Preventive maintenance has been more popular in principle than in practice over the years. One scarcely can argue with the idea of keeping equipment well maintained to extend its expected life and avoid future repair costs. Less clear is an understanding of the actual relationship between the cost of preventive maintenance and the returnssuch activities can be expected to deliver. This article describes a process of assessing the value of preventive maintenance programs and activities by analyzing them in terms of key financial ratios. Engineers and building operators trying to persuade property owners and managers to invest in preventive maintenance (PM) for their portfolios offer a range of solid arguments: “The equipment willperform better.” “Equipment life will be extended.” “Repair costs will fall.” “Downtime will be reduced.” “Tenant satisfaction will increase.” “The manufacturer says we need to do it.” Although most owners acknowledge these issues, they may be more concerned with saving money and obtaining optimum value from their investments. Given that perspective, a more convincing argument for preventivemaintenance would demonstrate that PM generates a solid rate of return in terms of risk mitigation and asset protection. Anecdotal evidence does suggest that preventive maintenance is valuable. Until now, however, no one has placed a firm value on the relationship between costs and returns. For one thing, the economic value of preventive maintenance is difficult to determine. No specific statisticalmethods exist. No empirical studies have been performed. How does one quantify the extended life of a chiller? How can one know how much longer a compressor will last if it receives proper preventive maintenance than it would if no PM took place?
Establishing a Baseline: How Much Is Actually Spent?
The table at right shows costs taken from the Building Owners and Managers Association (BOMA)Experience Exchange Report for the year 2000.
Expense Category Fixed (e.g., taxes) Utilities Repair and maintenance Cleaning Administrative Security Roads/grounds 2000 BOMA Figures $3.06 1.83 1.36 1.16 1.16 0.46 0.21 $9.24
According to the BOMA data, repair and maintenance account for about 15 percent of total expenses. Although the report does not distinguish between repairs and maintenance,estimates Total suggest that preventive maintenance may account for between 30 percent and 50 percent of repair and maintenance costs, or from 4.5 percent to 7.5 percent of annual operating costs. Although not an overwhelming number, this is a significant amount. Can it be justified?
Jones Lang LaSalle
Determining the Economic Value of Preventive Maintenance
Property owners and managers,after all, continually seek ways to reduce expenses, and common cost-cutting targets include real estate and operating expenses. In this environment, funding requests for preventive maintenance may not be warmly received.
• Cost of replacing equipment • Expected useful life of equipment • Effects of preventive maintenance on expected useful life • Frequency of required repairs when equipment is notmaintained • Effect of PM on energy consumption The team surveyed approximately 12 percent of the company’s entire portfolio of 119 million square feet. For this 14 million square feet of mixed property types, they ascertained: • Type of equipment in each building (e.g., chillers) • Amount of equipment (e.g., number of chillers) • Size of equipment (e.g., tons) • Age of equipment • Annualpreventive maintenance expenditures for equipment In its analysis, the team proceeded on the assumption that this proxy portfolio was representative of the full corporate portfolio. Average size and age was calculated for each piece of equipment, limiting the study to the 15 pieces of equipment shown below. Using this information,2 the team proceeded to build the financial model.