digital solutions that deliver on the promise of Industry 4.0 through data acquisition and the latest analysis tools.