The high cost of maintaining physical assets can be detrimental to any business if not managed well. They inflate your operational costs and thin out your profit margins. However, you can’t do business without properly working equipment. The only solution is to manage maintenance activities and expenses as effectively as possible.
To do that, you need deep insight into your maintenance activities. Which actions and assets incur the highest cost and why? How do you accurately track maintenance costs at the entire organization level, as well as on the level of a single asset?
Read on to find out.
Understanding maintenance costs
Maintenance cost represents all expenses that are the result of your efforts to keep physical assets in optimal working condition. It doesn’t matter if that asset is a car, a rental property, a generator, or a circular saw – if it needs regular maintenance, it will incur maintenance costs.
Manufacturing, aviation, and construction, among many other asset-heavy industries, have a very strong incentive to keep their maintenance budget in check. Tracking maintenance costs is one of the ways they use to evaluate the effectiveness of their respective maintenance departments. In that sense, maintenance cost is often considered an important maintenance KPI (key performance indicator).
Hidden costs of maintenance
Failing to do maintenance the right way doesn’t simply mean it will take more labor, parts or contracts. It will also cause lower product quality, higher energy costs, reduced asset lifespan, extra maintenance, lost production hours, wasted resources, environmental issues and even safety issues.
All this means higher maintenance costs — but these problems can be hard to see.
To put it in perspective, a well-run maintenance organization can reduce the true cost of repairs by anywhere between 5 to 15 times just by simply doing the right type of maintenance work.
Let’s break down each of those items so you can see how not doing maintenance right affects them:
- Lower product quality. Let’s pretend you have a press that has a loose belt. That loose belt will most likely cause items to be slightly off, which will result in a product that isn’t as good as it could be. This lowers customer satisfaction and causes a wide range of other problems that are completely avoidable.
- Higher energy costs. Imagine an HVAC system that rarely gets its filters changed. It causes the air to not flow through it as easily as it would through a clean filter. Because of this, the HVAC has to use more energy to pull the air in. According to the Department of Energy replacing a dirty filter with a clean one can reduce energy consumption by as much as 15%.
- Reduced asset lifespan. Imagine that same HVAC unit as in the last example. Clogged filters mean not enough air is getting into the system which means it has to work harder. If it has to work harder, it will die sooner. At Limble, our customers see an average increase in asset lifespan by 16%.
- Lost production hours. Poor maintenance causes more downtime. Downtime costs vary from thousands to hundreds of thousands of dollars per hour.
- Wasted resources. Poorly maintained equipment is hard to operate, produces defective products, and wastes a lot of time and management resources.
- Environmental issues. Poorly maintained equipment wastes energy, pollutes the environment, and is unhealthy for your employees. Not all of these items directly affect your company’s bottom line, but it is an important cost nonetheless.
- Safety risks. Poorly maintained equipment breaks more often. When equipment breaks down, it can increase your team’s risk of injury. For example, if the right maintenance isn’t done on a forklift, then the forks may break dropping hundreds of pounds of items. This can seriously injure someone and land your company in a lawsuit.
The right way to think about maintenance cost
Many business owners have a wrong mindset when it comes to maintenance. They only think about it as a cost center (an operation that doesn’t directly add to profit). This leads them to continually pressure maintenance directors and managers to reduce total maintenance costs, even when that isn’t in the long-term interest of their organization.
The right way to think about maintenance is like an investment. By performing maintenance work you are not losing money, you are investing it into your equipment. You are spending money to increase the performance and useful life of your assets, as well as reduce the number of production delays in the coming months and years – both of which will add to your bottom line in the long run.
Maintenance professionals will always need to work within the confinements of their budget. To have any chance at successfully managing maintenance expenditures, they need to understand which factors contribute to their maintenance bills.
What is included in the total maintenance cost calculation?
The real cost of an asset is not just its purchase price. When a department is buying a new piece of equipment, it should also take into account its ongoing maintenance and repair costs. The average cost of ongoing maintenance can significantly differ from one asset to another. How much regular maintenance it needs, how it handles wear and tear, and how much spare parts cost are just some of the factors that will impact annual maintenance costs for a particular asset.
Those kinds of budgeting decisions are often left to maintenance directors and managers, as long as they do not go over the set maintenance budget. At the end of the year, business owners will often only be interested in reviewing total costs, which are often represented as the total MRO (maintenance, repair, operations) costs on the balance sheets.
The MRO cost can be broken down into labor costs, spare parts and materials, maintenance vendors, energy costs, and overhead expenses. Effectively tracking costs for each of those categories is key to reducing future maintenance costs.
One important thing that often gets left out of this conversation is the indirect cost of lost productivity. During most maintenance activities, the asset has to be shut down. If scheduled maintenance or an unexpected repair happens during regular business hours, it will result in lost production hours – which means lost profit. Will the company lose hundreds or millions of dollars depends on how critical is the affected asset for business operations and the total length of equipment downtime.
