Learn how to estimate Return on Investment (ROI) for your CMMS. In this webinar, Craig Shepard will take you through the factors that effect ROI.
This is Craig Shepard. I am an account manager here with MicroMain Corporation. As I mentioned, today we’re going to talk about return on investment and look at a number of factors that go into calculating that.
First, a few things about MicroMain. We are headquartered in Austin, Texas. We have been providing facilities and maintenance management software since 1991. We offer a maintenance program. We offer facility management, and we also have a special version for health care. Some of our representative clients, we have over 3700 clients worldwide, mostly in the United States, but these are some of the logos of some of our more prevalent, prominent clients: Rubbermaid and Best Buy, some hospitals and Harley-Davidson. We span all different market segments, all different verticals, and all geographic segments.
So with regard to calculating ROI, we’re going to identify five areas affected by maintenance software that typically go into calculating your return on investment. A maintenance software, of course, is going to give you the ability to document and monitor and report on all these critical areas. It also will give you an opportunity to improve your processes and your performance while hopefully reducing cost by monitoring these five areas that are affected.
After we look at those, we will then take a look, a run-through of the ROI estimator, which we will then provide you as well, so you can put in your own company specific information. Lastly, we will then take a quick look at some of the functionality in the MicroMain program itself so that you can see how you might handle some of these five areas that we are talking about.
First, we’re going to just take a quick poll here to see what your primary focus is. Is it preventive maintenance, corrective maintenance? If you would just please click on that, and we’ll give you a second here. And I’m going to skip to the results, and it looks like 100% of you are mostly interested here in preventative maintenance. And preventative maintenance is a huge part of keeping track of your costs, and part of the ROI calculation. So we will continue on here.
These are the five areas when we’re talking about the savings that you can get out of using a maintenance management software, and we’ll take a look at each one. But you can extend your asset life by providing scheduled maintenance. You can maintain your proper inventory levels. A good, solid maintenance management software will allow you to track all of your parts inventory, and build parts lists, and keep track of the inventory levels at min, max, and reorder amounts, so that you have the proper levels of inventory.
Increasing your productivity and reducing overtime, this has to do with your labor. If you have your labor managed correctly, if you have preventive maintenance scheduled and assigned correctly, and you know who your workers are, and who your vendors are, and who your least cost vendors are, you can increase your productivity and reduce overtime. We’ll take a look at that.
Of course, reducing your utility usage is a huge cost factor as well. While maintenance software is not typically a utility-tracking software, we’re talking about on the maintenance side, that by improving your equipment it’ll reduce your utility usage.
And then lastly, the equipment downtime, especially if you’re in the production, if you’re manufacturing, downtime of equipment is lost production. So we’ll discuss each one of these. And of course, as you use this ROI estimator that we’ll provide to you, your results are going to vary, obviously, for each company. And your accuracy is going to be improved when actual data for your company is used.
So let’s look at the first one — increasing an asset life. This is the first component of your return on investment. And basic example that they have up here, if you have a piece of equipment that’s $50,000 and it’s expected, it’s life is 10 years, that’s $5000 a year. If the asset fails at even 6 months before your predicted life ends, that’s a $2500 loss. So obviously, by extending that life asset, you are benefiting, and if you are not doing preventive maintenance and you have assets that are failing and you have to replace them, that’s additional cost.
So effective, routine, scheduled PM help ensure that this predicted life span of assets are going to be maximized. Review your company’s assets, and measure the actual versus predicted lifespan. So you should know what your history has been. The maintenance software, by the way, will allow you to do that. You’ll be able to see what your expected life expectancy is of a piece of equipment, or a building, and then how you’re doing. And I suggest that you focus on critical assets. How many are there? What is the value?
Then, of course, you’re going to gather all this information. It’s going to give you the data that you need to estimate your improved asset life and the savings when you do your PMs, when they’re scheduled and executed. So again, increasing asset life, first component, obviously, increasing asset life. Main thing is having regularly scheduled routine and preventative maintenance.
