What Is Cost Management for Maintenance?

May 6, 2022

Repairs and equipment failure. Calibration and adjustments. Unexpected breakdowns. Unplanned downtime. What do all these have in common? They’re all part of the overall cost of maintenance. When the cost of maintenance is managed poorly, it can take a significant bite out of a firm’s bottom line. But when a firm enacts a robust maintenance cost management program, it’s often able to reduce expenditures and extend the life of crucial equipment, parts, and anything else being assessed.

In this post, we’ll discuss the cost of management for maintenance, why it’s essential, preventive (also referred to as preventative) maintenance strategies, and more. 

Cost Management Explained

Downtime is a big deal—whether you’re at a Fortune 500 company or a new business. In fact, Gartner estimates that downtime costs firms “an average of $5,600 per minute.” To understand why, think of the old (and true) adage, time is money.

Downtime is lost time, and when you lose time, you lose the ability to be productive. In worst-case scenarios, it can take days or weeks to remedy an issue causing this downtime, potentially resulting in canceled orders and lost business. Frequent and/or prolonged downtime underscores the importance of a robust cost-maintenance strategy, in which your firm’s physical assets are correctly, thoroughly, and regularly assessed to avoid this unplanned downtime.

Key Definitions

  • MRO Costs: MRO stands for “maintenance, repair, and operations.” Common MRO expenses include costs for labor, spare parts and materials, energy and utilities, and general overhead. A firm needs to budget for these costs simply because the indirect cost of lost productivity can potentially be far greater.
  • Overhead Expenses: Part of MRO costs, overhead expenses are the ongoing costs to operate a business. To accurately calculate your overhead and budget for your maintenance plan, your costs must be calculated realistically.
  • KPI Metrics: KPI stands for “key performance indicator.” In the context of cost maintenance, KPIs are metrics that track various maintenance costs and benchmarks. Defining KPIs and clear performance objectives is crucial to a maintenance cost management plan. Common KPIs include Mean to Between Failures (MTBF) and Overall Equipment Effectiveness (OEE).
  • Deferred Maintenance: Deferred maintenance is a maintenance workflow that involves putting off or postponing benchmarked maintenance on a physical asset, typically as a measure to reduce overhead costs or realign budgets. Deferring maintenance can be risky for a business. It can lead to unplanned downtime. In fact, deferred maintenance costs resulting from unplanned downtime can be far greater than preventive maintenance costs that anticipate and prevent equipment failure. 
  • Fixed Assets: A fixed asset is usually purchased for long-term use. Buildings and equipment are examples of fixed assets. To properly maintain a fixed asset, preventive maintenance is often the most effective.

Strategies for Managing Costs

We already discussed the cost of machine downtime in lost productivity. Knowing this, there’s actual value in developing an adequate maintenance cost management strategy that includes incorporating a robust preventive maintenance program. The preventive maintenance cost savings often far outweigh the cost of machine downtime due to deferred maintenance. Unfortunately, many business owners see cost management as nothing more than a line item.

However, true savings are realized when a company develops and executes a robust maintenance strategy.

“New technologies yield vast maintenance efficiency potential for industries with distributed fixed assets. Companies that have digitized and automated their maintenance processes now show a significant increase in labor productivity and a 20 to 30 percent reduction in maintenance costs.”

McKinsey & Company

Cost Management Calculations

Here’s a look at several calculations to develop your cost management maintenance plan:

Expenses = Labor + Parts + Vendors + Energy + Overhead

Downtime Cost = Minutes of Downtime * Cost per Minute

Total Cost of Ownership (TCO) = Initial Asset Cost + Operation Cost + Maintenance Cost + Downtime Cost + Production Cost – Asset Remaining Value

Optimizing Costs to Manage Maintenance Plan

You can implement various strategies to strengthen your cost management for asset maintenance. First, you need to calculate your asset maintenance costs. Then set clear performance objectives to strive for improvements. Other optimization strategies include:

  • Providing tools and training: A key strategy is to adopt a robust platform to track cost maintenance and regularly check performance. So too is ensuring that you have full employee buy-in to carry out your maintenance workflows. Ensure your maintenance workers have the tools and training needed to perform the required maintenance tasks.
  • Setting real costs: Your plan is unlikely to be successful or accurate if you’re not setting realistic costs for maintenance and then budgeting for these realistic costs.
  • Changing and adapting accordingly: Your maintenance plan should undergo occasional process improvement reviews to ensure it’s running as smoothly as possible.

FAQs

What are the costs of maintenance?

The costs of maintenance include everything needed to keep a business operational. Achieving operational excellence can include improved teamwork and communication, decreased downtime, and increased productivity. 

How do you control maintenance costs?

There are various strategies to control maintenance costs. Implementing preventive maintenance checklists and integrating CMMS systems are both winning strategies. Another cost management goal is striving for an 80/20 percent ratio of preventive to reactive maintenance.

Why are maintenance cost management and control critical?

When a company implements a robust digital maintenance cost management system, the company is better able to improve equipment uptime and reduce unplanned downtime. As a result, the company’s bottom line improves. Conversely, failure to take maintenance cost management and control seriously can lead to unplanned downtime, productivity loss, and disrupted production schedules.

How do you track maintenance costs?

The easiest way to track maintenance costs is to use an advanced computerized maintenance management system, or CMMS. A robust CMMS can help you manage assets, schedule maintenance, and track work orders. The best CMMS systems are customizable and require little training upfront. 

Cost Management for maintenance

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