How to calculate return on investment for maintenance improvement proyect

HOW TO CALCULATE RETURN ON INVESTMENT FOR MAINTENANCE IMPROVEMENT PROJECTS
By Terry Wireman, GenesisSolutions

In an effort to become more competitive, companies have found that maintenance represents from 15 to 40% of the total product cost and dollars saved in maintenance are a cost avoidance. In larger companies, reducing maintenance expenditures by $1 million contributes as much to profitsas increasing sales by $3 million. Improving maintenance and decreasing unnecessary maintenance expenditures by $1 million is considerably easier and more likely to occur than obtaining $3 million in new sales. In this article, guidelines are presented for calculating possible savings that may be achieved by investing in improved maintenance policies and practices, including a computerizedmaintenance management system. The objective is to present a different method for examining the effect of maintenance on a company’s costs. The material is divided into sections to allow various parts to be used where applicable and omitted where not.

Standard cost justification
Standard cost justification is composed of four main parts: • Maintenance labor costs. • Maintenance materials costs. •Project cost savings. • Downtime/availability costs. Maintenance labor costs – Maintenance productivity in most American companies averages between 25 and 35%, which is equivalent to less than 3-hr/8-hr shift of hands-on activities. Most lost productivity can be attributed to:
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Waiting on parts. Waiting on information, drawings, instructions, etc. Waiting for equipment to be shutdown. Waiting on rental equipment to arrive. Waiting on other crafts to finish their part of the job. Running from emergency to emergency.

While 100% productivity is an unrealistic goal for any maintenance organization, a more realistic percentage of 60% is achievable.

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The productivity of maintenance technicians can be improved by concentrating on basic management techniques, such as:
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Planning jobs in advance. Scheduling jobs and coordinating schedules with operations. Arranging for parts to be ready. Coordinating availability of tools, rental equipment, etc. Reducing emergency work below the 50% level by preventativemaintenance.

With computer assistance, planning time per job is reduced, resulting in more jobs planned and coordinated. This results in more time for preventative maintenance activities which, in turn, helps to reduce the amount of emergency and breakdown activities. This results in fewer schedule changes and increases productivity by reducing travel and waiting times. Successful users ofcomputerized maintenance management systems have indicated an increase in productivity of 28%. A procedure for calculating potential savings in maintenance labor costs is shown in Table I. Inventory and stores savings – Maintenance material costs are related to the frequency and size of the repairs made to the company’s equipment. The total number of parts, in addition to the stores’ policies, purchasingpolicies and overall inventory management practices contribute to the overall maintenance materials costs. Since little attention is paid to maintenance materials in some companies, inventories may be higher than necessary by 20 to 30%. This increases inventory holding costs and makes materials unnecessarily expensive. The inability of stores to service maintenance department’s needs results inunnecessary storage depots for just in case spares. This practice also increases the cost of maintenance materials. Good inventory control enables companies to lower the value of the inventory and continue to maintain a service level of at least 95%. This enables the maintenance department to be responsive to the operations group, while increasing the maintenance department’s own personal...