You already know the benefits of a CMMS. It increases efficiency and reduces stress. The streamlined work order process and interactive floor plans put technicians where they need to be, accurate inventory tracking gives them the parts they need when they need them, and work orders rich in data kept up-to-date in real-time boost their time on wrench.
It’s all stuff we’ve talked about before. We’ve also talked about how challenging it can sometimes be to convince the front office that the company needs to invest in a CMMS. The problem is the maintenance department tends to be seen as a cost center, which can be a fancy business term for “necessary evil.” The result is the front office wants to budget as little money for your department as possible.
Well, we’ve got you covered. Actually, we had you covered before when you came out with a e-book on calculating ROI. Then we had you covered again with a blog post about the e-book. But now: total coverage.
CMMS ROI, now even easier
Hippo’s new online ROI calculator puts all the reasons you deserve a CMMS into a simple, easy-to-understand number. Return on investment tells you, and the front-office folks, how much a CMMS is going to save you.
Let’s go through the ROI calculator together. I’ll include all the questions as well as the little hints that pop up when you hold the cursor over the little i icons. I’ll also include some extra explanations to make sure that when it’s all said and done, you’re getting the most accurate ROI possible.
Don’t get discouraged if you don’t know some of the answers right away. There’s no time limit on the calculator. You can always make a quick phone call to track down some information before coming back and finishing.
Here we’re going to figure out labor costs for your department. Remember, it’s just your department, not the whole company. That’s good news; there’re fewer numbers to track down.
The first two questions are very straightforward.
How many full-time employees do you have?
What is the average hourly wage of a full-time maintenance employee?
How many part-time employees do you have?
Don’t worry about third-party vendors. Basically, if they don’t have a company time card with their name on it, don’t include them.
What is the average hourly wage of a part-time maintenance employee?
Spare Parts and Inventory
Now we’re going to look at inventory for your department. In most cases, that’s all the spare parts and materials you use for both planned and on-demand work orders.
The first questions are related to spare parts.
How much do you spend monthly on replacement parts?
Just add up the prices for all the replacement parts that were used.
How much do you lose monthly due to inventory loss and theft?
Start with a percentage. Five percent a month? Multiply 0.05 by the answer to “How much do you pay for replacement parts?”
Loss is generally from when inventory becomes too old to use, either because it’s degraded or obsolete. For example, you might have replacement hoses that are so old the rubber has started to crack. Or they might only fit a machine that’s been retired. Unfortunately, this sort of inventory often collects dust on the shelf before finally getting thrown out.
How much do you pay monthly to expedite parts orders?
Add up the rush shipping charges. Then add up what it would have cost if you’d sent everything by regular delivery. Subtract the two numbers.
For example, with express overnight, it cost you $55 just in shipping for a replacement belt. Usually, you pay $10 for ground freight. So, this one shipment cost you an extra $45 in shipping. Now look at every time over a month you spent more on shipments than you usually would and then add up all the additional costs. Keep in mind it’s only the shipping. Don’t include the prices of the parts themselves.
What is the salvage cost of inventory (if any)?
How much could you get for your department’s inventory if you had to sell it tomorrow? Add up the inventory’s resale values.
You don’t need to worry about the exact meaning of “salvage cost,” which is an accounting term. Just imagine you had to sell your department’s existing inventory on eBay. How much could you get for it? Don’t worry about what you paid for it. You need to decide what you could get for it now.
If you’re curious: Salvage cost is used by accountants to calculate depreciation, which is the amount of value something loses over its useful life. Let’s say right now you could sell your car for $5000. What about next year? Considering the additional wear and tear and the fact it’s one model year older, let’s say $4200. And the year after that? Less than the year before. Eventually, you’re going to get to a number close to zero. But remember that a scrap metal dealer will give you something even for a car that’s been in an accident and is a complete write-off.
When we talk about downtime here, we mean the bad kind. It lowers productivity and raises blood pressure.
How many hours of unplanned downtime in a month?
There’re likely all kinds of downtime in any given month. You might be only running one or two shifts a day. There could be planned downtime when the line gets stopped to give the maintenance department a chance to complete PMs. Don’t include this in your calculations.
How much revenue do you lose per hour of downtime?
You might have to ask someone in the front office for this information. You need to know how much the company loses during one hour of unplanned downtime.
How many labor hours are spent on reactive, unplanned maintenance each month?
You can find this adding up all the hours of labor from a month’s worth of work orders. If you’re not yet closely tracking labor hours (and if you’re not, this is another great reason why you need a CMMS software), you can get a bit creative. Multiply the total number of labor hours (you can get this based on payroll) by the percentage of work orders that are reactive, on-demand.
For example, if you have 100 work orders and 30 of them are PMs, then 70% are on-demand. If you had 200 hours of labor, 70% of that total (200 X 0.7) is 140 hours. So, your department is spending 140 hours on reactive, on-demand labor.
There’s only one quick question in this section.
What is the capital value of existing equipment?
Add up the values of the pieces of equipment. Instead of original price, use how much you could sell them for right now. We’ve already looked at the value of your existing inventory. Here it’s the same thing, but now for assets. It’s not what you paid for them. It’s what you could sell them for now.
If you’re not sure, it’s a good idea to ask the front office. They’ll likely know exactly how much the equipment is worth, which is not surprising. Your job is knowing how to fix it. Their job is knowing how much it’s worth.
Congratulations, you’re all done!
Once you’ve punched in the numbers, the calculator does the rest of the work for you. Sit back, enjoy a well-deserved cup of coffee, and wait for the answer.
If you have any questions about the results, feel free to reach out. We’d be happy to go over everything with you. To know more about how to calculate CMMS ROI read : Calculate CMMS ROI in Three Easy Steps. You deserve a CMMS, and we’re here to help you get the one that’s right for you and your department.