Next, maintaining your proper inventory levels. This is another huge component going into keeping track of your return on your investment. If you effectively monitor and report on your part usage and you want to use all your data to maintain all of your parts at appropriate levels. So there’s two parts to this. One, you might overstock your parts. That’s committing your dollars before it’s needed. You don’t want to go out and buy too many parts when… if you buy 100 parts but you’re only using up 25 a year, then you have money committed that didn’t need to be. Also, overstocking parts potentially opens the door to lost revenue because they might become obsolete. You go out and you buy 100 parts for a machine, and then maybe the machine has to be replaced and those parts are no longer good for the new machine. That’s inventory that you have to write off as lost dollars.
Of course, on the flip side, you have depleted inventory that, because you don’t have enough parts on hand, for PMs or for corrective maintenance. As I mentioned earlier, if you have too little inventory, especially if you’re in a production industry and you have to shut down equipment that’s producing, then that’s lost revenue. So again, review your company’s parts usage, your inventory levels, and the part’s obsolescence to identify opportunities for improvement. Now, with regard to parts, any good maintenance management software will allow you to monitor all of your parts usage. You should be able to set up min, max, reorder amounts, and trigger alerts when you get to minimum levels so that you can automatically reorder those amounts. You should be able to run reports that let you know how many parts are necessary for upcoming PMs and work orders. All that will help you maintain those proper levels.
The next component is increase productivity and reduce your overtime. If you’re using a maintenance management software, you’re going to be able to track and report on all your actual labor usage, and you should be able to improve your processes and utilize your labor, and reduce overtime, and contract labor costs. So if you have PMs, for instance, that are all scheduled and possibly even preassigned to the correct people or to the correct vendors, maybe your lowest cost vendors, then you have everything scheduled and everyone knows where they’re going, what they’re doing. It’s going to reduce time, reduce costs. It’s going to also automate; you can also automate the creation of your work orders and the scheduling of tasks through any maintenance software program. You may want to use a work-request module, which automatically collects any kind of work that comes in, request that comes in, automatically routed based on a specific property or a specific asset, or maybe the type of request it is. All of this saves time, and time is money.
Assign labor efficiently based on location, or skills, or availability. Again, any good CMMS program, and if you’re using it correctly, you can have things preassigned to various labor based on their skills or what their location is. So again, it allows you to manage your labor so that you don’t have a lot of lost time to trying to just schedule, or you could have the wrong person in the wrong place. All that is, again, time is money. You need to take a good look at how many people you have on your maintenance staff. Do you have the correct amount of people? Do you have the correct amount of trades? Maybe you need more plumbers, or electricians, or whatever it might be. How much time is spent waiting for work orders and parts? You might have a work order or a PM, and it’s on hold because you didn’t have the parts, or it’s on hold because you don’t have the people that are necessary because you haven’t allocated them correctly. So scheduling is a huge component in increasing your productivity and reducing your overtime.
Analyze your company’s labor usage. What savings can be created by a 5% improvement in labor usage? And we’ll look at that when we get to the actual estimator in a little bit.
So now we have just another question here: “Would a hand-held mobile device help you improve maintenance performance and manage workflow?” If you’d take just a second to click on that for me, then we can skip to the results here. I guess I went too soon, but anyway, I will talk about the hand-held mobile device that is available through MicroMain. The mobile functionality, when we talk about increased cost on work orders due to labor and having to go out and get your printed work orders, and come back with the right tools, this, that, and the other, hand-held functionality allows your maintenance techs to get things right out in the field immediately. Get email alerts, they’re assigned… oh, there we go. It just took a second. So everybody says that the hand-held would help them, and I concur.
The fourth component when we’re looking at ROI is reducing utilities usage. An HVAC system, for instance, in a commercial facility is going to account for a very large portion of your energy use. So proper maintenance, inspections, cost inspections, and constantly servicing it is going to reduce the utility cost. So again, you want to look at all of your utility usage, and repair costs, and replacement costs, and identify opportunities for maintenance improvements and cost savings. Again, well-oiled machine uses less utility, less power, so to speak. It may not have to run as long if it’s producing better, all that type of thing. So again, that’s another large component of saving money and helps boost your return on investment.
