Chemical Engineering March 2022 - 40

TABLE 2. PUMP REPLACEMENT
ECONOMICS
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
IRR
NPV
Rate
*Note: Investment
a year, then the annualized base case
risk is 2 × $170,000 or $340,000/
yr. If we believe an upgraded pump
will only fail every five years, then the
annualized future risk
is expected
to be 0.2 × $170,000 or $34,000/
yr. Therefore, the annualized △Risk
for this project is $340,000/yr minus
34,000/yr or $306,000/yr.
Table 1 tabulates some improvement-project
payback-period ranges
along with the likelihood projects that
fall in these ranges will be approved
by management (based on the authors'
experiences).
Payback time examples
Two examples of determining the
payback time are presented here.
Upgrading mechanical seals in a
pipeline pump. Assume there is a
multistage (double-ended), pipeline
pump that is experiencing a seal failure
every six months. Experience has
shown that if only the leaking seal is
40
Revenue
($500,000)*
$64,990
$66,940
$68,948
$71,016
$73,147
$75,341
$77,601
$79,930
$82,327
$84,797
$87,341
$89,961
$92,660
$95,440
$98,303
$101,252
$104,290
$107,419
$110,641
$113,960
14.41%
$617,276.87
4%
replaced, then the non-leaking seal
will normally fail within a few days.
For this reason, it is considered good
practice to replace both seals when
either one of the seals has failed.
Root-cause
failure
analyses
(RCFAs) in the pump's historical record
indicate that most of the seal
failures are due to abrasives embedding
in the softer primary ring and
causing a leak. After considering several
options, it has been deemed that
installing double seals with a dedicated
pressurized-seal oil system is
the most attractive of the upgrade
options considered. It is believed that
a pressurized sealing arrangement
will increase the mean time between
seal failures from 6 months to 8 years.
If the cost of replacing inboard and
outboard seals is $40,000, then the
annualized reduction in maintenance
costs realized from the upgrade is expected
to be:
$40,000/(0.5 yr) - $40,000/8
= $80,000 - $5,000
= $75,000/yr
The upgrade costs include purchasing
four seals (two to install and
two to put in stores), a pressurizedseal
oil system, and the cost of installing
the required seal auxiliary piping
and instrumentation for the new
seal oil system. No modifications to
the pump shaft or pump casing are
required for the seal upgrade. The
total project cost of the upgrade is
estimated to be $120,000.
Using Equation (3), we see that
the payback period for this project is
$120,000/$75,000 = 1.6 yr. Referring
to Table 1, we can see that this project
has a good chance of getting approved.
(Notice that this simple economic
analysis did not take credit for
any pipeline outages or slowdowns
caused by unplanned seal replacements.
Taking credit for any process
related losses will decrease further
improve the payout period and make
this upgrade project even more economically
attractive.)
Upgrading slurry-service pump
casings. Let's say you own a pair
of 500-hp slurry pumps that, due
to severe casing erosion, are currently
experiencing one failure every
year. Every time the failure occurs, it
costs $100,000/yr to pull the pump,
replace with casing with a spare casing
in stores, and expedite the reassembly
and installation. An RCFA
indicates that the current metallurgy
and coating combination is unsuited
for the application.
Assuming we believe you can improve
the MTBF of these pumps from
once every year to once every four
years, then the annualized benefit of
a casing upgrade will be $100,000/
yr - $25,000/yr = $75,000/yr. If the
cost of the new upgraded casing
is $60,000, then the total project
cost will be $180,000 (for the main,
installed spare, and warehouse
spare). We won't include the cost
of installing the new casings, since
future repairs have already been accounted
for.
Using Equation (3), we find that the
payback period for this example will
be $180,000/$75,000/yr = 2.4 yr.
According to Table 1, a project with a
payback greater than two years may
be difficult to sell to site management.
To increase the chances of getting
this upgrade approved, the user may
have to find additional upgrade benefits,
such as listing any production
downtime events caused by unexpected
failures or taking a salvage
credit for the existing casings.
Remember that the payback period
evaluation
method does not
consider the time value of money
as considered in other economic
analysis methods. However, most
managers tend to find the payback
method to be an intuitive and acceptable
means of evaluating the
economic benefits of smaller projects.
Other larger or more complex
projects may require more sophisticated
economic evaluations, such as
determining the internal rate of return
(IRR) or net present value over the life
of a project.
Some final advice on upgrades: To
be successful, centrifugal pump professionals
should 1) use economic
thinking when considering all potential
upgrade decisions; and 2) always
try to justify your projects using clear,
well thought out project scopes that
have compelling payback time calculations.
Never push improvement
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