Production modelling as a tool to support investment decision-making: Methods for effective asset management

In the capital intensive industry, investments related to production processes and equipment are crucial in endeavouring to maintain and increase the productivity of the plant. There are several tools and techniques available to support investment decision-making. However, in practice most of the existing investment decision models do not support the definition phase of the investment proposals; information from production model is not comprehensively utilized and investment proposals are treated separately without the overall view of the investment portfolio. In our paper we describe how we created a production model that was used in identifying and analysing production bottlenecks which are candidates for investment proposals. After the structure of the production model was complete we collected plant and equipment specific information which also included failure statistics. We used simulation to ascertain whether or how the location of bottlenecks varies in terms of the changes in production volume or downtimes of the subsystems with various investment portfolios. For every investment proposal we estimated its life cycle costs and profits in order to define the most profitable investment portfolio within a limited investment budget. Monte Carlo simulation was applied to estimate the sensitivity of the investment portfolio to variation of the values of the life cycle cost and profit variables. The approach presented in this paper will provide companies with new ways of utilizing information and managing uncertainty during the investment decision-making process