Last is equipment downtime. Equipment downtime affects all companies. Most people think of equipment down time in relation to production. If your equipment’s down, you’re losing production. If you’re losing production, you’re losing money. So the first one here — Loss of deliverable product, labor waste, scrap, and reworking costs. Those are all real cost for manufacturing, but other industries as well. Increase your property availability. If you have things out of service, if you’re a hotel or an apartment, office complex, and your building is not properly maintained, that’s less space for you to rent, possibly. Also, decrease interruptions for facility users, for tenants and students. Again, if you have things that are not in good order, and not running, that’s possibly tenants that move elsewhere, students who pick another dorm, if you happen to have private dorms or something.
Especially these days, with the internet and all the ratings on the internet, you want to make sure that… this next one says, “Increasing your comfort of visitors and guests.” With everyone going to the Internet these days and rating things, you want to make sure that your facility is in great shape, that your equipment is not down, that buildings are open, that services are open because if they’re not, people are going to pick something else. They’re going to go elsewhere. Again, you need to make sure things are maintained. So downtime of equipment, and buildings, and services is not just a manufacturing thing. Again, there are a few other items here. I won’t go through each one, but these all relate to equipment downtime and improving your overall production and overall income and revenues of your facility, I should say.
Okay, I think this is our last slide. “Are you currently performing preventative maintenance?” And I’ll give you a moment to respond here. Okay. We’ll skip to the results. And it looks like everyone here is currently performing preventative maintenance, which obviously is great. It’s the number one way to reduce the costs of maintaining your facility, improve your revenues, and of course increase your return on investment.
So let’s go in here, and let me go the correct way here, I’m sorry. Just to look back at this, a CMMS, which is a computerized maintenance management software, is going to improve your asset lifespan, expectancy, manage your parts and inventory, manage your labor more efficiently, improve utility, and reduce your downtime. And of course, all the data you gather it will allow you to report and measure what’s it doing currently, you can also see how things are going year over year. You can track all your maintenance activities and all your costs. You can run things like “budget versus actual” whether it’s for asset groups or departments or for that matter, for specific labor, as I was mentioning earlier. You might have estimated hours that it’s going to take to do particular jobs, and if you have people out there that are constantly over that, either you’ve underestimated or there’s a problem and they’re moving too slow, especially if you have others in the organization who are getting them done on time.
You can also track maintenance activities. If you have someone who constantly has to go overtime or double time because they’re not getting them done in the allocated time, you can track all that as well as what percentage of your work orders and everything are being done on time versus late. Again, these are all things that help improve your costs, reduce your costs, improve your performance, and improve your revenues to your organization.
So now we’re going to go over to the actual estimator here. Off of that I’m going to share my desktop, so bear with me just one moment while I do that. And we’re going to go in, and we’re going to look at the actual estimator itself. So MicroMain has put together a maintenance management estimator. Again, it takes a lot of these things into play. As I mentioned, you have direct savings, and everyone who is attending here today will get this, and you can put in your own numbers. But we’re going to just roll down and look at some of this. So you have your direct savings from CMMS.
Again, the things I’ve mentioned, increasing your asset life by doing PMs, maintaining proper inventory levels, increasing productivity, reducing overtime, again, to do with labor savings. Let me just click over here instead. Reducing utility usage by doing routine and preventative maintenance to keep things running smoothly, and streamlining the reporting. You’ll be able to report and check on all your labor and make sure everything’s up and running. Again, indirect savings is some of the same things, but reducing your downtime, reducing your scrap and rework, increasing property available for rent. Again, these are some of the things we previously mentioned.
So what we’ve done is we’ve broken the estimator into a number of sections, the first being “Labor”. Labor is typically the largest component, and so you estimate the labor cost per year. First item is “What is the number of full time employees?” So in this particular, I’ve just put, “I have one employee who works 40 hours a week, and I don’t have any part-time employees, and the average is $25. Based on 52 weeks, that’s $52,000 a year for that employee.”
