A Review Study on Corrosion Costing Techniques

Siddhartha Jain Arjit Chouksey Final Year Dual Degree Students Corrosion Science & Engineering Guide: Prof. A.S. Khanna Metallurgical Engineering & Material Sciences Department IIT Bombay Corrosion Costing: A Review Study It is known that corrosion has severe impact on the economy due to its direct and indirect costs that affect almost every sector of the economy. The net cost of corrosion in every industrialized nation covers a significant portion of its GDP. To add to it, this estimate does
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    Siddhartha Jain   Arjit ChoukseyFinal Year Dual Degree StudentsCorrosion Science & EngineeringGuide: Prof. A.S. KhannaMetallurgical Engineering & Material Sciences DepartmentIIT Bombay Corrosion Costing: A Review Study It is known that corrosion has severe impact on the economy due to its direct and indirect costs thataffect almost every sector of the economy. The net cost of corrosion in every industrialized nationcovers a significant portion of its GDP. To add to it, this estimate does not even cover most of theindirect costs. In a developing nation like ours, it is very important that we use the optimized corrosionprotection techniques so as to have the check on our corrosion expenditure and keep the losses tominimum.A number of studies have been carried out in the past throughout the world. Each one of them pointedout the fact that the current available technology is not being put to good use to fight corrosion. Many areasons have been cited for it which we will see through this article.In the past, four important studies for analysis of cost of corrosion have been carried out.1)   The Uhlig method,2)   The Hoar method,3)   NBS-BCL input/output method and4)   Net present value method.Each of them pointed out the impact of corrosion on the economy of a nation. 1)   The Uhlig Study: It was based on the costs that are directly levied onto by corrosion. These werethe direct costs and indirect costs.  (i)   Direct cost  – due to use of special alloys and replacement of corroded equipments; and(ii)   Indirect loss  – due to shutdown, over design, loss of product and efficiency, explosion andcontamination.The basis of Uhlig study was the estimation of overhead costs for using improvised materialsresistant to corrosion instead of the basic materials like iron and steel.In a similar fashion, Uhlig study considered that 50% of the net production of paints was utilized ascoatings for protection against corrosion. So the costs of these paints were reported as Direct Costsof Corrosion.Similarly a number of assumptions were followed to calculate the direct cost of corrosion to varioussectors like boiler industries, domestic water heaters, automobiles, internal combustion engines,etc.However, this was a very conservative estimate as it ignored a number of sources of direct losseslike replacements at regular fleet shops, owner replacements, replacement at home, etc. Theybased their study only on the data provided by recognized industries from the identified sectors andextrapolated the data to GDP. 2)   The Hoar Approach: This approach gave a better estimation than the Uhlig method. They collectedextensive data and considered the losses followed by damage and failures due to corrosion. Theycarried out extensive surveys to estimate the data of expenditures on corrosion protectiontechniques, repair due to corrosion and replacement and shut down. With the judgment andexperience of exports, an estimate on potential savings by the use of improvised protectiontechniques, improved metallurgy and better maintenance.Information obtained from one industry was used to estimate the costs for other industries of thesame sector. Subsequently, the costs for individual industry sectors were added up to give a netcorrosion cost for the economy.The committee recognized the sources of cost of corrosion and based on detailed study of everycause, suggested 16 measures to lower the effective cost of corrosion.1.   better dissemination of existing corrosion control information;2.   improved protective treatments;3.   closer control over the application of existing protective measures;4.   improved design with existing materials;5.   greater awareness of corrosion hazards by the users;6.   use of new materials;7.   cost-effectiveness analysis of materials and protective treatments leading to procurement basedon total life costs;8.   previous feedback on service performance;9.   improved specifications for protective treatments;10.   more basic research on corrosion mechanisms;  11.   improved communication between government departments;12.   improved storage facilities;13.   information on corrosion sensitivity of equipment;14.   better non-destructive testing techniques;15.   standardization of components; and16.   more frequent or longer duration maintenance periods.   