Maintenance Costs: Justifying their ROI in Facilities Management
Justifying maintenance costs can be more difficult than justifying buying a new asset, but it’s doable if we can make stakeholders understand the end value of maintenance work.
What are maintenance costs?
Maintenance costs are the required expenses to keep assets in working order. Maintenance costs should be considered and accounted for, in addition to the original price tag of an asset.
What are the different types of maintenance costs for facilities?
Although measuring costs may be challenging, it’s important to understand the different maintenance work order categories so you have a good starting point. Here is a quick primer on the types of costs:
1. Labor costs
One of the biggest maintenance costs for most organizations is labor. By labor, I’m not merely talking about wages and salaries. In fact, a wide number of sub-costs fall under this category including:
- Wages and salaries
- Benefits and bonuses
- Training and development costs
- Safety and incidents insurance and costs
- Contractor costs
- Emergency or overtime pay
2. Equipment, Supplies, and Tools
Depending on your business and industry, you will require different equipment, supplies, and tools to perform necessary maintenance. If you’re responsible for managing an apartment complex, you will require repair equipment, plumbing and electrical supplies, furnace filters, landscaping equipment, and janitorial supplies. In the case of a manufacturing facility, you may require equipment-specific gauges or other testing tools. In just about any maintenance department, buying and using maintenance software is a significant cost as well.
3. Ongoing maintenance
Ongoing maintenance costs could include repair costs or preventive maintenance costs. For example, you could be performing a routine maintenance inspection on an HVAC. This could factor into maintenance costs and average costs for your overall organization.
How do we justify maintenance costs when return on investment isn’t always obvious?
1. Explain maintenance work in reliability terms
Let’s say a company buys a new robot that increases production rate by 15%. That’s an obvious return on investment – despite the fact that the robot costs a certain sum, it will make back that sum over time because it increases productivity. We can explain maintenance work in the exact same way: when we optimize asset reliability and increase asset uptime, we are drastically reducing the amount of time our equipment spends offline and in downtime (and making more product to boot).
We can explain maintenance cost in a way that emphasizes the benefits of optimizing equipment uptime (uptime goes up = production time goes up = more products = more profit).
2. Benchmarking KPIs and metrics
Tracking metrics and KPIs helps justify maintenance cost as well, whether that’s uptime, asset availability, or number of breakdowns over a specific time period. While it might not always be persuasive to show how your facility is performing in a vacuum, measuring your facility against world-class standards can be an incredibly persuasive way to demonstrate the value of maintenance work (and there are resources to help you do this).
For instance, let’s say that a maintenance manager wants to implement a new preventive maintenance program to influence the facility’s planned maintenance percentage (PMP). In this case, it’s helpful to calculate your facility’s current PMP and compare that to a world-class PMP (~80% planned maintenance). When management sees that their figures are much lower than established benchmarks, that can be a particularly persuasive way of justifying maintenance costs.
3. Communicate regularly with both management and employees
Two-directional communication helps people understand in a qualitative way how maintenance is useful. Even with PMP and other such metrics, it’s still difficult to justify maintenance costs in quantitative terms. If that’s the case, you can use a qualitative focus to justify maintenance costs:
- How well the facility is running
- How technicians have to focus less on reactive maintenance
- What kind of feedback you get from employees at all levels
Ultimately, justifying maintenance cost relies on changing the culture of thought around maintenance. Poorly maintained equipment leads to low productivity because the maintenance team is always fighting fires. When things run smoothly, however, productivity is up, which means more end product and more profit.
Save on maintenance costs with effective maintenance programs
It’s difficult to talk about maintenance costs without addressing the other side of the equation: what costs are saved with effective maintenance programs?
Most companies will admit that the biggest cost is unplanned downtime. According to Aberdeen Research, more than 80 percent of businesses had unplanned downtime within a three-year period with a potential cost of more than $250,000 per hour. If an efficient maintenance program can be implemented and operated at a fraction of that cost, you experience a major boost to your bottom line.
On a micro level, a CMMS can help you identify preventive and predictive maintenance tasks for particular critical pieces of equipment as well as measure the impact of those tasks over time. With that type of data, you can weigh the true cost of maintenance against replacement cost of specific systems in your organization and make better decisions in the long run.