How to track maintenance expenses (with Limble CMMS)
The easiest way to measure total maintenance costs is to use a CMMS software. You only need to set it up once, and it can automatically track all ongoing costs. To ensure accurate data, technicians need to enter time spent and parts used, which they will be prompted to do as they are closing a PM or WO.
The alternative is to spend hours digging through excel sheets and invoices whenever you have to create a report. You can imagine how fun that must be.
Tracking overall maintenance cost
To effectively manage maintenance costs, you need accurate data and the ability to break down costs into categories like parts and assets. This allows you to find and eliminate problem areas.
Total maintenance cost in Limble is broken down into three main categories:
- $ spent on parts
- $ spent on labor (includes costs like salary, benefits, and overtime pay)
- $ spent on invoices (like when you call in a vendor for a specialized repair or jump to a hardware store to acquire a missing part)
The image below shows an example of a custom monthly report containing cost breakdowns for parts, outside vendors, and labor. You can click on each category to see further cost breakdowns.
This report is a great way to keep an eye on overall maintenance costs. However, if we are to find areas for improvement, we need access to more granular reporting. So that’s what we’ll be covering next.
Tracking down expenses for a single asset
Vendor invoices are tied to assets. Spare parts are used on assets. Labor costs are incurred by performing maintenance work on assets. While a CMMS might allow you to break down costs based on types of invoices, types of spare parts, and type of performed work, the most useful reports will be those that look at specific assets.
Imagine the world without a CMMS where you are trying to calculate the total cost of ownership for an air conditioner. You have to dig through paperwork orders to find how much maintenance work has been performed on the asset and which spare parts have been used. When you find that information, you have to hope it is accurate and that no WOs have been misplaced. After that, you have to search through spreadsheets to find what is the cost for each used spare part.
Next, you need to look at who performed PMs and WOs, for how long, and if some of it was overtime – so you can dig through additional tables and calculate labor costs. Also, didn’t John go to Home Depot last week to get a gas gouge for that AC? Better call him to confirm.
OR, you can use a digital solution like Limble and find all of that information in a couple of clicks, ready to be exported:
The easiest way to manage a maintenance budget is to have an in-depth insight into your maintenance data. By knowing how much your assets are costing you and why it becomes much easier to find places to cut costs and eliminate wasteful actions.
If you want to give Limble CMMS, you have three options:
- Start a free 30-day trial
- Request a demo
- Try our self demo (loads a simulated environment where you can play around with Limble’s features)
While CMMS is incredibly useful, there are other ways to keep your maintenance expenses in check. We will touch on those next.
How to decrease overall maintenance costs
It’s always hard to find new ways to shrink down your maintenance budget. Below is an extensive list of ideas for reducing maintenance costs:
- Implement a modern CMMS solution so you can track maintenance expenses and pinpoint actions and assets that incur the highest costs
- Use an inventory management solution to accurately forecast inventory needs and decrease spare parts inventory costs
- Improve the onboarding process for machine operators, so they have less chance of damaging equipment by improper use
- Negotiate harder with maintenance vendors and spare parts providers
- Implement lean maintenance practices to reduce waste and wasteful actions
- Implement autonomous maintenance
- Invest in condition monitoring technology to monitor asset health and optimize your maintenance schedule (this can help you avoid expensive repairs and reduce overall labor costs)
- Focus on proactive maintenance strategies like preventive maintenance and predictive maintenance (it is less expensive to maintain equipment than it is to repair it)
Nothing on this list is a quick solution like firing a few people would be. These are, however, far superior long-term solutions. Implementing these steps will force you to solve systematic issues generating many avoidable costs.
Maintenance cost vs. capital expenditure
For accounting purposes, it is important to distinguish between general maintenance costs and capital expenditures.
In short, regular maintenance costs include maintenance actions performed on a regular basis to keep assets in their original condition. This includes routine maintenance work, spare parts replacements, and simple repairs.
Capital expenditures are maintenance expenses like major overhauls and upgrades that require significant resource investments. In contrast to regular maintenance, capital expenditures increase asset value.
The benefits of standard maintenance work last for less than 12 months and go on a profit and loss statement for the current year. In contrast, the benefits of capital expenditures last for more than 12 months – so they can be depreciated over time.
Sometimes you have to spend money to save money
Investing money in maintenance is often the smartest long-term solution you can make.
It makes more sense to buy a new machine than continuously repair an old asset that is near the end of its lifespan. Buying original parts and materials can prolong asset lifespan and reduce the number of emergency repairs. Investing in a CMMS can save you money in a multitude of ways. Putting a few bucks into training maintenance technicians and operators can be extremely cost-effective when working with expensive equipment.
Of course, getting approval for such investments is easier said than done. The strongest case you can make to top management is to show the expected return on investment. You can start with an inexpensive proposal like implementing a CMMS software. Here’s a simple guide on how to calculate CMMS ROI to get you started.
When it is all said and done, we hope you now know how to control your maintenance expenses. If you believe we missed something important, start a discussion in the comments below!