It is common knowledge planned, scheduled maintenance is much more cost-effective than unplanned, run-to-failure or emergency maintenance. But in financial terms, just how much more effective is planned maintenance over unplanned maintenance?
Let's start with a case where managers at a large oil and gas production facility discovered a gas compressor bearing beginning to show signs of problems through vibration analysis. The company was told it would take two days to change out the bad bearing. However, some people on the management team wanted to keep the compressor running to meet the end-of-month production targets. They wanted to squeeze just a little more profit out of the line and felt they couldn't afford the two days of downtime it would take to make the repair. Unfortunately, just before the end of the month, the bearing went out and completely destroyed the compressor. Instead of a simple and relatively inexpensive bearing repair, the facility needed a whole new compressor, and the downtime went from two days to 10 days. With production at 50,000 bbl/day, this is a huge increase in cost. The cost does not take into account other factors such as the disruptions to other scheduled work and the potential risk of injury to personnel.
Examples like the above confirm the "rule of thumb" that planned and scheduled maintenance work is three to four times more cost-efficient than unplanned breakdown maintenance.
Running the numbers
Here is a process to leverage the "rule of thumb" and systematically demonstrate cost savings achieved by increasing planned maintenance (mentioned in the book, "Maintenance Excellence: Optimizing Equipment Life-Cycle Decisions").
First, all maintenance work can be broken down into the following "work units":
1.Work performed in a planned fashion such as preventive, predictive or planned corrective maintenance is assigned a baseline cost factor of $1.00.
2.Work performed in an unplanned, unscheduled fashion is more expensive than planned work and is assigned a cost factor of $1.50.
3.Breakdown or emergency work is the most expensive and assigned a cost factor of $3, or three times the cost factor of planned maintenance.
For example, a company's annual maintenance budget is $10 million, and the current work distribution is 60-percent planned, 20-percent unplanned and unscheduled, and 20-percent breakdown or emergency. What would increasing from 60-percent planned maintenance to 70 percent yield the company in terms of cost savings?
- 60-percent planned work x 1.0 = 60 work units
- 20-percent unplanned work x 1.5 = 30 work units
- 20-percent breakdown, emergency or unplanned work x 3.0 = 60 work units
- A total of 150 work units Now divide the total budget of $10 million by 150 total work units to get $66,666 in costs per work unit. Using the cost per each work unit, it is possible to determine how the costs are split between the three different types of maintenance:
- Planned work: 60/150 x $10 million = $4 million
- Unplanned work: 30/150 x $10 million = $2 million
- Breakdown or emergency work: 60/150 x $10 million = $4 million
If the amount of planned work was increased from 60 percent to 70 percent, the savings in costs would then look like this:
- 70-percent planned work would be 70 percent x 1.0 x $66,666 per work unit = $4.7 million
- 15-percent unplanned work would be 15 percent x 1.5 x $66,666 per work unit = $1.5 million
- 15-percent breakdown or emergency work would be 15 percent x 3.0 x $.067 million per work unit = $3 million
- Total annual maintenance costs equaling $9.2 million.
Thus, an improvement from 60 percent to 70 percent in the amount of planned work yields $800,000 savings annually. This is a very conservative estimate of savings. If factored in the downtime losses, then it could be much more. In some industries, the cost of breakdown maintenance can be as high as 20 times the cost of planned maintenance.
In summary, chasing short-term savings can lead to large expenses and unacceptable risks. When the improvement effort can be quantified in terms of dollars and cents, it makes it easier for management to justify the resources required to staff and implement that effort.
For more information, visit www.mar shallinstitute.com or call (919) 834-3722.
