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ECONOMIC EVALUATION: 

ECONOMIC EVALUATION Joe Martin LABAT-ANDERSON Inc. Denver, CO

Slide2: 

FIGURES NEVER LIE BUT...

Slide3: 

LIARS FIGURE

Objectives: 

Objectives Identify the requirements driving cost analysis. Identify the factors affecting cost. Understand how to break down a process into its component tasks and identify which factors affecting cost are applicable.

Overview: 

Overview Requirements Basis of Cost Elements Cost Element Descriptions Locations of Elements and Data Use of Cost Elements AF HazMat Model Conclusion

Requirements: 

Requirements DoDD 4210.15 DoDI 5000.2 FY 95 Defense Appropriations Act NAS 411

DoDD 4210.15: 

DoDD 4210.15 An evaluation of hazardous material decisions by economic analysis techniques needs to be made The evaluation needs to match the magnitude of the decision being made Cost and intangible factors need to be considered

National Aerospace Standard 411: 

National Aerospace Standard 411 “Hazardous Materials Management Program” Designed to help reduce hazmat usage both during manufacture and over maintenance life of system

National Aerospace Standard 411 (cont.): 

National Aerospace Standard 411 (cont.) Requires progress reports which detail: hazmats contractor must use because of MilSpecs/Stds hazmats that must be used because there is no alternative provides trade-off alternatives that decrease environmental liabilities and decrease cost

When Do You Conduct an Economic Analysis?: 

When Do You Conduct an Economic Analysis? AT THE EARLIEST POSSIBLE STAGE and WHEN BETTER INFORMATION BECOMES AVAILABLE

How Should Alternatives by Analyzed?: 

How Should Alternatives by Analyzed? Alternatives are to be analyzed in a “COULD COST” approach Consideration of the lowest amount the decision could cost by overcoming barriers to getting the job done and ensuring protection of human health and the environment

COST FACTORS:: 

COST FACTORS: Those expenses and cost avoidance associated with hazardous materials that may be reduced to monetary terms, which includes future liability.

Basis of Cost Elements: 

Basis of Cost Elements The Environmental Cost Elements are Based on Three Areas: Direct Operating Costs Indirect Operating Costs Capital Costs

Direct and Indirect Costs: 

Direct and Indirect Costs acquisition manufacture supply use storage emission control recycling training... Cost factors that are attributable to hazardous materials that are encountered in operations such as:

Future Liability: 

Future Liability Accounting in current decisions for potential future liability requires application of risk and uncertainty analysis. Future liability may be expressed as an expected present value or analyzed by sensitivity techniques This does NOT mean an organization must shop lawful disposal until a major risk study is performed IT DOES MEAN THAT...

Current Decisions Should Consider the Effects Future Environmental Problems Might Have on Future Costs and Defense Performance: 

Current Decisions Should Consider the Effects Future Environmental Problems Might Have on Future Costs and Defense Performance

Selecting Hazardous Materials: 

Selecting Hazardous Materials The cost of acquiring, handling, using, and disposing of the material will be considered over the system’s life along with other impacts e.g.: product quality performance schedule...

12 Subject Areas of Processes: 

12 Subject Areas of Processes Procurement Transportation & Distribution Handling Management Training Personal Protection Liability Medical Facilities Support Equipment Emergency Response Disposal

Procurement: 

Procurement Cost of raw materials Transportation of raw materials to site Materials manufacturing (preliminary processing Pretreatment Storage

Transportation & Distribution: 

Transportation & Distribution Packaging Storage Weekly Inspections Maintenance of logs and standard operating procedures Vehicle Costs

Handling: 

Handling Subdividing and labeling of hazardous materials Lost productivity due to controls placed on hazardous materials Sampling Analytical fees

Management: 

Management Compliance related management Record keeping expenses Permits

Training: 

Training Training in handling, storage, and use of hazardous materials as well as use of personal protection equipment Labor hours Fees charged Travel expenses

Personal Protection: 

Personal Protection Equipment costs (eye, body, foot, lung, hand) Human performance degradation (inefficiency) Dispensing and tracking

Liability: 

Liability Litigation Negative publicity Future disposal site cleanup (remediation)

Medical: 

