Estimating CMMS Return on Investment (ROI)
Learn the important factors to help estimate CMMS ROI. Improve maintenance performance and reduce costs with the CMMS installation that is right for you.
My name is Craig Shepard, and I’m with MicroMain. I am going to be taking you through the Maintenance Software Return on Investment ROI Estimator. We’re going to talk about a number of factors that go into it though and even show you a few areas of MicroMain, and then we’re going to end on the Estimator itself.
A little bit about MircoMain. MicroMain is in Austin, Texas. We’ve been providing facilities maintenance software since 1991, offering not only maintenance software but some CAFM related to space planning. We have customers all over the world, over 3700, including large and small names. So that’s a picture of who we are at any rate.
We’re going to stop here for just a moment and have just a brief survey, so if you would please just click on these, and I’ll count backwards here from about 5 and we’ll go on. I’m going to skip to the results. We always like to know who our audience is. So we have 33% of you using a CMMS and the other two thirds are not. Okay, well, whether you’re using it or not, you’ll be able to benefit from this and make sure you’re recording and then measuring the correct types of data when you’re looking at a CMMS so that you can actually get a return on investment, an ROI.
Okay, so here’s what our blueprint today. We’re going to identify five areas that are affected by a maintenance software. We’re going to review some CMMS functionality, so I’m going to show a little bit about MicroMain, show you just a couple of things that you need to have in a good CMMS so that you know you can collect the correct data because your maintenance software is going to provide an ability to document and monitor and report on all of these critical areas. And you’re going to be able to have an opportunity to improve, hopefully, and reduce cost based on all the reports that you get out and everything that you monitor.
So after we’re down with all that, we’re going to go through some of that information and then we’re going to actually walk through the ROI estimator, so provide you an example of the use of the one that we have, and finally you’re going to be able to assess the estimator so you can apply your own company information. And for that, we will be sending you the ROI Estimator so you can gather your own information and apply it.
Now when you are looking to get your ROI, a few things that you need to know that go into this calculation if you will, you want to be able to extend the asset life. Extending your asset life is going to save you money, plain and simple. Maintain your proper inventory levels by keeping your inventory levels at a minimum and but conversely, having the proper amount of parts so that you’re not holding up production, you’re not holding up maintenance, is critical. You also want to increase your productivity and reduce your overtime. You can do that, as you’ll see in a moment when I get into the program, just a moment, is by scheduling all of your PMs, all of your routine maintenance, by being able to look at your resources and seeing who has what assigned and who’s free, who has hours available to do work, you’ll be able to increase that productivity, reduce overtime, because you’ll be assigning and utilizing your resources correctly.
Reducing your utility usage, a lot of your major pieces of equipment, especially HVAC, we’ll get to that and momentarily, but HVAC, if they’re not properly maintained, they’re going to suck energy basically. They’re going to increase the usage of you energy, and so by keeping things properly maintained, you can reduce your utility usage, which is component of your ROI, saving money using a maintenance software package. Also, if you properly maintain your equipment and have the proper PM schedules, you’ll hopefully reduce that equipment downtime. That’s a component again of ROI, that whether it’s something along the lines of if you have equipment down, that means you’re not producing, if you’re a production type facility. So again, these are some of the things we’ll be looking at. Of course results are going to vary obviously for each company. Some of you will have bigger issues of one than the other.
So before we go any further here, I just, very quickly, I’m going to share the MicroMain, my desktop, so that you can take a look at just, at least, with the MicroMain program and you should be seeing what we call an asset record which is, again, in MicroMain, any of your equipment or area assets, rooms, but essentially on any piece of equipment or any asset, again, you want to make sure that it is properly named, that you have it assigned to groups and subgroups and accounts and departments, all for reporting purposes. You also want to be able to log all of your details and cost value and salvage value and useful life, so that you can then run depreciation reports and you can run replacement projections. And this is where we, as we mentioned earlier, this has a 10-year life, but it only lasts 7 years, there’s a definite cost to that.
You can also, of course, for any piece of equipment, have an instant work order history. So with a click or back in the reporting section, you can instantly see total number works orders, PMs, total cost for that piece of equipment to maintain it, or you can also access instant summaries. So these are all things that you should be looking for in any CMMS that you’re looking at, if you want to maintain this types of data in order to analyze, are you saving money, are you streamlined and be able to calculate you return on investment, you have a life cycle. You can see these same things, the same type of data in the reports.
