The cost justification for any maintenance initiative depends on a comparison of the proposed initiative against what would be done in the absence of that initiative. This requires an understanding of the underlying maintenance strategy. As discussed elsewhere on this website, there are three generic options for maintenance strategy:
- Breakdown Maintenance (BD) (or Run to Failure – RtF). In the absence of any other structured approach, this is the default. Breakdown maintenance is by definition un-planned, so leads to a chaotic and inefficient maintenance work load. Typically high levels of spares and maintenance staff are required to try to reduce the downtime that results.
- Planned, Preventive Maintenance (PM). This involves pre-defined tasks being performed to a set schedule, based either on elapsed time (eg every 12 months) or on a usage basis (eg every 2000 run hours). This has been the basis of much maintenance historically. Moving from a breakdown regime to a planned regime introduces order in place of chaos. However, it does not eliminate breakdowns and can actually reduce reliability by introducing faults into equipment that didn’t need to be maintained. It tends to result in over-maintenance, with schedules being set too close together.
- Condition Based Maintenance (CBM) or Predictive Maintenance (PdM). In this strategy, work is only done when some measured indication of the equipment condition shows that it is required. Because work is only done when it is required, it avoids the costs of doing un-necessary maintenance, and avoids the reliability problems of introducing faults into equipment that was actually OK. Properly executed, CBM is the lowest cost strategy.
Cost of Maintenance Model
A cost benefit analysis for a proposed maintenance initiative requires an understanding of the total cost of maintenance (TCM). This is a concept similar to the Cost of Quality, where the Total Cost to the business is the combination of the work doing maintenance right (the right specific tasks to address specific failure modes, done only when required) plus the costs that result from not doing maintenance right (doing un-necessary work, doing the wrong work, doing work incorrectly, introducing faults that weren’t there before, suffering secondary damage when equipment runs to failure plus the consequences of failure resulting in downtime, disruptions to plans and schedules, inefficiency caused by inability to plan, loss of performance or capability of the asset, shorter asset life, loss of mission, etc). By taking this total cost view, it becomes possible to identify that spending money on doing maintenance right gives a net cost reduction, by reducing the costs that arise from doing maintenance wrongly.
Many of these costs are hidden, and are not directly measured, so that like an iceberg the larger part of the cost is out of site, yet this is the most significant part:
Businesses tend to focus on the easily visible elements that are normally included in the maintenance budget, such as labour, materials and contracts.
But the consequences of not getting maintenance right are generally much greater – the disruption that arises from unplanned work, breakdowns, secondary damage to plant as a result of the breakdown, overtime needed to respond to breakdowns when they occur, rather than dealing with work in a planned manner, or paying over the odds for emergency call-out response from contractors, or paying to airfreight spares to a foreign location where the problem has occurred, rather than being able to fix it at the home port during a planned maintenance period.
These items are still measurable maintenance costs, so would have a direct impact on the organisation responsible for maintenance.
Even greater potential costs come from the knock-on effect of breakdowns – loss of availability, loss of output, safety and environmental risks, etc. In the oil industry, the cost of lost production normally outweighs maintenance costs many many times over, and so cost-benefit calculations should take into account this whole picture, not just the maintenance cost elements.
These different cost elements are shown in the diagram below, which represents the inverse relationship between the significance of the cost and its ease of measurement.
The significant implication of this model is that the optimum position comes from minimising the TOTAL cost, not from minimising the visible cost of the maintenance budget.
Just as quality guru Philip Bayard Crosby mobilised thousands of Quality Improvement Initiatives by helping organisations see that “Quality is Free”, so maintenance improvement initiatives can be justified on the basis that “Better Maintenance is Free”. In the case of Quality, by investing in getting quality right first time, the net result was a huge reduction in costs incurred elsewhere, such as cost of re-work, cost of inspection, warranty costs, compensation payments etc. In the case of Maintenance, by doing the right maintenance at the right time, and only when it is needed, there is a major saving in spares costs, labour costs, contract costs, availability penalties, mission disruption costs, etc.
So to achieve the minimum maintenance cost means doing only that work which is required – which is the heart of Predictive or Condition Based Maintenance.
Doing your own Benefit Calculation
A simplistic way of structuing a cost benefit calculation is to create a spreadsheet like the one shown as an image below; you can download a real version here.
This is a way of helping gather the different cost impacts together in a structured way, to compare the cost of a Condition-Based Maintenance regime against whatever your current approach is. As described above, any benefit calculation has to compare two alternatives – the current state vs the proposed approach.
This spreadsheet does not calculate what the cost of downtime is for your site – that is a task you should do, either following a simple approach, as described here or a more complex approach.
Do not feeel you must follow any of these structures slavishly. Your situation will inevitably be different from another company’s situation, and will need different elements to be taken into account. The important message is that you can take a rational approach to these sort of calculations, and you can pull together usable figures that allow you to have a sensible discussion with the decision makers in your organisation.