How to justify investment in reliability program and initiatives?

These days, securing a budget for new reliability initiatives and programs within the industry has become more challenging than ever. This difficulty primarily comes from the prevailing perception that maintenance and reliability are mostly viewed as expenses rather than investments – why is this the case? A fair assumption could be that people that provide the funds for reliability and maintenance, higher management for instance, were never shown that reliability can bring return on investment.  In this article, we aim to provide you with our perspective on reliability and present a straightforward process that can assist in justifying investments in reliability programs and initiatives.

Why is this important?

Before delving into the specifics of how we achieve it, let’s first address the “why” behind the necessity of doing so. Ultimately, when we seek financial support for a reliability initiative, we must adopt the perspective of an investor. For the individual providing the funds, there must be a compelling return on investment. This means that the returns should significantly surpass the potential gains from simply leaving the money in a bank account, accruing minimal interest. Whether we like it or not, everything ultimately revolves around financial considerations. 

In simpler terms, we must demonstrate that investing in reliability will yield returns that far exceed the initial expense. We need to showcase the value of the reliability program and convince our stakeholders that it’s worth it.  

Once value can be clearly illustrated to the stakeholder – this is where the magic happens. This is where there will be a transformation in the perception of reliability: it will be seen as an investment rather than an expense. Once senior management recognizes the true value of investing in reliability and understands that the more they invest, the more they stand to gain, it becomes much easier for the reliability and maintenance team to leverage additional initiatives, including: 

• Training 
• Tools 
• Introduction of new technologies 
• Allocation of extra resources 
• Program optimization 
• And other opportunities 

How to calculate it?

Now, the question arises: how can we financially justify investment in reliability programs? Even as consultants, we faced the same question you might have today. It’s important to note that this blog article primarily reflects our approach to justifying investments in reliability – this is essentially our own recipe and we’re sharing what has been effective for us. We not only wanted to introduce a process to our operations to do so, but we wanted this process to be simple and effective, so they can fully embrace it.  

To justify investment in reliability, we focus on “cost avoidance associated with potential downtime”. Cost avoidance associated with potential downtime refers to the financial savings a business can achieve by preventing failures. Indeed, the fundamental of doing reliability is to prevent failure, so when we perform inspections, PdM or PM, we are participating in the prevention of catastrophic failure.

Therefore, every time we conduct preventive and/or predictive actions, such as visual inspections, lubrication rounds, vibration analysis, thermographic analysis, and so on, instead only documenting our observations, we take it a step further by calculating the potential costs associated with our findings. The general concept of cost avoidance focuses on the money saved by preventing a potential failure that would most likely occur in the absence of preventive and predictive inspection. To calculate it, we’ve developed two different methods, each focusing on specific parameters. 

Method 1: The Ideal and Accurate Method – this method will focus on the following parameters: 

• Profit per hour 
• Lost production hours due to catastrophique failure 
• Lost production hours due to planned maintenance 
• Production hours saved 
• Catastrophique failure cost 
• Machine part cost 
• Repair savings due to planned maintenance 
• Overtime labor cost 
• Normal hours labor cost 
• Overtime saved 

You might be thinking, “There’s no way I can access all this information,” or “This seems too complicated.” Don’t worry; we have an alternative for you if this method doesn’t work for your situation. The ideal and accurate method will allow for a very precise estimation of potential cost savings associated with downtime. This approach includes various financial aspects related to the inspected assets. If you have access to all the detailed information, you can cumulate these numbers to come up with at reasonably accurate estimate. 

On the other hand, if you believe that this method requires too much information and is too time consuming, we came up with a second method that focuses on just four parameters: 

Method 2: The Simple and effective Method – this method will focus on the following parameters: 

Formula: (Downtime cost * Expected downtime hours * Contingency) + Repair cost

This formula only requires four straightforward parameters, which you can define as follows:

If the assets would of have a catastrophic failure:

• Downtime expected: The expected production hours lost (in hours)
• Downtime cost: The production cost per hour ($/h)
• Repair cost: The cost associated with parts and labor required for the repair ($)
• Contingency: A weighting of potential costs – for example, if the asset has a duplicate, contingency = 0.5 (reduces potential costs by half)

Please note that the second option, which consists of just four parameters, is the minimum requirement for our service team when our technicians conduct any type of preventive or predictive maintenance inspection in the field. While documenting and reporting findings is essential, it’s equally important to calculate the potential costs associated with those findings. Even though it is only four parameters and simpler than the first method, some may find it challenging to obtain these numbers.

What we suggest is that you estimate these parameters based on your experience. On our end, based on our extensive experience working across various industries in North America, we have developed conservative baselines for each industry. If you are interested in those baseline figures, you can reach out to us directly., however, the critical point here is not the numbers themselves but what follows.

Once you’ve estimated these figures, you need to present them to your supervisor, and what happens next is crucial. In our experience, if your numbers are significantly off, your supervisor is likely to make necessary adjustments to align them with reality. Subsequently, as your supervisor recognizes the effort, you’re investing in justifying the value and the investment in your initiatives, they will become more interested in providing accurate information to ensure that these numbers accurately represent the actual costs. This, in turn, enables them to justify their investment in preventive and predictive maintenance programs to their own management.

How to track it?

As mentioned earlier, this blog article is illustrating and explaining what our recipe is to justify investment in reliability program.

Now that I have mentioned that calculating potential cost savings is something fully embedded in our process, whether it’s doing it the ideal and accurate way or the simple and effective way, there is always a cost saving associated with our findings. Once the cost savings were fully embedded in our process, we took it one step further – here’s how. We developed a platform to which every time we go to a customer sites; we can perform our PdM reporting directly in it. When we create the hierarchy and the inspection routes inside our platform, we can directly associate cost savings parameters for each asset created.

Once that information is populated within the platform, when the reporting is being performed, automatically the platform will suggest a potential cost that is calculated to what was entered when creating the hierarchy and routes. The person performing the reporting has the option to directly accept the suggested cost or adjust it based on its observation or new information the person has.

Screenshot of savings functionality in Spartakus APM for a mining company 

Note that our platform helps us make sure the cost savings are fully embedded in our process, but the customer also has access to it, making sure he can keep track of the value we are bringing to its plant. Furthermore, over time, our platform will automatically generate KPI that will indicate savings according to specific variables, such as type of technologies, areas, assets classes, customers, etc. We make our customers exposed to the platform and that we have a discussion around to cost savings because we want them to be as accurate as possible. In a different train of thoughts, that same platform also helps us identifying most common type of failure and bad actors, which down the line will help to justify other investment in PM/PdM because the most common failures will directly corelate with higher cost savings. 

Conclusion

The key takeaway here is that if you want your company’s shareholders to invest in reliability and maintenance program, you have to show them that it is worth the investment. Our way to do so is through potential cost savings associated with downtime. Our vision is that it is crucial to maintain a record of cost savings and demonstrate your value, whether through an Excel spreadsheet, a web-based platform, or any other suitable method that aligns with your requirements.

The process of calculating cost savings doesn’t have to be complicated; it can be as simple as ours and only focus on a small number of variables. Your own calculation may resemble ours, but it can be tailored to your specific circumstances and industry. Note that what has work for us is focusing on potential cost savings, however, according to your reality, some other factors might even talk more than potential cost findings such as: such as health and safety, environmental impact, time efficiency, and more.