Medical Occupational physical examination and time lost Industrial hygiene surveys Medical surveillance Illness or injury

Facilities: 

Facilities Direct capital costs (structures, etc.) Indirect capital costs (engineering, design, etc.) Site preparation Labor operating hours Maintenance costs Recycling costs/savings Inspection

Support Equipment: 

Support Equipment Sensing devices Laboratory equipment

Emergency Response: 

Emergency Response Fire Medical Spill control Police security Down time losses

Disposal: 

Disposal Packaging Aboveground storage Treatment and/or landfilling Inspection

Basis of Cost Elements: 

Basis of Cost Elements Material Procurement and Handling Compliance Liability Procurement Transportation Support Equipment Handling Training Support Equipment Personal Protection Equipment Facilities Medical Management Emergency Response Disposal

Cost Elements: 

Cost Elements Procurement - Purchase price of Hazardous Materials at the point of receipt Transportation - Cost of transportation from on-site warehouse to user; includes equipment and staff costs Handling - Labor cost to subdivide, label and distribute Hazardous Materials; lost productivity for personnel

Cost Elements(cont.): 

Cost Elements (cont.) Support Equipment - Cost of lab equipment, recycling equipment, storage cabinets, etc. Personal Protection - Cost of personal protection equipment; lost productivity; labor to maintain/distribute equipment

Cost Elements(cont.): 

Cost Elements (cont.) Medical - Cost of occupational physical exams; medical surveillance; industrial hygiene surveys; lost time from work for exams; lost time and treatment costs for illness/injury due to use of Hazardous Materials Emergency Response - Labor costs for handling leaks/spills

Cost Elements(cont.): 

Cost Elements (cont.) Facilities - Cost to construct and maintain HM/HW facilities Management - Cost of cradle-to-grave management of HM/HW Training - Cost to train workers and supervisors in hazard communication, personal protection equipment, Hazardous Waste management; includes lost time, instructor costs, and other course costs

Cost Elements(cont.): 

Disposal - Cost to operate wastewater treatment plant; HW analysis/classification; off-site HW disposal Cost Elements (cont.)

Cost Elements(cont.): 

Cost Elements (cont.) Potential Legal/Environmental Liability - Cost of legal staff; Hazardous Material releases into the air; future liability including toxic torts, correspondence with regulators, fines and penalties, real property damage, groundwater remediation equipment and operations, and restoration of natural resources

Location of Data: 

Records Databases Legal Documents Personnel Interviews Observation Location of Data

Use of Cost Elements: 

Use of Cost Elements NAS 411 As Part of HMMP Trade Off Studies Environmental Life Cycle Cost Analysis Required by FY 95 Defense Appropriations Act Part of Weapon System LCCA

HazMat Model: 

HazMat Model Manufacturing and Maintenance Process Cost Analysis Tool Cost Trade-Off Analysis Tool RISK ANALYSIS MODULE (RAM) HAZMAT MODEL Existing - Enhancements in FY95/96 In Development In Development Hazardous Materials

Hazardous Material Cost Trade-Off Analysis Tool(HMCTAT): 

Hazardous Material Cost Trade-Off Analysis Tool (HMCTAT)

Slide42: 

Attributes Process Oriented Chemical Specific Geared to systems Aircraft, tanks, munitions, launch vehicles Applicable to all phases Acquisition, operating and support, decommissioning PC based

Objectives : 

Objectives Performs comparative cost analysis between selected alternatives Quantify expenditures related to HazMat usage in manufacturing and maintenance processes Costs related to 12 cost elements Extrapolate from system type in the database to similar system type not in database

Capabilities: 

Capabilities Surfaces hidden costs of Human Health and Environmental Issues Provides estimated costs to document life cycle cost impacts due to hazardous material uses Provides tool to engineers to support decision making for pollution prevention efforts

Limitations: 

Limitations Will not do life cycle cost of entire system Focuses on life cycle cost of using HazMats System oriented Based on HazMat uses in specific weapon systems

Phase/System Combinations: 

OPERATING & SUPPORT Phase/System Combinations FIRST & SECOND STAGE SYSTEM DECOMMISSIONING SERVICE F-15 F-16 B-1 C-130 TITAN IV TPS-75 M1-A1 MARK 50 AIR FORCE ARMY NAVY COMPLETE TRANSMISSION BLACK HAWK ACQUISITION

Status: 

Status Version 3.3 DOS based Fielded Windows Version Available June 1996

Manufacturing & Maintenance Process Cost Analysis Tool (M2PCAT): 

Manufacturing & Maintenance Process Cost Analysis Tool (M2PCAT)

Proposed Attributes: 

Proposed Attributes M2PM is designed to calculate life cycle costs. Mass balance concept evaluates processes. Multiple levels of analysis capability. Database management is easy to access. User tailorable reporting system. PC Windows based.

