The Value of Preventive Maintenance

Operating and growing a business requires strategic planning to maximize the return on every dollar spent. Profitable businesses strategically plan their investments and expenditures to ultimately increase revenue and lower expenses.

This is particularly true of physical assets. Companies must plan their purchases and consider how to get the best return on their investment. Of course, an asset’s initial purchase price is only a portion of its total cost of ownership. Invariably, physical assets require maintenance. How a company manages its equipment maintenance ultimately impacts its bottom line. This whitepaper examines the costs associated with preventive maintenance planning (or the lack thereof) to determine the most cost effective way to manage physical assets.

Waiting for the Worst

“Failing to plan is planning to fail.” – Alan Lakein

Waiting until a piece of equipment stops running to perform maintenance is risky and expensive. Apart from the hard costs of having to repair or replace a failed piece of equipment, there are other associated costs which can exponentially increase the cost of equipment failure.

Downtime is one of the more obvious costs associated with equipment failure. Depending on which piece of equipment has failed, downtime costs can range from mere inconvenience to jeopardizing an entire operation.

In most cases, unplanned outages result in some sort of hidden cost. Lost productivity from workers who cannot perform their duties, lower production output, customers who lose access to resources they need, delays to project schedules, overtime pay to make up for unscheduled downtime, or lost opportunity costs can quickly eat into an organization’s profitability.

Furthermore, an unplanned outage can have a domino effect and precipitate other equipment failures which, in turn, may cause additional business service outages, further escalating the cost of the failure. For example, if a chiller in a data center fails, the risk to other equipment in the climate-controlled space also increases. Indeed, any system with interrelated dependencies is placed at risk when vital sub-components are compromised.

Compounding the material costs are the corresponding costs for human assets. In a reactive environment, maintenance crews may spend all their time in fixing the latest equipment failure rather than preventing the next one. A corrective rather than a preventative maintenance approach can also affect team morale, resulting in lower productivity and increased frustration that can lead to higher staff turnover. This, in turn, creates additional problems for business cash flow, budget planning, and overall productivity. If the combined costs of downtime, downstream equipment failures, and labor are large enough, they can destroy a budget and adversely affect the company’s overall profitability and stability.

To quantify downtime costs in real numbers, consider a scenario of a manufacturing business with 50 workers who are paid an average of $25/hour. Downtime of any sort results in this group of 50 workers being unable to work.

The following three scenarios demonstrate the progression of costs for downtime in this manufacturing business:

+ A single 1 hour incident

+ Downtime of 5% annually (a best case scenario)

+ Downtime of 20% annually (a worst case scenario)

 The following table summarizes the costs of lost productivity and overtime:

Single 1 Hour Incident 5% Downtime   (Annual) 20% Downtime (Annual)
Labor Cost $1,250 $130,000 $520,000
Overtime Cost $1,875 $195,000 $780,000
Total Labor Cost $3,125 $325,000 $1,300,000

These figures represent only lost time for the workers who are affected by an outage. Of course there are the additional costs for the parts and labor required to repair the problem. Depending on the industry, other costs may also need to be factored in as well.


Managing Assets with a Preventive Maintenance

The most effective way to minimize unexpected repairs and replacement costs is to plan regular equipment inspections and preventive maintenance. A preventive maintenance plan extends equipment’s useful life, lowers the cost of ownership, and reduces the probability of having to replace it before it has reached the end of its depreciation. Of course, not every failure or risk can be avoided. The purpose of a preventive maintenance plan is to provide a higher degree of predictability for asset lifespan, maintenance, and repair.

Wei Lin Koo and Tracy Van Hoy, P.E., of Jones Lang LaSalle conducted a study entitled “Determining the Economic Value of Preventive Maintenance” that evaluated costs over a period of 25 years for assets common in the property management industry. Their study found that repair and maintenance accounted for 4.5% to 7.5% of annual operating costs when a preventive maintenance program was in place. The question they wanted to answer was whether this expense could be justified through increased equipment life and reduced repair costs.

The study compared three different scenarios:

+ No preventive maintenance;

+ A current preventive maintenance measurement based on actual expenses;

+ And an industry benchmark based on manufacturer recommendations for preventive maintenance

For the actual expenses, they noted that “[f]or most of the 15 types of equipment, significantly less was being invested than the recommendations based on benchmarks collected by the team.”2

When comparing the first and last scenarios, the study showed a return on investment of 545% – a return that was far higher than anticipated. While there are a number of factors that impact ROI, this study clearly shows that implementing a preventive maintenance program has a significant positive impact to an organization’s bottom line.

