Coal Age

APR 2018

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April 2018 31 material handling continued Assuming the life of the conveyor is 20 years and the cost of money (discount rate) is 5%, the available additional in- vestment would be about $750,000 more in design time to accomplish the 50% improvement in safety. By choosing the lowest-priced bid in order to meet the minimum safety requirements, the short- term expenditure ends up costing con- siderably more over the 20-year life cycle. (See Figure 5) By spending $750,000 more to ex- ceed the minimum safety and design requirements and reduce the accident rates by 50%, the annual projected cost of accidents drops from $140,813 to $70,407. Measured in today's dollars — in- cluding the additional investment of $750,000 — the projected savings over the 20-year term at 5% are about $1.2 million by investing more upfront. By adjusting for indirect costs and includ- ing them in the estimated direct cost of accidents, a more in-depth analysis can be made. The results can be modified further by applying judgement factors for the likelihood of the savings being re- alized. If, after further analysis, the sav- ings are found to be less — perhaps only a 25% reduction in the cost of accidents — the upfront investment is still justified over the long term. The same technique of comparing the current situation to future needs based on additional investments and savings can be applied to a wide range of circumstances that are known to affect safety, such as improving availability, im- proving equipment reliability or reducing fugitive material emissions. Typically, safety investments take time to produce results, so a minimum of 5 years of cash flows (costs – savings) should be analyzed for each investment option. With a little practice, the NPV ap- proach becomes easy to use and under- stand. Maintenance, operations and plant managers employing these techniques may find that it is easier to convince de- cision-makers to engage in a longer-term safety strategy. Even though it takes a little more effort to collect data and do a finan- cial analysis, in the end, NPV consistently proves that safety does indeed pay. R. Todd Swinderman is principal at RToddS Engineering LLC and CEO emeri- tus, Martin Engineering, a global innova- tor in the bulk material handling industry. Figure 5—Considering accident costs for years 1 to 20, the low-bid option is not the best option. Discount Additional Accident Costs NPV of Projected Accident Costs Rate Investment Per Year (1-20) System Purchased on Low Bid $2,816,260 5% $0 $140,813 System Purchased on Alternate Bid 0, $877,427 5% $750,000 0 $70,407

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