Estimating a Return on Investment (ROI) For Your CMMS / EAM Project
Looking for Computerized Maintenance Management System (CMMS) / Enterprise Asset Management (EAM) software? Here’s a method to calculate an estimated return on investment (ROI). Having a CMMS ROI is important for justifying the purchase internally and acquiring the capital investment from upper management.
Using a CMMS ROI Formula
Calculate ROI using this classic ROI model:
CMMS ROI =
(CMMS Value – CMMS Cost)
CMMS ROI is commonly assessed for one-year, three-year, or five-year intervals. A one-year calculation that includes your initial CMMS implementation costs will have a reduced ROI. The longer-term benefits of a CMMS solution are greater and can include less quantifiable elements such as improved customer satisfaction and loyalty.
CMMS costs, which will be provided by CMMS vendors, include:
- Initial software purchase
- Initial implementation (including installation and training)
- Any costs associated with new hardware purchases
- Annual support cost (multiplied by the number of years in your ROI calculation)
CMMS Value is your expected reduction in maintenance costs as a result of implementing a CMMS system. To reach a total estimated CMMS Value, break up the potential cost benefits of a CMMS solution into 5 separate categories and look for reducible maintenance costs.
1. Asset Life
Maximize asset lifespan with preventive maintenance (PM). CMMS solutions generate PM tasks which makes it easy to follow PM guidelines from manufacturers.
Calculating CMMS Value: To get a dollar value, estimate the number of years you expect to extend your assets’ lifecycles with the assistance of automated preventive maintenance tasks. This improvement in years can be expressed as a tangible dollar amount when you compare it with the total purchase cost of that asset.
In addition to extending the life of your equipment, appropriate PM scheduling also reduces asset downtime which impacts company revenue. Depending on your company’s focus, downtime can effect revenue in different areas. Some examples include:
- Scrap and rework in manufacturing
- Depleting property available for rent (Hotels, Apartments, Offices)
- Decreased facility access (Hospitals, Schools, Recreation Areas)
- Interruptions to facility access (classrooms for students, pool facilities for hotels)
- Improved compliance / fewer incidents (Healthcare, other regulated industries)
- Impact to comfort of visitors & guests / Increased complaints
Calculating CMMS Value: First, determine how much unscheduled downtime occurs in your organization per year. Then examine how this loss impacts revenue.
3. Parts / Inventory
Using a CMMS’s parts inventory management features allows your organization to avoid being both under and over-stocked. When parts are under-stocked, time is wasted on rescheduling work orders. Over-stocking ties up funds that could be better used and opens the door to parts obsolescence.
Calculating CMMS Value: Estimate how much time your organization has lost due to insufficient inventory and unscheduled emergency purchase orders. Then evaluate how over-stocking has cost your organization in terms of carrying costs, and inventory becoming obsolete.
4. Labor / Productivity
Work order management allows you to accurately forecast labor hours (of both employees and contract workers), which reduces the need for unexpected overtime. Additionally, better-maintained assets reduces emergency maintenance, which allows for more reliable work order scheduling.
How many labor hours per week are wasted waiting for work orders and revisions, waiting for parts, rescheduling work orders?
Calculating CMMS Value: Determine an average hourly labor amount wasted by inefficient work order management. Next determine how much your organization spends on overtime hours and contract labor that could be avoided with a well-implemented work order management system.
Properly maintained assets will use fewer utilities, reducing your organization’s usage of gas, electricity, and water. HVAC units that have been properly maintained will perform more efficiently and fail less often.
Calculating CMMS Value: Examine the total amount your organization spends on utilities over the course of a year. Then compare that amount with the expected yearly utility costs if your assets and HVAC units were operating at peak efficiency.
Once you have obtained an estimated CMMS Value for your organization, you can apply that number to the CMMS ROI formula and arrive at an estimated CMMS ROI.
Organizations with newly-implemented or updated CMMS solutions can experience first-year ROIs of anywhere from 25%-400%, but there are also less-tangible long-term benefits. A CMMS can lead to improved customer experience (and less customer turnover), greater employee accountability, and the mitigation of risk.
Finding the right CMMS vendor for your organization is a significant task. Once implemented, however, the software can help keep costs down while dramatically increasing the efficiency of your organization.
See a sample CMMS ROI calculation.
We can help you analyze your company’s ROI. Contact MicroMain at 1-888-888-1600 or send us an email.