Page 34 - Intro Predictive Maintenance

Financial Implications and Cost Justification 25

happens then? Our hero, by using CM, succeeds in reducing unscheduled machine
stoppages drastically, but which department gets the credit? Usually production
because they have not needed to work overtime to make up for any lost production
or have fewer rejects. Alternately, the sales department may receive the credit because
of improved product quality or reduced manufacturing cost, which has given them an
advantage over the firm’s competitors. The maintenance engineer is rarely recognized
as having added to the organization’s improved cash flow by his or her actions.

Thus, a company that does not have a system of standard value costing cannot hope
to isolate the benefits of efficient plant engineering and persuade the board of direc-
tors to invest in an effective arrangement for equipment purchasing and maintenance.
This presents a bleak picture for the person who has to make out a good financial case
for installing a particular CM technique. Yet my company has seen this familiar situ-
ation repeatedly. This scenario occurs in most organizations, where we have received
initial inquiries regarding installation of our software.

The expense of a computer system, for example, to collect and analyze plant data,
without which an accurate cost justification is impossible, is often treated as nonpro-
ductive overhead. This is a classic Catch-22 situation, which has been stated in the
past as: “We need the computer system to calculate whether we need the computer
system, even though we know that it is essential before we start.”

So, in order to justify the cost of a particular CM project, the appropriate person in
the financial control hierarchy needs to be persuaded that the CM system should be
treated as a capital investment charge in its own right, and not as an item of expen-
diture from the maintenance department’s annual budget. Obviously, this will place
the project in competition with other capital investment projects for the organization’s
limited resources. Accordingly, the case for justifying any CM equipment must be
good and show a tangible return in a short period.

2.2 COST JUSTIFICATION
To produce a good case for financial investment in CM equipment, it is therefore
important to obtain reliable past performance data for the plant under review. In addi-
tion, information relating to other equipment, whose operations may be improved by
better performance from the plant whose failures we hope to prevent, must also be
gathered. It is also essential to establish an effective financial record of actual CM
achievement. This is especially true after the installation of any original equipment,
so that it is possible to build on the success of an initial project.

The performance data relating to CM must therefore be quantified financially, which
in effect can mean persuading the managers for all departments involved to estimate
the cost of the various factors that fall within their responsibility. Many managers,
who may have criticized maintenance engineering in the past for poor production plant
performance, by statements such as: “It is costing the company a fortune,” can sud-