Measuring ROI of CMMS

In the total product cost equation, maintenance equates to 15-40%.  For large companies, a $1 million maintenance reduction results in as much as $3 million in increased revenue.  These figures point stridently to a direct relationship between maintenance and return on investment (ROI).  As such, any improvement in maintenance efficiency will likewise benefit total cost of operations (TCO).  Nevertheless measuring ROI of CMMS is commonly considered a daunting proposition.  In a relabilityweb.com article, the author presents an alternative formula for computing the elusive CMMS ROI.  While extremely straightforward, the formula is more extensive than we can present in this blog.  Therefore, we will summarize the cost-savings benefit illustrated in the article.

The article looks at CMMS ROI from a standard cost justification (i.e., maintenance labor and materials costs, project cost savings, and downtime/availability costs).  Maintenance productivity averages between 25 and 35% in the typical American company.  Reliabilityweb.com suggests that while 100% productivity may be unreasonable, 60% is achievable.   Through CMMS, planning time (per job) can be reduced (resulting in increased job planning and preventive maintenance [PM] actions).  Increased PM leads to a reduction in unplanned downtime (breakdowns), which results in fewer schedule changes.  The concomitant reduction in travel and waiting times increases productivity.  And through successful use of CMMS companies have reported an increase of 28% in productivity.

Maintenance material costs stem from the frequency and scope of equipment repair.  An under-studied component of maintenance best practices, maintenance equipment inventories can be significantly higher (20-30%) than necessary.   Reliabilityweb.com outlines the major culprits in excessive inventory, and related diminished productivity, which tends to be highest in facilities where there is no inventory system (15-25%) or a manual inventory system (10-20%).

By implementing CMMS to improve inventory control (e.g., reduce holding costs), companies can simultaneously lower the value of the inventory and continue to maintain an optimal service level (at least 95%).  These actions have the added benefit of enhancing maintenance – operations responsiveness and increasing a maintenance team’s internal productivity.  Reliabilityweb.com reports that CMMS users average 19% lower material costs and an overall 18% reduction in total inventory.

Maintenance is typically involved/engaged during outage (e.g., refurbishing activities), which means that maintenance is often conducted at the expense of production.  Any reduction of maintenance performed under these conditions will have a markedly beneficial effect on overall operational efficiency (OOE).  Through CMMS, facilities are achieving an average 5% reduction in outage time, due to shortened downtime.

The first of a series on CMMS and ROI.

Source: http://www.reliabilityweb.com/art04/maintenance_roi.htm

By Tracy Watson is the author of this article describing the ways ROI can be effectively measured when using a CMMS (Computerized Maintenance Management Software) system for everything from fleet maintenance to facilities maintenance management. As a source for this article Tracy has taken some information for reliable sources such as Reliability Web and eMaint Enterpises LLC.