Additionally, one of the things in any CMMS are the ability to go in and track all of your work orders and also track and schedule all of your PMs. If you get all of your PMs set up correctly with the correct intervals, then you should minimize downtime of equipment and problems and repairs, which are costly, and as I mentioned, especially if it’s in some sort of production type facility, that’s loss production when you have machinery down.
You can also in any work order, and I’ll just open one here very quickly, you can track your labor, all of your labor hours and costs, all of your parts usage and cost, and even other costs. Maybe you had to rent a piece of equipment. All of that goes again to being able to calculate that return on investment. Are we managing parts correctly? Are we managing labor correctly are we assigning correctly? Are we assigning too much in that we have too much overtime or double-time? So again, any good CMMS is going to have these components so that you can utilize those when it comes time to find out how are we doing. What is that return on investments from buying this maintenance software package? Obviously if you don’t have one, one of the main things about getting a program will allow you to actually take a look at all this data that you maybe are not able to collect.
Finally, and just briefly, reporting is key to the CMMS. What you put in the front end will determine what kinds of reports you can get out on the backend so that you can run things like completed work order cost summaries for your entire entity, or possibly for a particular asset, or maybe for a group. You might just want to see what are we spending on a particular type of equipment, all of our boilers, all of our mixers. Again, these types of information will all go into that calculation of return on investment.
So from here, I’m going to go back to the slideshow. But there’s just a few things that the MicroMain program can provide and any good CMMS that you’re looking at should be able to provide — the ability to schedule all your work orders and PMs, allocate resources correctly, make sure your parts are to the levels that they are supposed to be. So again, that will let you extend your asset lives, maintain proper inventory levels, you’ll be able to increase productivity, reduce overtime, reduce utility usage and equipment downtime.
If for instance, increasing an asset life, here’s a typical example, and I’ll let you take a look and read it, but essentially if you have a piece of equipment that’s $50,000 and you give it a 10-year life, and that’s $5000 a year using a straight line depreciation. But at any rate, if it fails six months before its predicted life and then it results in a loss of $2500. Again that’s a real close, because you have to go out and either one) spend money to fix it to extend the life or replace it. If you have effective routines, as I mentioned scheduled preventive maintenance, it’s going to ensure that the lifespan is maximized. And you’re going to want to review your company’s assets. So for those of your who either have a program or are looking at purchasing one, you’re going to want to look at all of your assets, measure their actual and predicted lifespans so that you can see where are we losing money. You want to focus of course on those critical, expensive assets, start from there and work on down.
And in this, we’ll give you the information you’re going to need to estimate your ROI and to keep things running effectively. Maintain those proper inventory levels, I mentioned that. You’ll want to effectively monitor and report on your part usage. You want to collect that data because the part usage, what you have on hand, what you’ve purchased go into the ROI collection. The maintenance software will allow you to gather that information. But really what you’re looking for, again as I mentioned earlier, are you overstocking parts? That commits money that you don’t need. Do you not have parts available when they’re needed? Again, that’s loss production possibly, so there’s lots of things that you need to look at when you’re considering parts usage and what kind of budgets you want to allocate, and do you have too much obsolete parts? Again that’s money wasted. So a maintenance software will allow you to look at that and measure that.
Increase you productivity and reduce overtime, and again I’m going over the things we mentioned, but you want to track and report on your actual labor usage. You can do that on your maintenance software package. You can even see who’s doing things on time, who’s doing things late. Do you have people who are routinely taking double the amount of time that you have estimated that particular task should take them? By utilizing that type of information, you can minimize excessive costs from labor or overtime.
Obviously you want to automate the creation of work orders and the scheduling of PMs. When things are automated, it saves time, saves money. Assign labor efficiently based on location or skills. Again, you can look in a maintenance software package, know where the jobs are, when they’re due, what skills are necessary, and if you set things up correctly you can allocate the proper people to those jobs. Thereby I say again, saving money.
When you’re looking at your ROI you’re going to need to know how many maintenance people you have on staff, what they’re wage rates are or average wage rate and we’ll get to that momentarily when we look at the ROI calculator. Do you have a lot of time that’s spent waiting for work orders or waiting for parts? Do you have a lot of time dedicated to paperwork? These are all factors that go into lost savings or if you look at the other way, it’s just more expensive. Analyze your company’s labor usage. What savings would be created by just a 5% improvement in labor usage, so hopefully we’ll look at that in a ROI Calculator.
