An Example CMMS ROI Calculation

In our recent article about estimating your CMMS Return on Investment (ROI), we identify five main areas for cost-savings associated with CMMS implementation. By examining your maintenance operations, you can create a realistic CMMS ROI.

Five Key Areas:
1. Asset Life
2. Downtime
3. Parts / Inventory
4. Labor / Productivity
5. Utilities

Here is a sample CMMS ROI calculation using a hypothetical company, ABC Shoelace. Companies in industries such as healthcare, education, and property management will find different results in their calculations, but the process for estimating a CMMS ROI is the same.

ABC currently creates work orders manually. Their current method for generating preventive maintenance (PM) tasks relies on spreadsheets and a calendar — and in some cases the staff’s memory.

What kind of ROI can ABC Shoelace expect on their CMMS investment?

CMMS ROI Formula

ABC Shoelace will evaluate their potential savings using a classic ROI model:

CMMS ROI = (CMMS Value – CMMS Cost)/CMMS Cost

ABC Shoelace needs the CMMS Cost and their CMMS Value (or Cost Savings). Remember when calculating your ROI it is important to use accurate data about your company’s unique situation.

CMMS Cost

ABC Shoelace received a quote for a CMMS with a annual cost of $10,000.

CMMS Value

Now it’s time for ABC Shoelace to determine the annual savings (value) they will realize from CMMS implementation.

1. Asset Life

To determine the annual cost of an asset, divide the total cost by the lifespan. If an asset costs $50,000 and is used for ten years, the asset’s cost per year is $5,000. Extending that asset’s life by just half a year would create a savings of $2,500.

ABC determines extending the life of key assets would produce savings of $9,000 annually.

Expected Annual Savings: $9,000

2. Downtime

Due to inefficient preventive maintenance performance there was a recent incident in which one of ABC’s assets was disabled.

The real-dollar cost of this incident was $5,200 in repair parts and $1,200 in unforeseen labor. The company determined that this incident could have been preventable with a CMMS. Similar incidents have occurred at least twice per year.

Expected Annual Savings: $12,800

3. Parts / Inventory

Last year ABC ordered a surplus of maintenance parts. The money tied up in these parts was money that could not be invested elsewhere.

Parts inventory revealed that a number of items were obsolete. $2,500 worth of inventory was useless.

On the other hand, depleted inventory slowed maintenance performance. ABC determined that $1,800 could have been saved if emergency orders had not been required to meet immediate parts inventory needs.

Expected Annual Savings: $4,300

4. Labor / Productivity

ABC wanted to reduce time wasted waiting for work orders or parts and completing paperwork.

ABC estimates that 260 labor hours per year (5 hours per week) could be saved with an efficient CMMS. If the average labor hour costs the company $15, the total savings is $3,900.

Last year, $3,600 had been spent on contract labor to provide emergency asset maintenance which could also be eliminated.

Expected Annual Savings: $7,500

5. Utilities

HVAC systems in typical commercial buildings are responsible for more than 40% of total energy use. HVAC units that have been properly maintained will perform more efficiently and fail less often. ABC estimates that the total annual reduction in utilities will be $2,000.

Expected Annual Savings: $2,000

The Calculation

ABC Shoelace is a great candidate for a new CMMS Solution. The sum total of their savings potential is $35,600 — the CMMS Value.

CMMS ROI = ($35,600 – $10,000)/$10,000 = 2.56