Tracking the Total Cost of Ownership (TCO)

TCO is usually calculated at purchasing time and when comparing offers from potential suppliers, and sometimes a supplier will give their own version of TCO.

Yet, the useful side of calculating TCO is after acquisition and during lifecycle, since the operation and maintenance of the system is typically the biggest component of TCO. Starting with an expected TCO, during lifecycle the actual TCO changes. Operation and maintenance costs add up. An unexpected failure in a system and repair will make the TCO Index go up, while efficient use of a system, with no problems, will improve the expected TCO Index.  Also, if the lifecycle of a system is extended, the TCO Index will get better (decrease). 
Monitoring and calculating TCO over the lifecycle of a system requires proper financial accounting practices and cost allocations and this data is typically readily available. Generating TCO reports for each family of systems on a monthly basis provide excellent KPIs . Management can appreciate such information and it develops a good history for making educated decisions during the next purchase and capital expenditure for a system .
Developing TCO models such as the one shown in the above figure, as simple as it seems, it will require commitment towards project execution excellence, since the TCO modeling approach behind it can get complex. Yet, the benefits can be substantial, since proper management of TCO KPIs can lead to very attractive savings.

Realtime KPIs with PI and VisualKPI for all industries

If you have real time data, then real time #businessintelligence can do for any industry with #PI and #VisualKPI. Visit http://bit.ly/iJmV0m for more details.

Asset documentation and CAD - based drawings need not be a pain anymore.

Documentation and creation of drawings is simply ... a big pain.

To build and maintain control, communication and various systems connected in a facility, documentation and related information must be generated, maintained and be readily available during the lifecycle of the related assets.

The classic approach is that such information is created and stored in CAD drawings and documents. Even "smart CAD drawings" though may now be as smart versus new approaches that can result into savings of millions of dollars, especially in the case of large capital projects. 

In addition, as information is repeated on several drawings and documents in order to relate various devices to each other, consistency is even more challenging, and with the classic CAD - based approach, the preparation of documentation is slow and inconsistencies appear between documents.

One example - scenario that is that if engineering represents as much as 20% of a large capital project with about 50% of that related to drawings and documentation, then we there is so much room for cost savings. Take a capital project of say 10 million USD, with these practices capital investment and asset lifecycle management costs can be huge as systems grow in size and complexity over time.

A data model - based design can eliminate the pains that a CAD based approach creates, since this approach can deliver.

1. cost savings between 50 and 90% of classic approach over the entire cost of ownership timeline

2. zero documentation errors

3. instant access to all relevant information

4. an auditable history for the complete model

The data model - based approach is applicable to all industries and sector cover documentation of electrical and wiring systems, interconnected assets in telecommunications and networks, data centers, etc.

Comments and questions are welcome.

Data Mining in Manufacturing & Process Industries

The use and application of Neural Networks (NN) has found a “home” in the domain of industrial process control. At the same time, NN is practically a core function in most popular data mining solutions. NN algorithms have been embedded in process control solutions, yet sometimes seen or even projected as a bit of a “black box” or “magic box”. Obviously, because of the complexity involved for most process control engineers to rationalize the output of an NN algorithm.

Root Cause Analysis (RCA) has traditionally been conducted by core statistical applications in order to identify cause of failure of plant equipment. RCA is classified based on the use or objectives as:

1. Safety-based RCA, which descends from the fields of accident analysis and occupational safety and health
2. Production-based RCA, which has its origins in the field of quality control for industrial manufacturing.
3. Process-based RCA, which is an “add-on” to production-based RCA, but with a scope that has been expanded to include business processes.
4. Failure-based RCA is rooted in the practice of failure analysis as employed in engineering and maintenance.
5. Systems-based RCA emerged as an amalgamation of the preceding uses, along with ideas taken from fields such as change management, risk management, and systems analysis.

More on Total Cost of Ownership for IT Systems

How to calculate TCO during a bid evaluation?
A TCO Index calculation method has been developed  using the adjacent figure. 
The model takes into account  all related costs to be accounted for in a bid evaluation. The model also considers Asset Lifecycle duration and management aspects.
The TCO Index is a normalized figure in order to ensure confidentiality of financial figures presented by bidders. 
There are two versions of the TCO Index calculation ... 
1) a detailed model, and 2) simplified version. 
A TCO Index example of 77.5 versus a base case of 100 for a lifecycle of 20 years is shown, in which lifecycle costs are allocated to CAPEX and OPEX types (e.g. acquisition, deployment, operation and support, retirement and replacement). 

The Total Cost of Ownership for IT Systems

The Total Cost of Ownership (TCO) for capital investments, as for example an IT system, is allocated to various cost components e.g. purchase/acquisition costs, operational costs, replacement costs, etc. 
Gartner and Forrester Research present some typical TCO figures as per the adjacent image. Both firms indicate the purchase cost being about >32% of the TCO. Given the asset lifespan period, the longer the lifespan, the higher the TCO in absolute figures, but the purchase cost as % of the TCO gets lower. That's why Life Cycle Management of IT assets is significant.
A key point of course is that the purchase/acquisition costs alone do not represent the most advantageous selection of a suppliers, from the financial point of view. It is the TCO Index. 
Calculating the TCO Index for each competitive bid in IT is quite analytical but worth the effort during evaluation of supplier proposals.  

RFM (Recency, Frequency and Monetary) KPIs can be key to any business for understanding customer behavior. Whether it is in the retail sector for tracking customer purchases, or in financial institutions tracking customer transactions, RFM scores and resulting KPIs can be the simplest, yet the most practical approach in getting more insight into customer analytics.
Generating RM scores versus RFM is even simpler and can be as sufficient in some cases, as this allows you to classify both customers and each transaction, purchase or customer visit individually.
Clustering of customers and transactions or purchases (see adjacent figure) can allow one to see significant patterns. RM can be specified as categorical or continuous, which, by itself, can contribute to different clusters identified.