The Hoar committee suggested that major cause of corrosion was lack of awareness and poorsharing of available knowledge and technology. According to the study, better interaction betweenresearch departments and industries would substantially decrease the current expenditure.The Committee also studied the taxation laws and their effect on corrosion costs. Maintenance costsqualified for tax reliefs which motivated operators to have lower construction costs and highermaintenance costs. The report suggested reforms in the tax policies so as to improve on the initialconstruction costs and lower the maintenance costs, thus reducing the net effect of corrosion. 3)   Input Output Approach: Input output model was developed by Wassily Leontief. It is a matrixrepresentation of the economy of a nation to predict the effect of change of inputs in one sector onother sectors. Input output model is based on inter relations between different sectors of aneconomy and how output of one sector is an input to other sector. These inter relations werestructurally drawn and thus put in a matrix form. Inputs for one sector are depicted in a column of the industry, while output is listed as a row. Thus, Input output model clearly shows the changes ininputs of all the sectors of an economy to change output of any product.   A detailed study on I/O model was undertaken in U.S.A. in 1978 by National Bureau of Standards(NBS) which identified damages of corrosion which were overseen in previous studies like changesin facilities and equipments (maintenance), cost of premature replacements and additionalresources cost like labour, material, energy, engineering research and development testing and tocertain extent cost of disposing removed components. The above model has been appliedsuccessfully to economies of U.S.A., Australia, Japan and India. 4)   Life Cycle Cost Approach: With a number of corrosion control measures available, there was a needto measure the effectiveness of each method and at the same time keep it cost effective. So it wassuggested to measure the net present value and corrosion cost of each method. It emphasizes onevaluating the Annualized Value of each option and the option with the lowest cost is the mostpreferable option. Thus life cycle costing is minimizing the losses due to corrosion along withkeeping the cost of control measure under check.Life cycle costing consists of the following three steps:1.   Determination of the cash flow of corrosion-related activities;2.   Calculation of the present discounted value (PDV) of the cash flow; and3.   Calculation of the annualized equivalent value.Cash flow: The corrosion-related cash flow of a structure includes direct and indirect costs that areincurred due to corrosion throughout the life cycle of the structure.  Direct cost includes the following:    Amount of additional or better metallurgy material used to prevent corrosion.    Number of labour hours dedicated to maintenance and repair activities attributed to corrosion.    Cost of the equipment and facilities used as a result of corrosion.    Loss of revenue due to decreased production (shut down) and lower supply as a result.    R&D costs incurred.Indirect costs include the following:    Increased costs of the product and services.    Lost time revenue spent for search of alternative products.    Effect on Economy    Effect on the EnvironmentPDV of Cash Flow: Cash flow throughout the life cycle of a structure/component consists of thefollowing inputs:1)   Zero Year: The initial cost to build the structure and make it functioning.2)   Service Period: Cost incurred for repair, maintenance and partial replacements.3)   Last Year: Cost of removal and disposing.For the cash flow calculations, all the direct and indirect costs should be taken into consideration.Annualized Value of Cash Flow: AV is used for estimating the total amount spent on a structure or afacility since the time of its commissioning to its disposal. The total amount or Cash flow isconverted into an annuity, i.e. a fixed amount to be paid every year till the last year of service, whichamounts to the net irregular cash flow during the service time. 5)   Conclusions: (i)   The Uhlig Approach was one of the first attempts at calculating the cost of corrosion. It was avery conservative approach. The cost estimated is usually quite less. The data was obtainedfrom manufacturers and it was extrapolated to GDP which does not cover all the costs. Also, itdoes not have any criteria to suggest savings or improvised methods.(ii)   The Hoar Approach was based on surveys of industries and this data was applied to all theindustries of a particular sector. Costs of all the sectors were added and the effect on economywas observed. It is slightly less conservative when compared with Uhlig Approach.(iii)   The NBS Input/output model is very mathematical, real life data based. It includes direct costsand the interaction amongst different sectors thus giving a good estimate on total expenditure.(iv)   The Net Present Value gives a more reasonable estimate on the cost of corrosion as it is basedon the life cycle costing of a structure/facility. It helps in identifying the most cost effectivemethod for corrosion protection thus optimizing between the need for improved protectionmeasures and cost.
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