As I mentioned earlier, reducing utility usage, I’m not talking about going out and actually measuring all the readings, but I’m talking about maintaining equipment properly so that’s its working efficiently and therefore reducing the amount of utility usage for that pieces of equipment. Properly maintained pieces of equipment operate more efficiently. It’s very simple.
Okay we have just a very quick another survey here. Are you currently performing preventive maintenance? And the bulk of you say that you are, so that’s good. If you’re doing that, hopefully, that is helping you to maintain all your assets and keeps things at a minimum of downtime and keep the failures at a low, which again is a cost.
I mentioned equipment downtime. What are your key factors affecting you company? Again, equipment downtime, loss of deliverable product, labor waste, scrap, rework cost, increase your property availability. If you’re a hotel or an apartment or office complex, if your equipment’s up, you have happy customers you have happy tenants and you can lease out your property. Decrease interruptions for facility users; increase your comfort of visitors. Again some of some these are intangibles, but some of them not, some of them actually go towards increasing your revenues and decreasing cost. So I’ll let you look over the other few here.
So as I mentioned earlier any CMMS software should provide your ability to improve that asset lifespan, manage your parts, manage your labor, improve your utility consumption, and reduce your downtime. And if you gather this data in your CMMS, you’ll be able to measure what you’re doing, how you’re doing, track all of your activities and costs and document all that in the form of reports and so that you’ll have a much more efficiently-run organization.
So let’s move over here at the and look at the ROI Estimator. And so once again I’m going to share my desktop and go over to this ROI Calculator. So this calculator takes a number of the things that we have just talked about into play. We’re going to look at, as I mentioned here, direct savings from CMMS. These are the things I mentioned earlier — increasing asset life, maintaining proper levels of parts, increasing productivity, reducing utilities, streamlining reporting, your labor savings. So let’s look at the actual things that go into in, the components.
So with labor, we’re going to estimate the labor cost. So you’ll need to know things like how many full time maintenance employees do you have, so I put in 4. What are the average hours — 40, maybe you have some part time and what are their hours. Average labor charge and that tells me that my total labor cost is $260,000. So that’s part one of labor.
Now, let’s look at some of the areas where there’s waste. In waiting for, going back for parts and tools to complete a job — typical range. These come from some a multitude of surveys that are written about maintenance software and written about ROI on maintenance software, but 1% to 10%, so I’m just putting in the low here, 1%. Gathering, asking for instructions or information for a work order, obviously, that can be reduced if you have a maintenance software package with all those instructions on there. Well same thing here, if you have a maintenance software that’s effective ,it will have the parts and the tools perhaps already on that work order or PM so that you’re not wasting time, going back, looking for tools trying to figure out what parts you need. They’ll be right there at your fingertips.
Being pulled off a job due to unplanned or organized work, well if you have everything scheduled in a maintenance software, you won’t have this problem, so you can reduce this cost. Figuring out your priorities, in a maintenance software package, you should be able to prioritize all of your maintenance, you can do so in MicroMain, so that you’re doing high priorities first and you know where you’re going and what your route is. And then other, something unique to your operation, I just put in 1%. So if you have 5% spent on non-value added activities, 5% of that 260 is your $13,000 a year of savings that you could be cutting out using a maintenance software package.
Next let’s look at inventory. And if you have a maintenance value, the value of your inventory is $50,000, and the last year, we purchased $10,000, and estimate percentage of savings based on your current inventory system. If you have a computerized system, you can save 10%, at least those are the estimates. If you have a manual system, 5%. If you have no system, obviously there’s no savings. So based on that, as you see my inventory reduction is $5000, a one-time reduction, because I’m cutting out waste if I have a CMMS. I’m not having an overstock part. I’m not having inactive parts. I only have the parts that are necessary to my operation. And I can also reduce my purchases. So I’ve got an annual savings of $1000.
Then we can look at preventive maintenance. The value of capital, largest and most critical assets, if I have $100,000-worth of assets with an estimated life of 10 years, and I can increase it by having a PM system, a CMMS system, 10%. So that basically takes the hundred and it expands it out over 11 years instead of 10, which is where you get this $909, so you’re actually extending you’re life, you’re increasing your life of your asset.
If you have $15,000 worth of utility, annual utility costs, and you have a 5% savings a year by using a maintenance software package at $750, if I add the $909 and $750 together, I’ve got an annual savings of $1659. So again right now so far, I’m saving 13 on labor $1000 a year on parts and $1659 combination of my PMs by lowering my costs, so far that’s what I have.
