Total maintenance cost is always an important performance indicator. And, invariably, you will be asked “if you can reduce maintenance costs”. However, the question of reducing maintenance costs is quite misleading. Reduce in relation to what? To whom? How do you benchmark maintenance costs if no two buildings are the same and the accounts rarely are public knowledge?
Then the issue of calculating maintenance costs is quite complex in itself. Maintenance is not a “cost” but an “investment”. An investment in less downtime, in more productivity, in a higher level of service, in more durable equipment. How can you calculate the costs of the downtime you didn’t have? If a maintenance strategy is cheaper than the losses it prevents, then it is already doing its job.
That said, at the beginning of the year you will always have to present a maintenance budget. And at the end you have to report on how much you have spent. In some cases, you will even have a quarterly or semi-annual performance evaluation. All these occasions are good for presenting various performance indicators (KPIs), such as MTBF, MTTR, and even the compliance rate. But if company managers continue to focus on costs… you’ve come to the right place.
How do you calculate total maintenance costs?
Total maintenance costs are often taken to be the total annual maintenance, repair, and operation (MRO) costs. However, the total maintenance costs formula takes into account each of the components that are part of the daily maintenance work:
Labour costs + Material parts price + Other invoices.
With a maintenance management software, it is much easier to estimate each of these costs:
- labour cost: calculate the number of maintenance hours based on technicians’ logs (make sure they always open and close work orders when starting and finishing, and that the meter is not left running!). Then multiply by the hourly wages of the technicians.
- price of parts and materials: organise your inventory in the maintenance software so that you know how many materials and parts you have used for a particular asset (for example, for an air conditioner: price of filters, tablets for the condensate tray, etc.).
- other invoices: includes all other expenses, namely with suppliers (maintenance contracts) and outsourcing (e.g., hiring an F-gas technician).
If you are trying to calculate the cost of maintaining, repairing, and operating a particular asset, you should include the prices with energy (for example, how much energy do you spend to keep the escalators running?) and the cost of other expenses necessary to operate the equipment (for example, cost of insurance, mandatory inspection, etc.). This is known as “cost of ownership”, which follows the formula below:
Cost of labour + Cost of materials + Suppliers (outsourcing) + Energy + Other Expenses.
Please note that this formula only considers routine maintenance activities, minor repairs, and the cost of parts. Larger and more planned refurbishments, such as totally renovating a lift or the façade of a building – commonly referred to as “overhaul” – are excluded from this calculation. In that case, it is considered an investment from which the company expects a return. To cut down on the time it takes to work through these formulas, try using invoice and estimating software like Joist.
How to reduce maintenance costs?
On the one hand, it is difficult to make comparisons between companies and to understand if their performance is in line with the standard. On the other, we have to assume that no company is completely free of waste. We can always improve! Therefore, it can be interesting to explore lean manufacturing techniques (and we have already talked about “lean maintenance“). These methodologies aim to eliminate 8 wastes, among them waiting times and inventory waste.
On these two points, you can make extraordinary savings (between 5 and 30%) if you optimise your inventory. If you centralise your database and keep it up to date, you will stop ordering duplicate parts, quickly discover similar materials, be able to compare suppliers, and predict much better what you will and will not need to buy. The result is more thoughtful, just-in-time purchasing, which also makes logistics easier.
But that’s not all. We recently prepared an article with 14 tips to reduce maintenance costs. Following the Pareto rule, 80% of breakdowns should be linked to only 20% of assets. This means that you need to find the causes of the most frequent breakdowns and, as they say, “nip it in the bud”. Eliminating the root cause of breakdowns and taking a preventative approach that really focuses on failure modes will reduce your costs.
Of course, all these tips have varying effectiveness, depending on your starting point. However, remember that no sustainable strategy is about reducing maintenance tasks. Because, in the long run, this will result in more downtime, equipment working under strain, and more reactive maintenance. And so we go back to the beginning: after all, maintenance is an investment.
The strategy is better communication
If you have a high percentage of reactive maintenance (above 10%), you can turn this into an argument in your favour. That is, advocate a more preventive or even predictive approach with a strategy to reduce maintenance costs in the long term. There are several condition monitoring techniques that result in significant cost reductions – which are coupled with other benefits such as reduced risk.
Clear and assertive communication is a major weapon in justifying maintenance costs. Present regular reports that demonstrate your performance. Propose continuous improvements to avoid the most common breakdowns. As long as you possess reliable data, extracted from your maintenance management software, surely all your “invisible work” in Maintenance will start to be recognised.
Now you know how to calculate your total maintenance costs, as well as some strategies to reduce your expenses. But if you still lack a software to monitor all your expenses… you also know who to talk to!