Risk Analysis Module(RAM): 

Risk Analysis Module (RAM)

Proposed Attributes: 

Provide an evaluation of risk to human health and the environment to fulfill DoDD 4210.15 Based on Toxicity and Hazardous Characteristics of Chemical Based on Quantity Used Provide Report with Realistic Risk Information Proposed Attributes

An Example of a Process Based Analysis : 

An Example of a Process Based Analysis The following is an example of a process and its associated tasks These processes include but are not limited to type II and type V plastic media blasting, bicarbonate of soda blasting and sanding By using the following process flow chart, we can use some algorithms to determine the cost of each task and than we can determine if the payback for switching technology is justifiable

Depainting an F-15 using Plastic Media Blasting and Bicarbonate of Soda Stripping: 

Dock and Jack Aircraft Inspect Mask Labor Electricity Labor Electricity Non HazMat Tools Electricity HazMat Labor Equipment Air Emissions Depainting an F-15 using Plastic Media Blasting and Bicarbonate of Soda Stripping

Depainting an F-15 using Plastic Media Blasting and Bicarbonate of Soda Stripping (cont.): 

PMB Blast Demask Labor Electricity Tools PPE Labor Equipment Electricity Air Non HazMat HazWaste Air Emissions Recycled Material HazWaste Non HazWaste PMB Blast Depainting an F-15 using Plastic Media Blasting and Bicarbonate of Soda Stripping (cont.)

Depainting an F-15 using Plastic Media Blasting and Bicarbonate of Soda Stripping (cont.): 

Depainting an F-15 using Plastic Media Blasting and Bicarbonate of Soda Stripping (cont.) Move Aircraft Depaint with B.O.S.S Non HazMat Water Electricity Air Labor Equipment Wastewater Labor Equipment Fuel

Depainting an F-15 using Plastic Media Blasting and Bicarbonate of Soda Stripping (cont.): 

Depainting an F-15 using Plastic Media Blasting and Bicarbonate of Soda Stripping (cont.)

Task 1: Dock and Jack Aircraft: 

Task 1: Dock and Jack Aircraft Electricity: Definition: the cost of electricity required to operate process equipment Data Requirements/Availability: the unit cost of electricity $/kW-hr) is available from Civil Engineering. The typical electricity requirement (kW-hr/ft) for each task will need to be determined through data collection. The electricity requirement is dependent on the type of equipment used in the task and the amount of item it is operated. Data should be collected on the typical electrical equipment types for tasks and amp-hour requirements. 2

Electricity (cont.): 

Electricity (cont.) Hazardous Material Cost Association: the use of electricity is not associated with the use of hazardous materials. Algorithm:

TASK 1 (cont.): 

TASK 1 (cont.) Operating Labor: Definition: direct labor cost required to perform process tasks Data Requirements/Availability: the average labor rate of personnel performing tasks can be determined through data collection. The average labor rate will be multiplied by the funded retirement and benefits factor available from Air Force Instructions 65-503 or appropriate DoD counterpart. The average number of operating hours required per square foot of part processed will need to be determined through data collection.

Operating Labor (cont.): 

Operating Labor (cont.) Hazardous Material Cost Association: Operating labor is not associated with the use of hazardous materials. Algorithm: Operating Labor Cost ft of part processed 2 = # of operating hours required * Average Labor Rate ft of part processed 2

TASK 2: Inspect: 

TASK 2: Inspect Perform same data analysis as in Task 1.

