Production modelling as a tool to support investment decision-making

Methods for effective asset management

Susanna Kunttu, Toni Ahonen, Kari Komonen, Minna Räikkönen, Annika Heikkilä

Research output: Contribution to conferenceConference articleScientific

Abstract

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
Original languageEnglish
Pages285-296
Publication statusPublished - 2010
MoE publication typeNot Eligible
EventSixteenth International Working Seminar on Production Economics - Innsbruck, Austria
Duration: 1 Mar 20105 Mar 2010

Conference

ConferenceSixteenth International Working Seminar on Production Economics
CountryAustria
CityInnsbruck
Period1/03/105/03/10

Fingerprint

Investment decision-making
Asset management
Production modelling
Investment portfolio
Life cycle cost
Profit
Productivity
Investment decision
Industry
Uncertainty
Production process
Monte Carlo simulation
Decision-making process
Statistics
Decision model
Simulation
Subsystem

Keywords

  • asset management
  • process model
  • investment
  • simulation

Cite this

Kunttu, S., Ahonen, T., Komonen, K., Räikkönen, M., & Heikkilä, A. (2010). Production modelling as a tool to support investment decision-making: Methods for effective asset management. 285-296. Paper presented at Sixteenth International Working Seminar on Production Economics, Innsbruck, Austria.
Kunttu, Susanna ; Ahonen, Toni ; Komonen, Kari ; Räikkönen, Minna ; Heikkilä, Annika. / Production modelling as a tool to support investment decision-making : Methods for effective asset management. Paper presented at Sixteenth International Working Seminar on Production Economics, Innsbruck, Austria.
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Kunttu, S, Ahonen, T, Komonen, K, Räikkönen, M & Heikkilä, A 2010, 'Production modelling as a tool to support investment decision-making: Methods for effective asset management' Paper presented at Sixteenth International Working Seminar on Production Economics, Innsbruck, Austria, 1/03/10 - 5/03/10, pp. 285-296.

Production modelling as a tool to support investment decision-making : Methods for effective asset management. / Kunttu, Susanna; Ahonen, Toni; Komonen, Kari; Räikkönen, Minna; Heikkilä, Annika.

2010. 285-296 Paper presented at Sixteenth International Working Seminar on Production Economics, Innsbruck, Austria.

Research output: Contribution to conferenceConference articleScientific

TY - CONF

T1 - Production modelling as a tool to support investment decision-making

T2 - Methods for effective asset management

AU - Kunttu, Susanna

AU - Ahonen, Toni

AU - Komonen, Kari

AU - Räikkönen, Minna

AU - Heikkilä, Annika

N1 - Project code: 33611

PY - 2010

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N2 - 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

AB - 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

KW - asset management

KW - process model

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Kunttu S, Ahonen T, Komonen K, Räikkönen M, Heikkilä A. Production modelling as a tool to support investment decision-making: Methods for effective asset management. 2010. Paper presented at Sixteenth International Working Seminar on Production Economics, Innsbruck, Austria.