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Economic Costs of Poor Performance

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Why do you need Profitable Performance Guaranteed

When we look at engines in an industrial setting, these engines serve only one ultimate purpose. Income. Whether it’s in a direct method such as power generation or a more passive approach to say the mining industry, the humble diesel engine is there to assist your company to be more profitable.

As engines age, it is common to see these engines’ performance degrade in terms of total output and fuel economy. In fact, many service life maintenance contracts actually have it written into their Performance KPIs! Have you ever thought that this was strange given that you do actually pay for engine repairs and refurbishments? Ultimately it’s the same engine it was say 5, 10 or 15 years ago, why shouldn’t it be able to perform the same? Or with today’s available technology, why not better?

At The Baileys Diesel Group, we think the same way.

If we look at the NET commercial benefit from an engine, and we take for this example that the engine can now only maintain 80% load, at 95% of its original efficiency. Let’s say it’s a 2000KW engine in a power station application, and our income is around $0.30 / kWh. Fuel costs are $1.20 / Litre and she produces 4.4KWh / Litre.

 

Caculation Example based on Factory New Profitability Performance

Originally, when new, the engine’s gross profitability would be as follows:

A Income is:

2000kW x $0.30= $600.00 per hour

B Costs are:

Fuel > 2000kWh / 4.4kWh per litre = 454.54 litres consumption per hour
Costs > 454.54 litres x $1.20 / litre = $545.45 fuel costs per operating hour

Maintenance > $250,000 over 12,000 operating hours = $20.83 per operating hour

Total COGS >    = $545.45 + $20.83= $566.28 per operating hour

C Gross Profit >    = A – B = C or $600.00 – $566.28 = $ 33.72 per operating hour

 

Calculation Example based on an advanced operation engine profile and Profitabillity Performance

The original kW rating has declined to 80% i.e. 1600kWh and the efficiency has declined to 95% of its original performance i.e. down to 4.2kW per litre Diesel fuel.

A Income is:

1600kW x $0.30=$480.00 per hour

B Costs are:

Fuel > 1600kWh / 4.2kWh per litre =380.95 litres consumption per hour
Costs > 380.95 litres x $1.20 / litre=$457.14 fuel costs per operating hour

Maintenance > $250,000 over 12,000 operating hours = 20,83 per operating hour

Total COGS >    = $380.95 + $20.83=$477.97 per operating hour

C Gross Profit >     = A – B = C or $480.00 – $477.97= $2.03 per operating hour

With a degrading Performance Profile affecting the kWh output capability, the Gross Profitability degrades well below operational breakeven point.

And this is where the expertise and Client understanding of the Baileys Diesel Group comes into importance. 5% drop in efficiency becomes critical to the operation, a further reduction in power and therefore ability to produce income hurts, put the two together, and you have an economic situation that is near on Diabolical. Imagine how your balance sheet would look if your engine being written off over 5 or even 10 years generating only $2.03 / hour, not even $50 per day.

This is the key difference of the services offered here at the Baileys Diesel Group. We understand business, we take the time to fully understand your requirements, your goals and your own KPIs to tailor our solutions to help you and your company to better meet yours.

And don’t forget, the Baileys Diesel Group guarantees all of our performance requirements with its simple ‘don’t save, don’t pay’ Return on Investment policy.

To Find out more about our Client services, contact one of our Client Support Managers by clicking here.


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