And now, here’s what we call our non-value activities and the savings depending on your system. So waiting for and going back for parts or tools to complete a job, we used 1%. Gathering and asking for instructions or information, 1%-5%. These numbers come from some generally established figures throughout the industry. We’ve just used the lower end, 1%. Being pulled off a job due to unplanned or unorganized work, and figuring out the next priority, where to go next. So again, we’re just saying that the very minimal levels… and then “Other” is just a miscellaneous category. So “Percentage time spent on non-value-added activities”, 5%.
Well, 5% of those hours spent over the course of the year is 105 lost hours, and it would cost annual, for that one person, $2600 a year in labor savings, by getting rid of… if you used a maintenance software and get rid of these types of issues. And again, we’re just using the 1%, the lower end. Obviously if the percentage of time is higher, it’s greater savings.
Labor, again, number one cost typically. The better-scheduled everything is, with the PMs set up and preassigned, the better the work-order flow is, so you know where it’s coming from, who it’s going to, the faster everything goes, and the better your numbers are.
Inventory — your second biggest cost, typically. Look at the value of your inventory. Maintenance-related inventory, we put in 50,000, and then this is how much we purchased last year — 10,000. Estimated savings based on accounting inventory system. Right now we said 5% just being manual versus no system at all. So if you have a 5% savings, you’re going to reduce this inventory that you needed by 2500, and you would reduce this cost by 500. So that would have been a $3000 total savings.
By going to a CMMS, typically they say you’ll save about 10% of these numbers. Instead of $3000 total, this would have been a $6000 number based on this inventory. Also, we mentioned preventative maintenance. Obviously preventative maintenance extends the life of your assets. As I mentioned before, if you have an asset with a 10-year life and it fails at 8 or 9 years, then that’s money lost because you have to replace it sooner. Also, on the flip side, if you’re doing preventative maintenance, routine maintenance, and maintaining your equipment, keeping it in tip-top shape, it’ll extend the life of your asset.
So we said here we have a piece of equipment, $100,000, estimated 10-year life, and if we increase it by 10% that life extends from 10 years to 11 years. That’s essentially savings of $909 based on that extension. If I was able to extend it by 20%, which is 2 years to 12, it would go up to roughly $1800 or $1900. I don’t remember the exact cost, but you can just… as you’re using this, if you want to go in and change the numbers, for instance right here I could change this to 20% and it would recalculate my new amount.
Annual utility costs — another part of the puzzle. We said we have $15,000, and we assume a 5% savings based on just having a manual system, we’re saving this amount. If it’s 10%, obviously it’s going to be more by adopting a computerized maintenance software. We also have another category — “Other Savings”. The other savings is just special things. We didn’t enumerate them here, but you can put in other amounts and costs, and it will give you your savings.
In this case, a saving of 50% reduction of these. It gives you your total savings, again, based on your numbers. Estimated savings, one year, and then we’ve done a comparison based on a purchase, or a purchase, or a host. We offer MicroMain software both as an on premise solution, which is purchased and installed on a one-time cost, and then an annual support. We also offer MicroMain as a hosted solution, in which case we host it and you have an annual cost. So these are basically your cost estimates for the two.
Upfront costs for hosted is $3000, upfront cost to purchase, $10,000. Annual cost thereafter for hosted, three. Annual cost for purchase, $895. So these are your estimated costs, and we have looked, based on all these numbers we ran a seven-year life ROI, hosted versus purchased. You can come in here, and the hard part for you is going to be collecting these numbers. Hopefully you have a lot of them, and I think you’ll see, once you do that, the savings that will occur from a properly-maintained maintenance program.
Now, I have a few minutes left, and I just want to go into the actual MicroMain application. I was mentioning, a couple of things I just wanted to point out is, one is labor being the largest single cost in streamlining of work orders and how things happen. So in MicroMain we have a work request module that your people can use, and so whether it is a manufacturing facility or possibly a hospital or apartment complex, whatever it is, people can log in. Based on their login they will have pre-filled fields. They can then pick where they are, who they are, or you can have them already pre-filled based on a login. What this problem is, and maybe type a message, and they hit “Submit Request”.
