3 Easy Steps to Calculate Expected CMMS ROI
Computerized Maintenance Management Systems (CMMS) have become increasingly attractive to companies spanning many industry sectors including Health Care, manufacturing, hospitality, etc. The primary motivation for the shift toward automated maintenance management is simplifying the maintenance tasks involved and in turn, making them more efficient and cost-effective. By customizing these systems to help businesses reach their growth objectives, managers can factor in the everyday costs of a maintenance operation and allow them to make better-informed business decisions across time. Since no two companies are alike, it is important to seriously consider what a CMMS will be used for and to take this into account when deciding about moving forward with an automated maintenance management approach. Systems vary in the features offered so finding the one that meets a company’s current and future needs is critical.
The bottom line is, since a CMMS software is both a financial and energy investment, it must do its job as well as realize a return on investment (ROI) to be considered worthwhile. Return on investment (ROI) measures the gain or loss generated on an investment relative to the amount of money invested. ROI is usually expressed as a percentage and is typically used for personal financial decisions, to compare a company's profitability or to compare the efficiency of different investments.
When considering maintenance management software, the formula below can be used to calculate a company’s ROI:
CMMS ROI = (VALUE-COSTS / COSTS)
The formula metrics also identify the steps involved in calculating the ROI for any company. Here is a breakdown of each.
1. Consider the CMMS costs
As noted, the cost of maintenance management software is not just limited to the subscription fees alone. Here is the list of factors to be considered in estimating the total cost of an automated system:
- Initial cost of software
- Initial implementation costs
- User training
- Support and upgrade costs
- License renewals
- Necessary hardware (computers, mobile devices)
Many of the costs noted above vary based on the maintenance management options and vendor
2. Consider the CMMS value
For an automated management system to have value, it must have cost savings associated with it. These are the potential value-laden factors to consider:
- Asset lifespan – the estimated number of years expected to extend the life cycle of a piece of equipment through scheduled CMMS preventive maintenance, thus reducing unexpected downtime and system failure.
- Over time – the average number of labor hours (including overtime to attend to unanticipated and unscheduled repairs) when preventive maintenance has not been conducted
- Inventory – the average number of labor and production hours lost due to insufficient inventory and emergency purchasing; these are hours saved when a CMMS tracks and optimizes inventory supplies preventing over and under stocks of items
- Downtime – the estimated labor and production time lost to unscheduled preventative maintenance
- Utilities – the yearly amount spent on utilities compared to the expected costs anticipated if HVAC and other assets were operating at maximum efficiency because of routine preventative maintenance
- Productivity – the amount of time spent on manually generated work orders, reports, inventory orders and maintenance scheduling
- Document management – the amount of time required to create manually, file, copy, search and retrieve documents
The estimates generated from these factors collectively amount to the value of maintenance management software. Calculating the overall ROI is done by placing these metrics into the formula. The result will determine if investing in a CMMS is worthwhile. Use Hippo's ROI calculator and know your ROI on CMMS today.
3. Estimating the ROI payback period
It is not enough to know that a CMMS will be a profitable investment; determining when that investment can be recouped is equally critical. To make that determination, consider the following factors across one year, by the number of units and by cost. Total these estimates and then divide by the overall CMMS costs across three years. The result will provide an estimate of how long it will take before an ROI is reached.
- Minutes spent manually writing work orders each week
- Estimate overtime minutes per week for non-PM work x # people
- Estimate of labor and parts spent for equipment under warranty
- Estimate of minutes spent weekly on scheduling or scheduling changes
- Estimate of minutes spent on work not reported per week x # people
- Cost per hour of downtime- estimate of annual hours
- Estimate of minutes per week looking for parts x the number of employees
- Estimated fees for expedited parts
- Estimated time manually producing reports for management
Deciding to move to an automated maintenance management system is an onerous one. As noted, apart from the financial investment and commitment to be considered, there is also the time and energy costs associated with setting it up that need to be assessed. A realistic determination can only be made after thoroughly researching available CMMS products based on a company’s needs and then weighing current operational costs without a management system against what can be expected when one is in place.