Cost Analysis – or How Do You Get Management Buy-in?

Making the transition from reactive maintenance where there is a clear and obvious need for repairs to a predictive or preventative maintenance program can be challenging. However, there is plenty of data that careful, well-planned maintenance prolongs the life of equipment and prevents costly downtime. You may want to check out the NFPA 70B: Recommended Practice for Electrical Equipment Maintenance It  contains insurance data that shows almost 50% of damage associated with electrical failures could be prevented with regular maintenance.

So how do you create a cost analysis? First, you need two pieces of information (1) the probability of a failure and (2) the cost of the failure. Multiply these two numbers to estimate how much you have invested in your infrastructure, including maintenance.

Remember to included unplanned downtime cost variables in the cost of your failure. These might include:
 Lost revenue during downtime
 Replacement cost of damaged electrical or production equipment
 Repair costs, especially labor
 Cost of scrap
 Cost to clean and restart production

Now compare those costs to the cost of a maintenance program.

1. Calculate net income per hour of output for your production line or other critical process.
2. Calculate average downtime for each equipment failure and number of events per year.
3. Multiply the results of net income per hour of output (#1) by average downtime for each equipment failure and number of events per year (#2).
4. Estimate labor and equipment repair cost.
5. Add #3 and #4. This represents avoidable annual cost in lost revenue + repair.
6. Repeat cost calculation based on planned downtown where no revenue loss is incurred (the object of your maintenance program).

Interested in learning more? Give me a call at 803-328-2889 and let’s talk!


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This article series was developed using ideas from http://www.plantservices.com/articles/2009/124.html?page=full and http://www.myflukestore.com/crm_uploads/part_one_of_a_predictive_maintenace_series.pdf for source material.