Measuring ROI of CMMS
In this blog, we discuss the findings presented in a recent reliabilityweb.com article on the subject of measuring and improving maintenance ROI (return on investment). The article suggests that through successful computerized maintenance management software (CMMS) utilization, a goal of 60% maintenance productivity (versus the U.S. average 25 – 35%), could be realized. Moreover, companies have reported an increase of 28% in productivity through successful CMMS utilization.
The article presents a standard cost justification framework:
- Maintenance labor costs
- Maintenance materials costs
- Downtime/availability costs, and,
- Project cost savings
In this blog, we’ll look at downtime/availability costs. One of the most obvious correlations between maintenance and overall operational efficiency (OOE) is the reality that maintenance is typically conducted at the expense of production (whether it is preventive or emergency maintenance actions). Therefore, the more facilities can reduce emergency actions, the less of a negative impact maintenance will have on production, which in turn means increased productivity and ROI. In terms of real numbers, companies are reporting an average 5% reduction in outages as a result of reduced downtime.
But what are the real costs of equipment downtime and how much can companies save by reducing it? This variable can vary from hundreds to thousands of dollars per hour (one company which has multiple production lines reports its downtime costs $1 million/day), ample inducement to tap the potential savings from reducing equipment downtime. The keys to getting a handle on equipment downtime at a given facility are implementation and enforcement of maintenance best practices and policies and use of an adequate tracking tool/system (successful CMMS users report an average reduction of equipment downtime loss of 20%).
In the article, a summary calculation for total projected savings and ROI is provided, with the caveat that savings for this can be more difficult to calculate, because the calculation requires historical data (or accurate estimates) that many companies (especially those who have not used CMMS long or at all) lack. Therefore, the article recommends that industry averages (or ranges, if applicable) be substituted until the appropriate internal historical data can be procured.
Finally, one area for improved savings is the potential reimbursement of warrant costs for repaired/replaced equipment. Though this amount varies, companies have reported as much as 5 – 10% of equipment repair costs being reimbursable with equipment manufacturers. A hypothetical repair of downed equipment that costs $5,000 in labor and parts could be reduced to $4,500, after the warranty reimbursement. Multiplied times 20 plants and 10 comparable repairs, that becomes a savings of $10,000 on that action alone. There are certain caveats that should be made in pursuing warranty reimbursements, however:
- Does the warranty require that repairs are made or supervised by one of its representatives?
- If so, how much time will be lost in downtime, while awaiting their technician (would it eat up the savings to be gained)?
- Do repairs made internally void the warranty?
- How much documentation is required under the terms of the warranty?
These examples of cost-benefit analysis are but a few of those that must be considered in order to determine if pursuing a reimbursement for repaired equipment is worthwhile.
Brandon Vincent describes the ways in which ROI can be derived from the effective use of CMMS software for your business. A CMMS or EAM system can greatly reduce downtime and organize all your your maintenance activities.