Good Costs, Bad Costs

In every operational plant there are activities that you plan for and allocate a budget to their delivery. An example might be the planned replacement of a section of pipe. These can be referred to as ‘good costs’.

There are other activities which are unplanned and unwanted. While there may be a budget to undertake unplanned work like this, it is not money that you want to spend. An example might be to replace a section of a pipe that has failed and is currently causing production downtime due to its failure. These can be referred to as ‘bad costs’.

The challenge is to have a conversation where the word ‘cost’ is included. Operations management want to drive out cost and sometimes have difficulty distinguishing between ‘good costs’ and ‘bad costs’, they just hear the word ‘cost’ and want to irradiate it.

Do you have an alternative terminology that you use to distinguish between expenditure that is planned and adds value to the plant, and reactive, unplanned expenditure that is the result of an unscheduled incident on the plant?
The above came about during a discussion I was having at the Smart Ops conference. We were discussing how the Choke Model had been created in BP as a vehicle to allow a fact based discussion to be conducted on efficiency of various parts of the overall plant process and also allowed learning to be captured and shared. We were also discussing how the Choke Model is now used in many industries to allow similar fact based discussions to occur and knowledge to be shared and re-used. Within BP this has now evolved into Common Process and while it is providing BP with significant insights as to how to improve plant up-time and share the knowledge of how this is being achieved, there is still difficulty discussing ‘costs’. We used the terms ‘good costs’ and ‘bad costs’ as described above, but our thoughts were that perhaps there is another way of engaging management in this discussion. If you know of one, I would be delighted to hear it.

Knoco Ltd