Now, when they hit “Submit Request”, it’ll automatically request a work order in MicroMain. Also, based on the property, based on the asset selected, based on the service selected, you can have alert emails go to specific people so they automatically are alerted that they have a work order. This saves time and streamlines the operation. Also, you’re no longer having to get… someone catches you in the hall, tells you there’s a problem. You’re about to put it into a work order system, and someone else interrupts you and you forget all about it, and it’s work that doesn’t get done.
This way, it is logged. There is a log of it for everybody. There’s an audit trail to know that that request came in. It also saves time, because the minute I hit “Submit Request”, it lets me know that it was sent. I can view the status. It triggers alerts in MicroMain. It sends alert emails, and here it is. It’s already in the program. If you are maintaining this and you have someone at the helm, so to speak, they can either issue it immediately and give it to somebody; it issues and prints. If there’s a bunch of them, we do have the ability to batch issue them and batch assign. They can also go in and assign it to either an individual or one of their vendors, but also if you set things up correctly, and this happens to be an HVAC call, you can find your HVAC people. And they would have already had an email. Maybe you have people assigned to specific properties, you can filter and assign to that correct person, so it doesn’t get assigned to someone who doesn’t work at that property.
Same thing with vendors. You might have vendors who only work at certain properties, but I can give this to somebody and they’re on it. And if I want to log estimated time versus actual, so that I can run reports to see how efficiently we are doing things, then you can put these numbers in and you can track all that. And you can issue this, issue and print it. As I mentioned, by the way, this is also automatically on a hand-held. So if I’m Tim and I’m out in the field, and this came in, I don’t even have to wait, maybe, for them to assign it just depending on the work flow of your organization. This could be sitting here like this one, unassigned, and I’m Tim, and I’ve got this and I can grab that one. And I can go in and see everything I need to see, details, put in things, for instance, like failure codes if I want, why are we doing the work, how much are we spending on vandalism or lack of maintenance, or whatever it might be. I can log downtime, again a very important component. All this is available to you.
I can also open that. So it’s requested. I’m going to open it myself. I’m going to time in and out. Nobody’s on there, so if I’m Tim, I can put my own name on there. It times me in. When I’m done I could come back here later on and time out, account for my labor. Also, you can log all of your parts usage. So again, out in the field Tim can go in here and he can either add it manually, or he can scan parts on. We support barcode scanning. But again, this all goes to not only saving time, but also being able to manage your parts inventory correctly.
Right here, I can either look for parts that are associated with a particular piece of equipment, these are other filters to make it easier and faster to find what I need, or I can just start typing the part, and I know exactly what I have, where. Instead of going out to a storeroom looking for a filter and finding out I don’t have any, and then having to turn around and go back, I know immediately on the hand-held that I have some in these stockrooms. So maybe I’m going to pick this one, and I’m going to put it on my work order, and it’s on there.
It’s deducted from inventory, keeps track, there’s a log of all your parts used, all your costs. So again, everything can be done on the go by your maintenance techs, and it streamlines everything, including updating meters, accounting for other costs. Either accessing documents, maybe some sort of manual, or exploded view of the piece of equipment you’re working on, or you can take before and after pictures and upload them to the record. Again, a lot of functionality that helps you to streamline things and save money, and boost the return on investment.
Ultimately, when things are done, everything goes back into the program. So if I was going to complete a work order with my labor and my parts, and I’ll just do this one. And I put in a part, and I’m just grabbing things at random, but again I’m going to just put them on. I could put on all the costs. I can put on my comments, so on and so forth, and complete these. Track things by failure codes, again, to see why you’re doing the work. Track your downtime, and when you’re done, because it came from the work-request module, you save time. Immediately, email goes back to the person who’s requested it. There’s not a lot of phone calls taking a lot of time. They know that it’s been done. Plus, they could have, at any given time, checked the status of their request. So again, it takes out all those phone calls and all that waste of time.
Additionally, right here, I now have a completed work order. I have an instant summary of my costs, so I know what I’m spending. And I also can go directly to that piece of equipment with two clicks, and see anything I’ve ever done. So again, you can see what you’re spending on your equipment. We can also, of course, in any maintenance software, set up all of your PMs.