How a Computerized Maintenance Management System Helps With Preventive Maintenance

Based on the findings of the LaSalle study, it is clearly evident that performing regular equipment inspections and preventive maintenance extends equipment’s useful life, lowers the cost of ownership, and reduces the probability of having to replace equipment before it reaches the end of its depreciation. The problem for most organizations is planning and tracking the inspection and maintenance schedules for all the assets on hand. Equally challenging is tracking each asset’s associated warranty information to ensure the company does not incur expenses for asset maintenance or repair that is covered under warranty.

Simple asset tracking systems track the assignee, purchase date, and location of assets. While that is a good start, more information is required to track maintenance tasks. A computerized maintenance management system (CMMS) tracks information about maintenance tasks, parts inventory, and procedures, as well as the tools and materials needed to perform maintenance tasks.

Additionally, a CMMS can track warranty information, work orders, and authorized vendors. It can also be used to schedule the personnel required to perform maintenance tasks.

A CMMS automates maintenance scheduling and records details of every preventive maintenance task performed. When the system has information about the parts, supplies, and tools needed for an upcoming scheduled task, it can help ensure that those materials and tools are available when the work order is dispatched. If the associated parts or materials are not available, the CMMS system provides alerts to designated personnel.

With vendor information in the system, a CMMS should also be able to generate purchase orders for parts and materials needed for upcoming maintenance or to maintain inventory on hand.

All that is required to issue the order is a review and approval from an authorized purchasing agent. Automating the purchase order process streamlines inventory management, reduces down time due to waiting for parts, and simplifies the overall PO process. Finally, because CMMS systems record details of every preventive mainte- nance task, administrators can run reports to show compliance with various regulatory requirements.

ManagerPlus provides asset tracking, inventory management, employee scheduling for mainte- nance tasks, and automated purchasing with an integrated vendor database–all things that one would expect from a competitive asset manage- ment solution. However, ManagerPlus provides the added advantage of allowing customers to customize product workflows to suit their current business processes. For example, as new parts or assets are acquired, they can be tagged and tracked in ManagerPlus using an organization’s established codes and procedures. Similarly, organizations can use ManagerPlus to incorporate existing employee on-boarding policies by adding new hires to ManagerPlus maintenance schedules as they become familiar with operations, policies, and procedures.

Preventive Maintenance with ManagerPlus Solutions

ManagerPlus understands that one size does not fit all when it comes to CMMS systems. For smaller business, a CMMS that is capable of handling a large enterprise can be overwhelming and complex to work with. Larger businesses, however, may find that a CMMS designed for small businesses lacks features needed to manage their complex enterprise environments. ManagerPlus offers flexible, adaptable, and modular CMMS solutions that scale as per customer needs.

Businesses can implement ManagerPlus to run on their existing business systems and support their existing business operations rather than having to adapt their systems to accommodate a rigid, cookie-cutter CMMS.

In addition to asset and inventory management, ManagerPlus provides budget planning and expense tracking tools. Labor accountability and comparisons of projected and actual labor costs help ensure that a business is spending money in the right areas and that actual costs and investments are in line with the planned budget. These tools help managers monitor budgets and identify variances so corrective action can be taken to ensure actual costs are within a reasonable tolerance of the original estimates.

ManagerPlus also covers all aspects of record keeping and reporting for preventive maintenance needs, including tracking preventive maintenance schedule compliance. Additionally, ManagerPlus can help generate a maintenance book of record and other documentation necessary to maintain an ISO 14001 or ISO 9000 certification, regulatory compliance needs, or just due diligence monitoring for internal purposes.

About ManagerPlus

With over 20 years of experience in the asset management business, ManagerPlus has a proven track record of providing flexible solutions that empower companies in asset-intensive industries to drastically reduce the costs of operation while radically increasing overall return on investment. Schedule a live demonstration or to learn how ManagerPlus products can help with your preventive maintenance needs.

ManagerPlus Solutions, LLC
9350 South 150 East Suite 650
Sandy, UT 84070
800-730-9965
www.managerplus.com

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