Page 38 - Intro Predictive Maintenance

Financial Implications and Cost Justification 29

2.3 JUSTIFYING PREDICTIVE MAINTENANCE
In general, the cost of any current maintenance position is largely vague and unpre-
dictable. This is true even if enough data are available to estimate past expenditure
and allocate this precisely to a particular plant item. Thus, if we are to make any sense
of financial justification, we must somehow overcome this impasse. The reduced cost
of maintenance is usually the first factor that a financial manager looks at when we
present our case, even though the real but intangible savings come from reduced down-
time. Ideally, past worksheets should give the aggregated maintenance hours spent on
the plant. These can then be pro-rated against total labor costs. Similarly, the spares
consumption recorded on the worksheets can be multiplied by unit costs. The cost of
the maintenance strategy for the plant will then be the labor cost plus the spares cost
plus an overhead element.

Unfortunately, the nearest we are likely to get to a value for maintenance overheads
will be to take the total maintenance department’s overhead value and multiply it by
the plant’s maintenance labor cost, divided by the total maintenance labor cost. Even
if we manage to arrive at a satisfactory figure, its justification will be queried if we
cannot show it as a tangible savings, either resulting from reduced staffing levels in
the maintenance department or through reduced spares consumption, which would
also be acceptable as a real savings. The estimates will need to be aggregated and
grouped according to how they can be allocated (e.g., whether they are downtime-
based, total cost per hour the plant is stopped, frequency-based, recovery cost per
breakdown, or general cost of regaining customer orders and confidence after failure
to deliver). By using these estimates, plus the performance data that have been col-
lected, it should then be possible to estimate the cost of machine failure and poor per-
formance during the past few years or months. In addition, it should also be possible
to allocate a probable savings if machine performance is improved by a realistic
amount.

It may even be possible to create a traditional cash flow diagram showing expenses
against savings and the final breakeven point, although its apparent precision is much
less than the quality of the data would suggest. If we aggregate the graphs for the cost
of the current maintenance situation, and plot that alongside the expected costs after
installing CM, as shown in Figure 2–4, then the area between the two represents the
potential savings. Figure 2–5, conversely, shows how the cost of installing CM equip-
ment is high at first, until the capital has been paid off, and then the operating cost
becomes fairly low but steady during the life of the CM equipment.

Put against the savings, there will be both the capital and running costs of introduc-
ing a CM project to be considered, which are outlined as follows.

2.3.1 Installation Cost
Some of the capital cost will be clearly defined by the equipment price and any spe-
cialist installation cost. There may also be preliminary alterations required, such as