Keep Repeating: 'They Are Capital Assets' (September 1999)
On campuses, we entrust this equipment with enormous responsibility. It's the central source for providing heating and cooling to all campus buildings. Ironically, as a result of constant "reprioritizing" and the annual budget process, allocating the funds to maintain this equipment often falls to the bottom of the list. Let's face it, plant utilities represent a substantial overhead expense that reduces the bottom line.
"Improve profitability by reducing expenses" is the edict heard over and over again. Campus facility managers are required to do more with less and, as a result, often are forced to defer maintenance. Eventually, equipment failures occur with increasing frequency, forcing immediate, unplanned repairs. The consequence of this action typically results in transforming what was once a proactive management policy into a reactive role. However, it is widely recognized that the most costly approach to maintenance is the policy referred to as reactive planning. These repair costs, direct and indirect, can be significantly higher than a proactive management program.
In the worst case, maintenance costs escalate until it becomes necessary to fund a capital project. This is when the concept of treating this type of equipment as a capital asset in need of management is key to success.
A Reactive ExampleNormally, you would classify buildings and other major facilities as an institution's capital assets, and undertake programs to protect them. Treating pressure vessels and equipment as an asset involves establishing a mindset that is proactive towards maintenance, upkeep, and repair, rather than waiting until the warning signs are flashing.
Consider, for a moment, a district heating system at a university campus. Leaks in the distribution system went unattended because of cuts to the maintenance budget. Eventually the condition worsened to the point where the boiler water treatment program was reduced because of excessive chemical consumption and concerns over ground water contamination.
This accelerated the deterioration of not only the distribution system but also the boilers, deaerator, and absorption chillers. Years later, instead of only the cost to repair the distribution loop, the university is confronted with a major capital project, including possible replacement of pressure equipment. In this particular instance, financial constraints forced the facility engineers to make hard choices in order to stretch lean maintenance budget dollars.
Unfortunately, those decisions were misplaced at the expense of the entire system. Future classes face the increased financial impact of that decision. The circumstance surrounding this university illustrates the difference between extending equipment life and the necessity for major capital investment. In most situations, extending the life of pressure equipment can be realized through an asset management approach. Identifying a potential problem at an early stage allows for adjustments that may minimize further deterioration and restore the reliability of the equipment.
Even in the most extreme cases, the replacement of a subcomponent may be required to preserve the integrity of the whole without total equipment replacement. Determining which is the proper course of action requires an evaluation of existing conditions.
Managing Equipment As A Capital AssetEquipment such as boilers, pressure vessels, production equipment, and systems are typically classified as capital and are generally considered to be assets, in that their value diminishes over time and is depreciated according to appropriate accounting practice. This equipment is maintained and operated based on sound engineering principles and available funding.
Although labeling major equipment as capital assets is nothing new, the way we manage this equipment can change significantly when we introduce the combination of condition assessment, altered maintenance practices, and financial planning. Managing equipment as a capital asset essentially involves the following three steps:
1. Understanding the condition of all major equipment;
2. Altering maintenance practices and procedures; and
3. Developing a long-term equipment strategy.
Implementation of these steps will almost always result in more effective utilization of resources and financial capital.
In today's highly competitive academic world, few institutions can easily absorb unanticipated capital expenditures for boiler and pressure vessel replacement or refurbishment. The costs of raising capital, expediting new equipment purchases, and service interruptions can quickly escalate, and always result in inefficient use of funds.
Understand Your EquipmentUnderstanding the life and reliability of an asset is a key aspect to this approach.
A number of organizations offer clients the latest in maintenance reliability, including reliability-centered maintenance, preventive-predictive maintenance, best-practice benchmarking, and several versions of computerized maintenance management systems (CMMS). These tools provide the information required to manage the life of pressure equipment, and effectively anticipate capital expenditures necessary for replacement or overhaul.
Prior to selecting the most effective maintenance strategy as part of an overall asset-management program, a thorough understanding of equipment condition is mandatory. An engineering assessment will provide the road map to plan development and implementation.
The data developed during an engineering review represents the basis for subsequent decisions involving maintenance philosophy and asset classification. Having the ability to accurately anticipate capital expenditures provides a number of opportunities to effectively secure capital funding from a variety of sources, while maintaining a competitive advantage by successfully managing costs.
Once equipment condition and remaining life are established, the process of finding the appropriate balance between maintenance and financial management becomes easier to manage. A number of factors affect the final approach that a college or university takes. Such factors may include:
- A college's future equipment needs;
- Plans for expansion;
- Changes to building systems or production lines that will impact equipment requirements;
- Existing maintenance costs;
- Availability of funding;
- Operating costs; and
- Consideration of future strategic direction.
Altering Your PracticesLet's consider the necessity for managing the maintenance of boiler and pressure vessel equipment relative to the customary practice of managing daily operations.
Operating personnel, as a matter of routine, conduct inspections of the boilers and pressure vessels during periods of operation. These inspections are performed to detect deviations from normal operating parameters. Abnormal conditions require an appropriate response to restore stable operations or unwelcome consequences may ensue.
Pressure equipment and systems are frequently inspected for visual indications of distress, such as leaks. Leakage, whether liquid or gaseous, is symptomatic of a developing problem. In this case, inspections may employ either direct or indirect observation methods.
For instance, testing water chemistry uses a combination of direct and indirect measurement. The practice of testing water chemistry is used to directly indicate whether the system is being adequately maintained to safeguard the system from scale formation and corrosion. The operator may indirectly conclude from the testing that a system leak requiring an excessive consumption of makeup water has developed, as indicated by a chemistry imbalance.
