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 not even cover most of the
indirect costs. In a developing nation like ours, it is very important that we use the optimized corrosion
protection techniques so as to have the check on our corrosion expenditure and keep the losses to
minimum.

A number of studies have been carried out in the past throughout the world. Each one of them pointed
out the fact that the current available technology is not being put to good use to fight corrosion. Many a
reasons 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 and
4) 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 were
the 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 and
contamination.

The basis of Uhlig study was the estimation of overhead costs for using improvised materials
resistant 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 as
coatings for protection against corrosion. So the costs of these paints were reported as Direct Costs
of Corrosion.

Similarly a number of assumptions were followed to calculate the direct cost of corrosion to various
sectors 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 losses
like replacements at regular fleet shops, owner replacements, replacement at home, etc. They
based their study only on the data provided by recognized industries from the identified sectors and
extrapolated the data to GDP.

2) The Hoar Approach: This approach gave a better estimation than the Uhlig method. They collected
extensive data and considered the losses followed by damage and failures due to corrosion. They
carried out extensive surveys to estimate the data of expenditures on corrosion protection
techniques, repair due to corrosion and replacement and shut down. With the judgment and
experience of exports, an estimate on potential savings by the use of improvised protection
techniques, improved metallurgy and better maintenance.

Information obtained from one industry was used to estimate the costs for other industries of the
same sector. Subsequently, the costs for individual industry sectors were added up to give a net
corrosion cost for the economy.

The committee recognized the sources of cost of corrosion and based on detailed study of every
cause, 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 based
on 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; and
16. more frequent or longer duration maintenance periods.

The Hoar committee suggested that major cause of corrosion was lack of awareness and poor
sharing of available knowledge and technology. According to the study, better interaction between
research departments and industries would substantially decrease the current expenditure.

The Committee also studied the taxation laws and their effect on corrosion costs. Maintenance costs
qualified for tax reliefs which motivated operators to have lower construction costs and higher
maintenance costs. The report suggested reforms in the tax policies so as to improve on the initial
construction 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 matrix
representation of the economy of a nation to predict the effect of change of inputs in one sector on
other sectors. Input output model is based on inter relations between different sectors of an
economy and how output of one sector is an input to other sector. These inter relations were
structurally 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 in
inputs 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 changes
in facilities and equipments (maintenance), cost of premature replacements and additional
resources cost like labour, material, energy, engineering research and development testing and to
certain extent cost of disposing removed components. The above model has been applied
successfully 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 need
to measure the effectiveness of each method and at the same time keep it cost effective. So it was
suggested to measure the net present value and corrosion cost of each method. It emphasizes on
evaluating the Annualized Value of each option and the option with the lowest cost is the most
preferable option. Thus life cycle costing is minimizing the losses due to corrosion along with
keeping 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; and
3. Calculation of the annualized equivalent value.

Cash flow: The corrosion-related cash flow of a structure includes direct and indirect costs that are
incurred 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 Environment

PDV of Cash Flow: Cash flow throughout the life cycle of a structure/component consists of the
following 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 a
facility since the time of its commissioning to its disposal. The total amount or Cash flow is
converted into an annuity, i.e. a fixed amount to be paid every year till the last year of service, which
amounts 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 a
very conservative approach. The cost estimated is usually quite less. The data was obtained
from manufacturers and it was extrapolated to GDP which does not cover all the costs. Also, it
does 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 the
industries of a particular sector. Costs of all the sectors were added and the effect on economy
was 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 costs
and 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 based
on the life cycle costing of a structure/facility. It helps in identifying the most cost effective
method for corrosion protection thus optimizing between the need for improved protection
measures and cost.