17 February, 2017
A positive return on investment (or ROI) is an important metric to prove before making a business investment decision. In most situations, ROI is calculated in the context of marketing and sales investments to expand an organization’s awareness or client base. Along with being one of the most important metrics from which to base decisions on, it can also be one of the most difficult metrics to calculate, especially when it comes to CMMS systems.
Let’s look at the ROI formula: CMMS ROI = (Value – Cost) / Cost
Seems simple right? Guess again. Determining the “value” variable of a CMMS is a complex task and becomes increasingly more difficult the larger your operations are. Because value is found within the areas of cost saving, facility managers look to maintenance data, such as:
- Asset and Equipment Life,
- Reduced Downtime,
- Parts and Inventory,
- Increased Productivity, and
The irony here is that the value metrics needed to move forward with CMMS buying decisions are the same metrics generated by a software system of this nature. As facility managers find themselves in a chicken vs egg scenario, projects are halted before they even begin.
So how do we make the case for investing in software when we can’t find its ROI? The answer lies in the calculation of another business metric- cost benefit analysis.
A cost benefit analysis assesses the trade-off between a project’s proposed benefits and its costs. If the benefits seem to outweigh the costs, then a business can reasonably move forward with such a project. If the organization finds it would have a negative impact on the department, then it may want to reassess the reasons they pursued CMMS implementation in the first place. Either way, determining the benefits of CMMS is much easier than quantifying a dollar amount for its value as you would when calculating ROI.
As the name suggests, a CMMS cost benefit analysis is comprised of two variables, cost and benefit. Both variables however are determined by several factors, each of which we will examine in closer detail.
We suggest making a list of all the benefits a CMMS offers your organization, both tangible- you can apply a monetary value to it, and intangible- intrinsic benefits that may be harder to quantify.
- Extend the life of assets and equipment
A wealth of research suggests that implementing a formal preventive maintenance system extends the life of assets. One report confirms that without a PM program the expected useful life (EUL) of a manufacturer’s assets would decrease by 10-90% depending on the specific asset. A common statistic used by CMMS industry research states the average increase in an asset’s life expectancy is 20% when preventive maintenance is regularly applied. A similar approach to quantifying your organization’s PM implementation can be taken by tracking a small sampling of critical equipment/ assets and measuring its estimated breakdown period with and without PM in place. You can also speak with the asset’s manufacturer to better understand its EUL and how preventive maintenance can help.
- Reduced downtime
It is easy to make the case for preventive maintenance by looking at the effect it has on reducing equipment downtime. This is an important and quantifiable metric as scheduling maintenance procedures instead of waiting for assets to breakdown without warning significantly increases the asset’s uptime. If your equipment suddenly requires un-scheduled repair, your organization’s overall productivity slows which has huge implications on your bottom line.
- Eliminate manual processes
One of the greatest benefits that a CMMS system provides its users with is extensive automation, and a CMMS’ preventive maintenance module is no exception. Work orders automatically generate on a given frequency and are pre-assigned to a specific technician for completion. Further, e-mail notifications are sent in advance, both when work is due and to communicate any past due projects. For managers, reports are automatically emailed on a given frequency, eliminating the need to manually gather data and create weekly, monthly, or quarterly reports. Maintenance software systems also include work order templates for equipment models. This allows users to easily create new PMs for units with existing model types, saving the user time and ensuring all PMs are standardized. Some systems can also be set up to order parts when minimum quantity thresholds have been met. Having this level of automation frees up maintenance worker’s time to focus on maintaining facilities and equipment.
- Reduce maintenance costs
If you don’t have a formal preventive maintenance system in place, your technicians are waiting for equipment to break down and then reacting. This is very costly in many ways. Firstly, corrective maintenance is more costly than planned preventive maintenance. In one scenario an air compressor’s repair costs were compared to its preventive maintenance. It found that with a PM program the compressor would have to be fixed once every 4 years translating to a cost of $236/ yr. With preventive maintenance, the same compressor would need to be fixed in three years at a cost of $315/ yr. Although a $79 difference may not seem significant at first, consider the implications of servicing dozens of air compressors, handlers, and HVAC systems across multiple facilities year after year. $79 quickly adds up to tens of thousands of dollars in maintenance repair across your entire operations.
- Increase worker productivity
In addition to maintenance repair cost savings, a PM system will make your maintenance team more productive. By planning maintenance on a set schedule, your team is better utilized within their work hours. Projects don’t spill into overtime as all jobs are carefully planned and coordinated to fit within the timeframe of a normal 8 hour workday. The result is lower labor costs and a better work/life balance for staff. These small adjustments are easily made via nimble calendar and scheduling tools within the system. CMMS software makes it easy to pull up staff schedules and make adjustments.
All productivity info is easily tracked and monitored through a CMMS system. Due dates and estimated completion times can be assigned to work orders and reports are then generated to show a performance breakdown of the maintenance team.
- Create a paperless environment
Paper-based maintenance activities may satisfy the immediate requirements but it makes record keeping a nightmare. With CMMS software, the maintenance department moves away from work orders and task lists on paper and towards automated processes. Keeping data in a centralized location allows it to continuously be tracked and measured, whereas manual methods don’t allow for efficient data collection let alone in-depth analysis for reporting. Managers then find themselves spending precious work hours combing through paper to find reporting data or hand written work orders to view an asset’s maintenance history. As CMMS systems become more user-friendly and affordable- initial barriers for many organizations in the past- businesses are more and more willing to move away from archaic paper-based systems.