TASK 3: MASK: 

TASK 3: MASK Direct Operating Costs: Labor Utilities Materials (hazardous, nonhazardous) Tools Capital Costs: Equipment Indirect Operating Costs: Permitting

TASK 3: Direct Operating Costs: 

TASK 3: Direct Operating Costs Labor and Utilities same as in TASK 1 Hazardous Materials Procurement: Definition: the cost of hazardous materials procured directly for use in a process Data Requirements/Availability: the number of pounds of each type of hazardous material required per square foot of part processed needs to be determined through data collection. The unit cost of the hazardous material in pounds can/will be calculated by the Cost Trade-off Analysis Tool (“Tool”). The cost of hazardous materials per unit of issue is available in the base supply systems and the “Tool”. The volume per unit of issues will need to be converted to pounds using the density of the materials also available by using the “Tool”.

Hazardous Materials Procurement (cont.): 

Hazardous Materials Procurement (cont.) Hazardous Material cost Association: procurement of hazardous materials is directly related to the use of hazardous materials in the process Algorithm: Cost of HazMat ft of part processed 2 = Pounds of HazMat ft of part processed 2 * Cost of HazMat pound

Task III: Direct Operating Costs (cont.): 

Task III: Direct Operating Costs (cont.) Direct Operating Costs don’t stop at Hazardous Materials Procurement Need to figure in: Hazardous Materials transportation Nonhazardous Materials transportation Hazardous Material storage

Task III: Equipment Procurement: 

Task III: Equipment Procurement Definition: the annual depreciation charge for equipment used in the process Data Requirements/Availability: the annual depreciation charge will be calculated using the straight line depreciation method. The cost of process equipment and its useful life are available from records kept by the facility engineers in each shop/directorate. Salvage values will be assumed to be zero. This algorithm assumes the equipment will not be replaced during the economic evaluation period.

Equipment Procurement (cont.): 

Equipment Procurement (cont.) Algorithm: Hazardous Material Cost Association: most equipment procurement is not associated with the use of hazardous materials.

Task III: Indirect Operating Costs: 

Task III: Indirect Operating Costs Air Monitoring: Definition: the cost of monitoring air emissions from processes emitting permitted air emissions Data Requirements/Availability: no real time air emissions monitoring is performed therefore air emissions rates must be calculated based on the material balance of task inputs and outputs. Data on air emission rates from processes can be determined from real time monitoring or by calculating from typical emission factors. The total allowable pounds for each type of emission and the permitted sources can be found on the air permit

Air Monitoring (cont.): 

Air Monitoring (cont.) Hazardous Material Cost Association: air emission monitoring is often associated with the use of a hazardous material. Monitoring for particulate ions is one case where this cost is not associated with hazardous material usage. Algorithm:

Task III: Indirect Operating Costs (cont.): 

Task III: Indirect Operating Costs (cont.) Indirect Operating Costs doesn’t stop at monitoring Need to figure in: Permitting Disposal Off site waste transportation On site waste manifesting Personal protective equipment Occupational Medical Exams Medical Surveillance

Slide71: 

If we went through all of the tasks and their associated costs, we would be conducting a serious economic evaluation for this particular process. Not all processes need to be put through this type of analysis. Additionally with the use of the HazMat model much of these equations will be processed for you. The goal was to familiarize you with the types of breakdown structures that may be needed when performing a detailed economic analysis.

Simple Economic Analysis: 

Simple Economic Analysis For the shop decision maker who needs to analyze the benefits of a chemical substitution a simple analysis would suffice.

Reduce Hazardous Materials and the Generation of Hazardous Waste: 

Reduce Hazardous Materials and the Generation of Hazardous Waste This example of a pollution prevention opportunity assessment addresses the availability of alternative paints and thinners in order to reduce the use of hazardous materials (especially EPA 17 chemicals) and reduce the generation of hazardous waste.

Alternatives: 

Alternatives The following alternatives are analyzed: Alternative 1: Continue with current practices Alternative 2: Search/employ possible substitutions for hazardous chemicals

Advantages/Disadvantages of Alternatives: 

Advantages/Disadvantages of Alternatives

Chemical Substitution Alternatives: 

Chemical Substitution Alternatives

Conclusion: 

Conclusion Requirements Twelve Environmental Cost Elements Data Attainable in Military and Industry HAZMAT Model Cost Trade-Off, M2PCAT, Risk Module