Maintenance Costs: How to Manage and Minimize Them
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).
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 system. 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:
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!
"I can track my inventory and it sends me emails when I'm running low on an item. Also that I can track how much time I'm spending on certain jobs over an extended period of time."
— Cody Jensen
Very easy to use, access
"I like the price, the fact I can see it on my phone or the computer. I like that it is internet-based."
— Curt Waisath
Valley Salt LLC
It just works
"Honestly - the customer support has been fabulous. We had a minor feature request that was deployed within 24 hours - which is unheard of. Even better when you consider our business is located in a completely different time zone (somewhere in Australia). Limble is quite intuitive and I love the ability to have assets nested within each other."
— Ed Cronin
Great for smaller or larger facilities
"We haven't fully integrated Limble yet but we are already seeing improvements in our efficiency. As we fully integrate Limble we expect to see more benefits and increase our response and completion times. The customer support has been outstanding. The Limble team is very quick to respond to any questions and they are very open to suggestions."
— Mike Hill
Children's Home of Lubbock
Limble is the best thing to happen to this company
"Limble does such a good job at keeping track of what's been done and letting me know when and what I need to do next."
— Tom Jones
Little Giant Ladder Systems
Great product at a great price
"Terrific customer service, easy to use, and at a great value. Our old Maintenance software was very difficult to use and was very expensive."
— Brian Williams
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