- Make data-driven decisions
CMMS software allows maintenance managers and supervisors to access data quickly and make informed decisions based on in-depth reporting. If you have hundreds of work orders and purchases being processed monthly, managers need to make sense of equipment records to gage its performance. Maintenance management systems are equipped with metrics and KPIs that managers use to monitor their departments and make informed decisions to improve processes. Without metrics, managers are working off intuition and their gut feeling….which shall we say can be less than accurate.
- Increased visibility and transparency
Often overlooked as a CMMS benefit is the transparency that it brings to departments. There is nothing worse than a supervisor grilling the team on how performance needs to be improved without data to support it. Maintenance management systems allow managers and staff to agree on expectations and monitor performance to adjust their methods. Measuring and tracking of data is standard across the entire maintenance operation to instill an environment of fairness and provide the manager with solid data to back up their evaluations.
- Improved customer satisfaction
Although it may be difficult to calculate the extent to which CMMS software affects customer satisfaction, one can ascertain that CMMS plays its part. One of those indications is shown through a system’s PM program. As indicated above, preventive maintenance helps to decrease downtime on assets to increase overall productivity. Customers are satisfied when their orders are shipped on time and correctly, aspects that wouldn’t always be possible without the help of automated processes.
- Improved employee moral
Put simply, an empowered employee is happier and more productive. CMMS systems provide simple tools for maintenance staff to do their jobs better and faster. When management purchases systems with their staff in mind it sends a huge message that they are valued and have ownership over their own tasks. As ownership and autonomy increase, employees become more motivated and perform more efficiently which in turn has significant productivity benefits and increases the bottom line. Additionally, investing in a CMMS signals to employees that management is taking steps to streamline processes that may have been outdated or not intuitive. Managers who seek to foster a culture of continuous improvement are seen as positive leaders and role models to their employees.
Now that we have a list of CMMS benefits, we need to look at the costs. When it comes to costs associated with CMMS, you need to consider both direct and indirect costs. For the purpose of this analysis we will only consider web-based CMMS software.
- Software license fees
Software license fees are either paid annually for a small discount or month-to-month to mitigate perceived buyer risk. Despite the pay period, these fees are ongoing and allow the buyer to act as a software leaser. Software license fees vary from vendor to vendor depending on their features and price structure. Although vendors commonly charge a per user license fee, others offer a more creative pricing structure such as charging per facility or building. For more information on how to research the best CMMS for your business, read our post here. Once you have a few vendors in mind, plug in their applicable license fee to your cost/ benefit analysis.
- Set up fees
Usually, but not always, there are some set up costs associated with implementing a CMMS system. These costs vary depending on the vendor and the level of services required. At Hippo CMMS, 10% of our clients have our engineers come on-site, audit all equipment, and handle data integration from start to finish; 75% deliver data sheets for Hippo integration specialists to validate and import; and 15% take the DIY approach. Site audits obviously involve higher set up costs than providing data sheets to be imported. For more information on how to choose the right setup type for your organization, read our post here and here.
- Training and technical support fees
It’s a good idea to pad your CMMS budget with enough room to accommodate potential training and technical support fees. One of the most frequently cited reasons for CMMS implementation failures is lack of training and support from the vendor. Personalized training sessions are the best way to properly understand various features that a CMMS has to offer and can be catered to each of your users for relevancy. The good news is that many vendors now offer free training and tech support for a period or bundle these services into the license fee. More and more vendors are starting to understand the importance of offering this vital service, so make sure to look for it during your research phase. At Hippo CMMS we offer initial training and on-going technical support at no charge.
The costs associated with changing processes and onboarding staff when implementing CMMS software is often overlooked and difficult to estimate. There is no real way to accurately quantify this number, but it’s important that you dedicate time towards this process. Onboarding will involve several rounds of training sessions with all users over the course of a few months to a year depending on the size of your maintenance team, the extent of advanced features that you want to use, and how drastic a change an automated CMMS will be from your current operations. If you have a team of 40 maintenance staff who have never used a CMMS system, you may find more resistance and a steeper learning curve. Carve out adequate time to integrate a CMMS into your operations and make sure to get feedback from your team every step of the way. For more tips to optimize your training sessions and ensure proper CMMS implementation, read our post here.
There is no question that CMMS software provides value to its users. After all, why else would more and more companies jump on board and pay for a new automated process? The key is to ensure that a CMMS would provide your organization with enough benefit to outweigh its overall costs of time and money. In terms of identifying the costs, concentrate on the dollar value of license fees, setup costs, and administrative man-hours that will be used to help implement the system. For benefits, determine the cost of machine downtime and the importance of increasing the longevity of your assets. A solid system also helps to save organizations both time and money by streamlining processes and reducing the need to sort through paper-based work orders or gather data. Once you’ve determined a CMMS’ cost and benefit, make sure you come out with a positive result. Although this method may not be as accurate as an ROI, it’s sure to give your decision makers the information they need to make a more informed choice.