The biggest challenge in the management of maintenance is to convince senior leadership of the disastrous consequences of deferring maintenance and allowing a machine to operate to failure (OTF). I have developed a tool that moves the criteria for making a decision from technical data to a financial ratio that is more easily understood. I call this “computing the true risk/reward ratio for deferring maintenance.”
It offers a method to compare the total cost to a company for a breakdown event to the cost of early intervention to avoid the breakdown. The formula is:
The leadership must consider the total cost to the organization and not just maintenance repairs. The indirect costs are known costs other than wrench-turning expenses. Intangible costs are those costs associated with a breakdown that cannot be measured exactly. Since it is not possible to know what a future cost might be, you must take several historical breakdown events within a process and compute a ratio to use in the future.
When my clients collect all the costs associated with a breakdown event, they are surprised to find the ratio is seldom less than 40-to-1 and usually much more. They are surprised the direct maintenance cost ratio is usually about 15-to-1 in direct maintenance dollars compared to early intervention. They are even more surprised to learn the maintenance man-hours ratio is also 15-to-1. This means it takes 15 times longer to repair an asset if it is operated to failure.
Early intervention also directly influences the mechanical experience needed to affect the needed repairs because the skill set needed to change a radiator hose before it fails is significantly different than those needed to rebuild an emergency generator after it overheats just when you need it the most. Early intervention allows more maintenance to be accomplished with less skilled workers.
The intangible costs — the real undocumented cost to the organization for a breakdown event — come in the form of dissatisfaction and loss of confidence with the stockholders and regulatory agencies. Bond and stock values suffer when there are disruptions and disasters within corporate operating systems. To be supported by the investment system, the public must feel their investment is going to be well managed before they approve investing more money.
Leadership in the business arena must make the correct decisions when managing deferred maintenance. If your true risk/reward ratio for deferring maintenance is not sustainable, there is a simple solution.
Early detection and early intervention will produce the lowest maintenance cost per unit of production possible. All other options will produce a higher cost. If you see unacceptable ratios, support your maintenance effort by instructing them to fix everything they find wrong as soon as possible. When I say this, most financial people recoil and say, “You are asking me to give the maintenance department a golden checkbook!” My response is, “Yes!” If you are operating in a breakdown maintenance mode, you cannot spend any more money than you are already spending, so give them the money for early intervention and avoid the 40-to-1 penalty in dollars and the 15-to-1 in downtime and man-hours it takes to return an asset to operation.
Recapturing the energy wasted in a breakdown event can create a self-financing solution to better asset reliability, more uptime and improved safety.
Compute and examine your true risk/reward ratios for deferred maintenance, and if you do not want to pay those penalties, then you must create and fund better methods of early detection and early intervention. The return on the investment will be self-financing.
For more information, contact David Geaslin by email at david@geaslin.com or call (832) 524-8214.