Increased MonitoringMonitoring temperatures, pressures, and flows during operation yields useful data for instantaneously gauging the operation of any system. Analyzing this data for trends over a period of time forewarns the operator of deteriorating conditions.
Some conditions require immediate attention to sustain stable operation. Other conditions may permit a delayed response without significant consequence to operations.
It would be unrealistic and neglectful to consider an operation without a diligent approach to monitoring conditions. The information gained serves as a guide for rational decision-making. So, too, is the case for managing maintenance and repairs of pressure equipment.
Decisions regarding the necessity and timing of maintenance, including repairs and replacement, have significant budgetary impact. By implementing a carefully structured inspection program, plant personnel can develop a preventive maintenance program to ensure a high degree of operational reliability with minimal cost.
Nearly all industrial boilers in operation today are inspected on an annual basis as a consequence of state, jurisdictional, or insurance requirements. To a lesser degree, pressure vessels are held to the same requirements. The actual inspection made prior to issuance of an operating certificate is safety-oriented.
The inspection consists of a visual examination with major emphasis on appurtenances, such as safety valves, low-water cutoff, etc. While these inspections are a necessity, they are not intended to provide owners with an evaluation of the equipment's reliability.
Detailed EvaluationThe reliability and ultimate life expectancy of pressure equipment is directly related to the ability of its components to withstand a given pressure at a specified temperature. To adequately assess the reliability of pressure equipment, a more detailed evaluation is required. This approach involves the following three-step process:
1. Historical review;
2. Condition assessment; and
3. Data analysis.
A review of the equipment history provides critical information regarding usage and repairs that may influence the reliability of the pressure equipment. Information regarding service hours, cycle frequency, lay-up practices, and operation anomalies (such as low-water events) are common examples of relevant historical data.
An awareness of past events guides the next phase of the evaluation: condition verification and assessment.
Condition AssessmentThis phase of the evaluation is broader in scope than the jurisdictional inspection, in that it is more quantitative than qualitative.
While visual inspections are fundamental to both inspection programs, a condition assessment includes several other routines. The most common techniques include ultrasonic testing, magnetic particle or liquid penetrant examination, hardness testing, metallurgical evaluations, and material analysis. Other specialized methods are employed as needed.
Ultrasonic measurements of material thickness are obtained to quantify the severity of material loss caused by corrosion or erosion. Results are mapped to record the extent of conditions. This information provides a reference mark for assessing the severity of depletion rates and for planning repairs.
Under ideal operating conditions, stresses imparted on a pressure vessel are minimal. Unfortunately, equipment is not operated under ideal conditions. Pressure equipment frequently cycles through pressure and temperature variations demanded by load fluctuations. It is not uncommon for equipment to be operated without a proper warm-up period. This affects the fatigue life of the equipment.
To evaluate the effect of operations on pressure equipment, material surfaces are examined using magnetic particle or liquid penetrant procedures in order to test for evidence of surface discontinuities indicative of cracking. Indications are marked for further evaluation to determine the severity. Without this method, indications may go undetected when the inspection relies solely on a visual examination.
Changes in metallurgical properties for materials used in the fabrication of industrial boilers and pressure vessels are induced by exposure to high-temperature conditions. The effect this exposure can have on material may include reduction in strength and ductility.
When historical data indicates a high-temperature event has occurred or there is visual evidence of deformation, hardness testing and metallurgical assessments are warranted. While field analysis is possible, removal of a sample specimen is often required for controlled laboratory analysis.
The final step of the evaluation process is to analyze and report the collected data. Information is reviewed with consideration toward improving reliability and future operation requirements.
The product of a successful condition assessment is a detailed evaluation report. A comprehensive report should provide a profile of conditions with specific reference to areas of concern. The report should include an assessment of conditions discussing the effect on equipment reliability and the probable cause leading to each condition.
Long-Term StrategyOnce a baseline condition of equipment is established, a long-term strategy for equipment management can be developed. Combining the results of the assessment with future planning will allow a college facility engineer to make appropriate decisions on long-term equipment management.
For example, if an equipment assessment survey reveals that a major piece of equipment has a remaining life of five years and the future need for the equipment is not expected to change, a college or university can effectively anticipate the capital expense and structure financing accordingly. It is also possible to evaluate the differences between repairing and replacing a piece of equipment based on financial models. Decisions involving changes to maintenance practices over the next five years can also impact cost savings.
Establishing a preventive maintenance strategy incorporating a detailed inspection program is much more productive and beneficial over the life of the asset as opposed to responding with reactive strategies. The benefits are not only monetary (in terms of lower costs over the life of the asset), but can also manifest themselves in the form of reduction of consequential costs. For example, consider the difference in the lifecycle costs of a preventive strategy vs. the "If it isn't broken, don't fix it" type of reactive philosophy. Table 1 illustrates the lifecycle cost difference between the two strategies based on a present dollar value over a 30-year boiler life, assuming an inspection frequency of 10 years.
Clearly, the lifecycle costs in 1978 dollars are much lower for the boiler with the preventive maintenance philosophy. Even if the reactive maintenance philosophy boiler did not have a forced outage costing $75,000, the other maintenance philosophy still has lower lifecycle costs.
An important consideration not reflected in the matrix is that unplanned expenses are also more costly. For the simplification of illustration, it was assumed that it costs the same to obtain capital for the forced-outage-related expense of $75,000. In reality, the cost of capital for an unplanned expense is usually higher than for those that are planned.
Making informed decisions, by combining sound engineering data with an understanding of various financial options and organizational strategies, will almost always result in effective management of capital assets. ES