January 2013

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Ongoing Commissioning: Economy 101

The total cost of ownership, the return on investment and the asset management fund.

Olivier Allard

Olivier Allard
Building Optimization Expert
ADMS Technologies Inc.

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Economic recessions are usually a sign of budget cuts, limited resources and sadly jobs lost. We still feel the effect of the previous year’s economy. Energy savings and costs avoidance are prime buzzwords reaching building managers because cost control is becoming the most important challenge for these people. Today’s leaders are working to optimize their building management with the ongoing commissioning approach using the best in class fault detection diagnostic systems joined with a great preventive maintenance plan and energy monitoring processes. They are juggling with the needed performance objectives and the limited resources. But what are the basic economic KPIs (key performance indicators) they are monitoring during their ongoing commissioning process? This text will explain the KPIs they need to look at in order to make informed decisions: the total cost of ownership, the return on investment and the asset management fund.

Total cost of ownership (TCO)

The TCO looks at the complete cost of an asset from the initial purchase to disposal. It adds the purchase price to other expected costs to be incurred during the lifecycle of the product, such as installation cost, energy cost, removal cost, maintenance cost including manpower and part replacements. Some side effect costs are hard to identify. Per example, buying a new system to use less chilled water to produce the necessary cooling load will maybe send the chiller into an inefficient working zone. The impact on other equipment usage is hard to predict. The ongoing commissioning process helps the management team to discover those side effects and fine tune the operation to reduce their impact. Also the process promotes the performance tracking and the creation of the associated knowledge base. This data history helps the facility manager make future decisions that  avoid the past mistakes and take full advantage of the previous experience. Once the TCO is calculated, a comparison can be made between solutions or projects. A dollar spent today may end up saving multiple dollars in the future for the organization. The total cost of ownership (TCO) makes sure the decision process reduces the risk by taking the all the costs related to an asset.

Return on investment (ROI)

The ROI provides a snapshot of profitability adjusted to the size of the asset investments tied up in the enterprise. It is a simple ratio between the expected savings during a period and the total cost of ownership. It returns the number of periods to clear the investment. If the asset or project lifecycle exceed the ROI period, then additional savings are collected. Implementing the same system as in the previous example to reduce chilled water production can impact the ROI of the heat exchanger in the loop. Monitoring the ROI of a project is really important. During the ongoing commissioning process, it is important to keep track of all the active projects in order to verify the impact of adding a new project to the list. Joined with the ROI, a cumulative sum (CUSUM) per project can be built to track the total savings generated per project. The return on investment (ROI) is a key performance indicator in order to make an informed decision in the ongoing commissioning process.

Asset management fundAsset management fund

The asset management fund is there to provide the money to replace, repair, upgrade or simply update the assets in order to generate growth in the total assets value. A good way to monitor this KPI is to look at each individual critical asset and compare lifecycle to the available fund. The initial calculated total cost of ownership can be used to estimate the expected resources use. The idea is to compare the actual status to the expected values. A smaller available fund leads to a higher operating cost that can be generated by higher maintenance and energy costs or a hidden cost. Higher maintenance costs can be linked to additional repairs caused by a poor preventive maintenance plan or unexpected breakdown. In other to better control the situation, focus on the root cause of these additional costs and review the preventive maintenance plan frequently. In the case of a hidden cost, adjust the total calculation including this fee and readjust the plan. TIP: This cost should now be part of the total cost of ownership sum process in order to avoid future mistakes.

Control Solutions, Inc If a critical asset needs to be replaced during the building life cycle, a replacement fund should also be planned. In order to be well prepared, avoid simple linear regression for the saving curve; take the product cost increase and the economic inflation rate in consideration when planning the budget. With these funding, the operation team will always be ready to face the upcoming challenges. The asset management fund is a key solution to create a proactive management culture. 

As a summary, today’s decision makers need to look at the economic KPIs in order to manage efficiently. The total cost of ownership (TCO), the return on investment (ROI) and the asset management fund have strategic use inside the ongoing commissioning process helping users to reach high lean management levels. These techniques will significantly help but still will not eliminate all the management challenges. The next article will describe the main challenges and pitfall in the Ongoing commissioning implementation process.

About the Author

Olivier Allard oversees business sales, marketing, product development and technology. He holds a bachelor’s degree in engineering from Montreal Polytechnique School of Engineering (Canada) and, through his position in the software industry, has substantial experience in business development and technology. Olivier has also led many building-optimization projects for various companies.

Olivier Allard, Building optimization expert ADMS Technologies Inc.
email: oallard@adms-tech.com


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