Then there’s a category, other savings. We just say list your top three costs related to downtime, outages, lost time, handling complaints, so on and so forth. So if you just took your top three and I didn’t put in what they are, but I just said number of hours spent handling them and average annual cost. So yeah, you just would fill these particular columns. I left it at that. It took us 100 hours and the average cost per incident was $500. And if I take those, the 100 hours in each case, that’s 300 hours times the $25 average hourly rate, and then the $5000 here, and then if I assume that I using a CMMS, I would have a 50% reduction in all these costs, it’s $11,250 is the average reduction based on if I take all the hours times the cost and then just the total amount here of what if might have cost to fix and materials and all those things.
So if I add all of these columns together I get a savings, an annual savings of $26,900 and a total savings, if I add back in this one time saving here of our inventory reduction of $31,909. So again that would show me what my annual and my total savings are. And then I take in, with any ROI Calculator, you’re going to take and down here is a description of that, and you’ll get to look at this. Each one of you will have yours. We’ll email it to you at along with everything else here, all this information, and you can start putting in your own information, but this is the calculation.
But essentially you’re taking your costs and you’re dividing it minus your upfront cost and ongoing cost. So 31900 minus the $10,000 and ongoing support, and if you divide that by the original costs, this gives us an ROI on a 7-year average life of a purchased solution, in other words a solution that you actually one time purchased, install on your own network .and then you just add the annual cost, which is a support for tech support and upgrades, but you have a ROI of 733%. So 100, by the way, means that you’ve got back your cost.
And so you can see, if you play with the numbers, you can realize the value of having a CMMS that you can utilize to reduce all your costs, streamline your operation, extend the life of your assets and more. So again, you’ll have an opportunity to play with this and put in all of your own numbers and if you have questions, of course, you can contact me or anyone at MircoMain for more information about it.
We’re going to return to the slideshow here. So that’s really all I have to say on the maintenance software and the ROI calculations. Again, know that by utilizing a maintenance software package, if you noticed in those studies if you use if you have a program but not a computerized, but you have something in place manually, you’ll realize a 5% savings typically whereas a maintenance software package will allow you to increase that up to 10%. So if any of you have something in place that you’re utilizing but not necessarily computerized, it may behoove you, as you see to upgrade things to computerized maintenance software to realize more savings and streamline your organization.
At this point if there’s any questions, that chat line is open and we’ll be happy to answer any questions that you might have.
Trevoris: Craig, we have questions one how do you respond to hard savings versus soft savings.
Craig: Can they elaborate? We ask them to please elaborate on that as to what they what they’re referring to, as hard versus soft in their organization. Can they write you just a quick note? And while they’re doing that if we have another question…
Trevoris: So productivity is considered soft, there’s no profit in loss impact.
Craig: Okay well again, on an ROI Calculator, as you see, it’s pretty straightforward. It doesn’t calculate the difference of the two. I mean, productivity, you’re saying productivity’s considered soft. No profit loss impact, I don’t know if I completely agree with that, because if someone’s not productive, if you have people that are constantly over, let’s say you go out and you say okay it’s going to take us an hour for this job, and two hours, and you’re allocating your resources, and you end up having to assign overtime to these to get things done, I mean that’s a real cost that does affect that bottom line. I know it’s not in there like production might be where you’re actually losing use of a machine and therefore you’re losing product that you’re producing, and so you’re losing revenues, but even productivity does go to the bottom line, in my opinion, because it does affect your hours, your labor hours and labor costs of getting things done.
Trevoris: And Craig, here’s a thought that occurs to me is that you might run the ROI Calculator twice, once with only hard costs saving and once with including that kind of what your company considers to be a soft cost. When you get down to the bottom line for any company, if productivity is low and, then you have to add more bodies to get the required tasks accomplished. Nothing costs more than person and benefits and you know the whole ball of wax with adding to staff.
Craig: Right and I see the comment that yes, if there’s value but finance won’t count it as savings and you’re correct in that. And I think Trevoris made a very good point, you may want to just run the calculator with and without it, so that you can kind of get a handle on where you’re at without counting those savings and the equation. Any other questions?
Trevoris: I think we’re ready to wrap up Craig.
Craig: Well if we’re ready, if no other questions, then I appreciate your all joining us this afternoon. And again, Trevoris said we’ll be getting a copy of all this along this with ROI Calculator, correct?
Trevoris: That’s correct. Look for an email tomorrow.
Craig: Okay, well, then, thank you very much. I appreciate the time, and we look forward to hearing from you.