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Automation integration services: Consider workload, risks

While it may seem logical to keep as many services in-house as possible, factors to consider include workload, forecasting work, schedule, deadlines, expertise, design quality, liability, and risk. See checklist.

By John Koehler, Melissa Striet, Process Plus April 24, 2012

It may seem like common sense to keep as much work in-house as possible. Why would you hire someone to complete work that you can do yourself? If automation and operational engineering services are your core competencies, then keeping those services in-house may make sense. However, if these are services that do not make up the majority of your business, you may want to reconsider. Providing a service that is not at the core of your business practice may detract from your bottom line. You need to consider factors such as overhead costs for these employees, cost-effectiveness, as well as missed opportunity costs related to your staff who are not contributing to your core competency.

With every design project, there are two basic cost elements: the cost of the services, and the overall lifecycle cost of the project. The cost of the services for a hired-out engineering consultant is easy to determine, it is simply the price of the purchase order. However, the cost of in-house engineering can be more difficult to determine; it is more than just salaries and benefits. It depends on accurate record-keeping of time spent on the project, and other activities associated with the project, such as travel and supplies, profit, as well an accurate estimate of overhead. Therefore, it can be difficult to compare costs.

Cost-effectiveness goes beyond engineering and design fees. The second element of cost-effectiveness is the overall lifecycle cost of the project. The design determines what the lifecycle cost of a project will be. An inferior design or the wrong project approach could needlessly raise costs. Project delivery expenses go beyond hourly rates. Other factors to consider include workload, staff capacity, project schedule, specific project expertise, design quality and innovation, and the risk and liability associated with a project.

Considerations include the following.    

Workload peaks, valleys

For most companies, workload is never consistent from week to week. Funding for projects varies from year to year. While your workload varies, your staff size stays the same. If your office is staffed to be able to perform the work during times of "peak" workload, then you may still have the same amount of staff during the "valleys" in the work schedule. Short of laying-off staff, during times when there is little design work, you would be paying idle staff. Not only are you paying for salaries, but also for their benefits, such as social security, health insurance, paid time off, etc. However, if projects are hired out, the consulting engineer is only paid for the time he or she works on the project. If a project is not urgent and can be forecasted out to help fill in gaps in workload, the argument can be made for keeping the work in-house.

Project schedule and capacity

Based on the project schedule and critical deadlines, you need to consider your capacity. Generally speaking, hired-out consultants have more flexibility to meet fast-track deadlines than in-house engineers have. It may not make sense to hire more staff for only one project. In addition, in many cases consultant engineers are more focused on meeting deadlines. Frankly, they know they need to complete the project on time and on budget to be considered for future work.

You may calculate that it is more cost-effective for a project to be completed in-house, but if your in-house staff has a full backlog, the project may be delayed. Depending on the length of the delay, additional costs may be generated. These costs could surface as increased construction costs and possible increased design costs. These two increases could account for a cost that is significant compared to a slight upfront premium for hired-out engineering services.

Project expertise

There may be instances when the in-house staff must deliver automation or controls services that you are not equipped to deliver. For instance, the in-house staff may be unable to accommodate a specific platform, shutdown and start-up assistance, or construction packages and installation details. If special expertise or specific project experience is desired for a project, hiring an automation consultant may be more feasible if you don’t foresee needing a specialist of this type in the future.

If the expertise is not used, serious design flaws could result. If design flaws are not discovered until the construction phase, the resulting costs could far exceed total cost of the design effort, independent of whether the engineering services are performed in-house or hired out.

Quality and innovation

Another consideration is that a hired-out engineering consultant may have more means to encourage innovation than in-house departments have. This motivation may be in the form of a bonus program, or the sharing of intellectual property for promotional purposes. A hired-out service provider may use this as a marketing tool, a means of promoting itself as staying on top of the trends in the industry. Hiring out can allow for new technology and integration tools to replace outdated processes. As mentioned earlier, consultants compete against one another for work; they cannot submit a poor-quality design and expect to be selected again by the same company. Past performance and word-of-mouth reputation are major gatekeepers in the selection of consultants. Staying current with new design trends is vital to keeping work from going to their competition.

Liability and risks

You may consider basing your decision on the management of liability and risk associated with the project. Hiring a consulting engineer and having a signed contract can be a mechanism for risk management. This may be an especially strong consideration for complicated projects, as certain risks are shifted to the hired-out consultant who has control over the design.

If a project is performed in-house, the risk is assumed by the company. If there is a design flaw or other error or omission, the cost of redesign or other "fix" will fall on the company. A hired-out engineer carries insurance for errors and omissions, and the contract between the company and the hired-out consultant acts as a management tool for increasing accountability and efficiency.

Workload, deadlines, risk

While it may seem logical to keep as many services in-house as possible, factors to consider include the peaks and valleys in workload and the challenges associated with forecasting work, the project schedule and meeting critical deadlines, specific project expertise and past experience, the quality of the design, and the liability and risk associated with the project.

Use the following checklist to help decide if automation engineering services should be in-house or hired out.

Considerations Checklist for Services: In-house or hired out?
Yes  No  Consideration questions
| Are automation and operational engineering services a core competency for your company?
| Do automation and operational engineering services make up the majority of your business?
| By taking on this project in-house, will there be missed opportunities to take on more profitable projects? 
| Considering your current workload and staff size, can your in-house staff support this project?
| Does the one-time cost of a hired-out consultant outweigh the cost of hiring additional in-house staff?
| Does your in-house staff have the ability to meet the critical deadlines dictated by the project schedule?
| Is the project schedule flexible enough for the work to be forecasted to help fill in gaps in your in-house workload?
| Does your in-house staff have the special expertise or specific project experience necessary to complete the project?
| Will you receive the same quality of work in-house as you would by hiring out the engineering services?
| Are you willing to take on the risk and potential liability associated with this project?
| Total
Source: Process Plus and CFE Media

If the majority of answers are "yes," then you may consider keeping the service in-house.

If the majority of answers are "no," then we suggest that you consider hiring out your engineering services.

– John Koehler is director of sales, and Melissa Striet is technical marketing coordinator, Process Plus. Edited by Mark T. Hoske, content manager, CFE Media, Control Engineering.