Cap Ex Versus Op Ex


Picture courtesy of Daltec Process Fans

There are a number of well-known quotes by Stephen Covey from his bestselling book The Seven Habits of Highly Successful People.

The one that I often quote is – “You get what you reward.”

I’m going to use that quote in this article to explain how, with the best of intentions, we end up shooting ourselves in the foot in industrial procurements.

Most people have efficiency somehow measured to their performance. Efficiency is talked about frequently in conversations.

In power related projects such as an FD fan the purchasing spec will almost assuredly talk about having a high-efficiency motor. So obviously efficiency is important when purchasing a motor.

But that motor is connected to something. It is driving something. This is where efficiency seems to go out the window, and the reason seems to be that in a new project the project manager is rewarded by coming in under budget.

However after the project, the fan and motor and all other components of the system will be transferred to the new owners of the project who will actually have to run it. The operators.

The operators are rewarded on getting the most product out at the best quality and best price at the lowest cost.

So now looking at this FD fan, the project manager has a couple of quotes on his desk. One is an 85% efficient fan that will require 700 HP and the other has a 77% efficient fan requiring 772 HP.

The actual consumption between the two is 72 HP. Translating that into kilowatts would be 55 kW.

Based on 8600 operating hours in a year and $.12 a kilowatt hour charge, the annual cost for the less efficient fan is $56,760 per year in increased electrical costs, assuming the fan runs at a constant speed and constant pressure.

The price difference on the two fans in our example may have been only $50,000, but because the project manager is rewarded on staying under budget he will choose the less efficient design – even though the payback is less than one year. Again… You get what you reward.

So thinking about it, one will have a high-efficiency motor connected to a mid-efficiency fan. But the heavy half is the fan.

If a manager wants to motivate the right behavior, then project managers can’t just have “stay under budget” as the main criteria. They need that of course, however they also should be given credit for minimizing operating costs, since that’s ongoing and forever.

This not only occurs in fans but steam turbines, reciprocating engines and boilers in power generation equipment. Things that are more efficient tend to cost more money. But if there is a payback that justifies it, then a mechanism needs to be in place to allow for the right thing to be done. Price should not be the only decider.

Because as we all know, we get what we pay for, but we also get what we reward.

Buffalo Turbines repBuffalo Turbines: Specializing in steam turbines for drive applications and steam turbine generators for power production.

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