Hartford Steam Boiler Inspection and Insurance Co
Cost/Benefit Analysis of Infrared Programs

With a large data set, documented losses to production and equipment repair costs can be summarized and industry averages for cost/benefit analysis can be derived, creating a baseline for estimating future losses or savings.

By Sandy Sanor, HSB Thermography Services, a unit of The Hartford Steam Boiler Inspection and Insurance Co., and Scott Cawlfield, Logos Computer Solutions, Inc.

Equipment fails. We know that breakdowns will occur. We cannot, however, predict the actual extent of the damage, if any, that may result. For example, a 400 A circuit breaker can fail internally and simply not allow a person to reset it to the On position. The same breaker can experience a tremendous amount of internal arcing and explode, and the arcing can carry over inside the motor control center (MCC). The entire MCC could be destroyed and an ensuing fire could cause massive damage to the room and the building.
Equipment failures often have financial consequences that extend beyond the cost of replacing or repairing the damaged components. In some cases, the cost of the component is not the main expense. Production downtime can far outweigh the cost of replacing the equipment or component. Making a case for what can happen is difficult unless you provide examples of what has actually happened. Historical data can provide a bridge from the theoretical to the real world.

This article will focus on more frequent failures and not dwell on extreme cases. While extreme cases are severe, they are much less frequent and do not aid in building an overall case for the cost/benefit analysis of an infrared program.
Insurance claims

Table 1 is a spreadsheet of claims that have been submitted to The Hartford Steam Boiler Inspection and Insurance Co. These claims are a representative sample and relate only to equipment failures and the resulting losses to production, spoilage, and extra expenses. Damage to property such as buildings or contents is not included. Catastrophic claims were removed from this data set since their occurrences were few and the data would raise the overall averages.

The spreadsheet is broken down into like business categories. Most of the columns are self-explanatory. For those that are not, the following is offered:

MEA (miscellaneous electrical apparatus). This is a catchall category for any electrical component that is not an electrical motor or generator. MEA includes breakers, relays, bus bars, cables, fused disconnects, control panels and starters, etc.
NOC. Not otherwise classified.

Extra expense. Cost the location incurred to stay in business as a result of the failureófor example, renting off-site office space while repairs were made.

Primary and secondary causal factors. What investigators were able to determine as the most evident reasons for the failure.
Blank spaces. Fields are blank if in‚formation is not available with certainty.

In reviewing the spreadsheet, note that the amounts shown were submitted by the insured. While the insured reported these costs, not all of the costs may be covered by an insurance policy. Policy deductibles, for example, reduced the claims. Other costs may be beyond the scope of insurance.

Equipment breakdown insurance is an essential element in any protection plan, but there is no substitute for good maintenance. In addition, while insurance can make the insured financially whole and be essential to a companyís survival in the event of a catastrophic loss, there is no coverage that will indemnify an insured for the loss of good will. In this day of just-in-time supplied components, the inability to make good on a commitment can result in the loss of future sales.

As can be seen, the food processing and health care areas tend to incur expenses above and beyond the cost of the equipment loss. It also should be noted that depending on the type of insurance and coverage, production loss is not always covered or reported. It is important to keep this exposure in mind when selecting equipment breakdown insurance coverage.

Justify the costs
 When starting a new infrared program, it is important to justify the cost of the program as well as the functionality of the technology. Of the 127 total claims in the data set, 85 claims or 67 percent were for inadequate/improper electrical connections or loosening of parts. Infrared technology is ideal at detecting these kinds of basic problems before the failure occurs. Of the total claims made ($25,835,957), 66 percent or $17,053,130 were from claims made resulting from inadequate/improper electrical connections or loosening of parts. Specific failures by industry include health care, 67 percent; food processing, 64 percent; light/medium manufacturing, 62 percent; and power generation/distribution, 60 percent.

Across multiple industries, the basic failure of improper electrical connections is 60 percent or greater depending on the industry.
Of the primary root causes, almost 70 percent of the failures are caused by maintenance execution. Half of a comprehensive infrared program is finding the problems and the other half includes accountability and problem reconciliation procedures to fix the problems. The plant manager should ask two important questions: "Has all of our equipment been tested?" and "Did the problems that were found 3 months ago get fixed?"

As we can see in the Primary Causal Factor column, 45 out of the 65 known root causes were from maintenance execution. It is not clear from the data whether the breakdown occurred from the initial problem documentation, transcription errors, work order generation, scheduling, repair, or follow-up inspections, but it is clear that a standard working procedure is needed to fix and reconcile documented problems that are identified.

Also in the spreadsheet, of the 46 documented secondary root causes, 41 or almost 90 percent were labeled Procedures or lack of them. Without an accountable, comprehensive infrared predictive maintenance inspection management program, unnecessary failures and losses will continue to occur.

Tracking cost/benefits
 For the company that wants to track the cost/benefits of its infrared program, inventory tracking and problem reconciliation procedures are necessary. Also, the cost to fix problems before vs. after failure must be tracked and systematically recorded. This will produce a running total of the conservative cost savings for the company as a result of the infrared program.

By using a system of comparing parts and labor before vs. after failure, we have derived an average cost savings ratio of 1:4. From a return on investment perspective, infrared inspection programs have proven that on average for every $1 spent on infrared electrical inspections, there is a $4 return on investment for materials and labor from fixing the problems before it fails.

This cost savings ratio was calculated from 10 years of data gathered using an infrared predictive maintenance inspection management database. Later, this ratio was independently verified by Hartford Steam Boiler from its own data and calculations. Hartford Steam Boiler also verified that if loss to production, spoilage, extra expenses, etc., are considered, the ratio on average can be closer to 1:20.
Once a comprehensive infrared predictive maintenance program is set up and maintenance has good follow-up procedures, extreme examples of potential loss are reduced.

Document savings
 Since problems are being fixed before they cause a fire or shut down a production line, management may forget the benefits that infrared provides. Management may look at cutting costs in the predictive maintenance program. Some managers may see only the costs of the program and not the savings generated when a comprehensive program is run properly but no cost-saving documentation is produced. It is advantageous to have a running total of hard dollar cost savings from the program to be brought to the attention of those in charge of budgets.

By showing how much was conservatively saved on each problem documented, it is easy to justify the cost of an infrared program and what it saves the company on an ongoing basis. As an example, one infrared program documented 41 problems in an industrial plant in 2000. By fixing these problems before they caused a failure vs. after, the company saved more than $32,560 in parts and labor.
These cost savings are conservative and do not take into consideration loss to production, fire, spoilage, or other potential losses. Over the past eight years, the plant has saved $389,000 since implementing the infrared program. Corporate wide, including facilities in five other locations, the infrared program saved $215,000 in 2000, and over the past eight years has saved $2.3 million.

Even though we cannot predict the future, these points will continue to be true: