Managers cannot make business decisions based on emotions. Business he should create based on case effectiveness and return on investment.
“It was the best of times, the worst of times, the age of wisdom, the age of folly.” So Charles Dickens wrote almost 165 years ago. The same easily applies to today’s situation.
The last two years have been difficult. The COVID-19 pandemic has forced organizations to rethink their businesses and operations and find ways to adapt to the changing environment. It could be argued that it was the worst of times, stupid times, but there are signs that the world is returning to some form of normal, the new normal. Is this a sign of the Highest Age and the Age of Wisdom?
Maintenance and engineering managers continue to strive to do more with less, yet are still expected to meet organizational goals, objectives, and expectations. How can a manager accomplish more with less?The answer is to build a compelling business case for her planned purchases and projects. Done properly, this process can help managers chart a path from the worst times to the best.
When I was plant manager, the maintenance manager told me that we needed to hire two technicians. I declined his request. why? Because he came to me with an emotional request. As leaders in organizations, managers cannot make business decisions based on emotions. They have to make important business decisions based on case effectiveness and return on investment (ROI).
I would like to focus on two areas. The first is the human resource business case and he is the ROI. The second is the tangible and intangible business case and he is the ROI.
Staffing considerations
Let’s start with the business case of adding headcount. This move only makes sense if it adds value to the organization and offsets the additional financial burden. The average maintenance technician spends 18% of his time searching for parts and tools, and 24-25% traveling to and from the job site.
All this valueless activity drives the average technician utilization to 17-24%. How can managers improve its utilization and create a business case that demonstrates ROI?
One of the key reasons for this low productivity is lack of maintenance planning and scheduling. In this scenario, managers have a choice. One is to drive from within. The argument for promoting from within and moving veteran technicians into the role of planner is that the move takes skilled people away from the tools. That’s a valid point, but history shows that the gains in utilization for other techs far outweigh the losses.
Instead of each technician planning his own work, one of our best workers creates a quality job plan, ensuring that other technicians accomplish their tasks with the same level of quality. Developing a weekly schedule that combines preventative and corrective activities keeps staff fully engaged and increases utilization.
For example, a manager has a staff of 20 technicians with an average hourly wage of $50 and an uptime rate of 25%. Staff perform an average of 800 hours of maintenance work per week. A utilization rate of 25% means that out of the 800 hours he needs, he is only working 200 hours. Studies have shown that using the planner to create a quality job he plan and create a workable schedule increases utilization by approximately 50%.
Promoting one of the 20 technicians to the planner role increases utilization from 25% to 37.5%. It also increases her work week by 100 hours and him by 5,200 over the year, resulting in a $260,000 increase in utilization.
That’s the business case. ROI is increased utilization. Also, the department did not hire anyone and avoided salary increases.
The move left the department still short of the required 800 hours, but managers were able to optimize preventive maintenance (PM), kitting and staging materials, implement reliability-centric maintenance, and perform failure mode and impact analysis. You can consider other strategies to improve, such as Use technology to improve equipment.
tangible and intangible assets
The definition of an asset is any item or entity that has potential or actual value to organizations and technology. It is very important for organizations to understand where their money is being spent.
For example, technologies such as ultrasound, thermography, vibration analysis, and motor circuit analysis are all visible assets. Computerized maintenance management systems (CMMS), HVAC fault detection and diagnostics (FDD), and process and utilization improvements are considered intangible assets. Managers tend to struggle to identify, calculate and express cost avoidance and savings to top management.
Let’s start with tangible assets. To calculate her ROI with the highest accuracy, the manager should consider total revenue and total cost. Managers should consider annual ROI when comparing competing investments like-for-like. When calculating costs, calculate life cycle costs. This includes all costs associated with design, procurement, storage, installation, start-up, operation, maintenance, decommissioning and removal.
Consider thermography technology. Heat is often the first symptom of equipment damage or malfunction, so monitoring asset temperature levels should be a major part of your PM program. Infrared technology simplifies the task of quickly identifying abnormal conditions that require further evaluation. Technicians can use thermography to identify hot spots in electronics, identify overloaded circuit breakers in power panels, and identify roof leaks.
For example, the manager persuaded management to purchase two 500 MHz, 4-channel infrared (IR) scope meters for $15,000. The organization operates a facility with a roof area of 360,000 square feet. The roof is over his 22 years old and has had a few leaks. Estimates of the cost to replace the roof were up to $3 million.
An initial IR inspection identified a 1,208 square foot roof in need of replacement at a total cost of $20,705. The following year, another of his IR inspections found that the 1,399-square-foot roof needed replacing, costing $18,217.
The department initiated a roof IR inspection program and surveyed roofs annually. An investigation found that he had less than 200 square feet of roof that needed replacement in one of his next four years. As a result, his six-year total cost of repairing and maintaining the roof cost him less than $60,000.
If the facility were privately owned, the 5% interest on the first $3 million roof replacement cost would be $150,000 in the first year alone. Discounting $3 million in interest over 5 years, the simple cost avoidance and initial replacement costs ($3 million to $60,000) from an IR survey and repair would be $2,940,000. This figure does not take into account $3 million in interest. This could save you $500,000 to $800,000 in costs, depending on the interest you paid on the loan.
Intangible gains also prove to be advantageous. Whether an administrator is looking to install a new application or purchase or upgrade a CMMS, calculating ROI can help them make more informed decisions and You can get short-term and long-term benefits.
Investments in technology can not only improve employee productivity and uptime, automate processes, but also minimize early equipment failures. But without proper training and understanding, technology will only accelerate technician error. Again, the manager should create a business her case that includes her ROI.
Managers must consider a variety of issues when looking to add technology to their organization, including: Acquisition cost and implementation. Application impact on facility, training costs, re-engineering process, short- and long-term goals and objectives, and impact on organizational culture.
Managers can use two common ROI calculations. The first is net present value. This is the return the project will get at a particular discount rate. Ideally, this return should be high or positive. The second is the internal rate of return, which is the annual return on investment.
Consider the example of a large campus that was overspending on energy heating and cooling costs. A manager made his case for a business investing in HVAC FDD. As a first step, faults within several large air handling units were identified. A failure can reduce system efficiency by approximately 20%, increasing unit uptime and inability to meet the cooling load demands of the space.
Managers set a baseline of current average monthly costs for comparison before and after implementing FDD. The original monthly estimate for cost savings was approximately $18,000. After installing an HVAC FDD system, it was discovered that there was an imbalance in the airflow.
By modifying the circulation pump operation in the air handler heat recovery loop, actual cost avoidance averaged $20,160 per month, a reduction of 12%. This was an annual cost savings of $241,920. The industry average for energy cost savings was 8-15%. Early HVAC FDD systems are priced between $500 and $1,000 per unit.
Whatever a manager calculates as a financial return, reduction, or avoidance, ask someone in finance to review the calculations and validate the numbers, because top management in the first department will require them to make sure the numbers are financial need to let If the finance department said they had already worked out the numbers and agreed, the manager might have won the battle and the war.
Managers who use their wisdom and understanding to identify facility improvements for tangible or intangible assets, build business cases, and demonstrate financial ROI to management can make these the best of times.
Andrew Gager is CEO of AMG International Consulting. He is a professional consultant and facilitator who has worked with organizations for over 20 years to achieve their strategic objectives and goals.
Related Topics:
