Justifying the Cost of a CMMS - ROI Calculation

Originally posted by Eagle.

Calculating your return on investment (ROI) is critical to knowing on which side of account you stay. According to statistics, computerized maintenance management systems can help companies save between 10 and 15 percent of their annual maintenance budgets. But due to the cost of CMMS solutions, many companies are skeptical about implementing one.

The cost of a CMMS system can be easily justified. In addition to helping maintenance managers and facilities track expenses and compare them against budget allocated by different cost centers, a CMMS also allows you to justify next year’s budget for personnel, contractors and/or purchases.

But the benefits of CMMS systems go much further than that – keep reading to find out how they can help you increase your ROI, and what justifies their cost.

Benefits of a CMMS

1. Track Expenses and Compare Them Against Your Budget

One of the most notable benefits of computerized maintenance management software is the ability to track expenses and compare them against your budget. A CMMS system logs parts, labor, and other miscellaneous expenses when maintenance work orders are being completed. In short, it becomes a central database for all maintenance related expenses.

With a computerized maintenance management system, maintenance managers will never have to troll through receipts and dockets. Running a cost report in your CMMS system will be enough to see where your budget was spent. This will further contribute to assessing next year’s budget for personnel, contractors and/or purchases (see #2).

2. Justify Next Year’s Budget for Personnel, Contractors and/or Purchases

In addition to helping you track your expenses, a CMMS system enables you to reduce overtime costs, equipment breakdowns and also increase asset/machine life. At the same time, a CMMS improves inventory control which helps lower the cost of the inventory and continues to maintain an optimal service level of at least 95 percent.

According to Reliabilityweb.com, a CMMS system can decrease material costs by 19 percent and inventory control costs by 18 percent. By reducing these costs, you will have flexibility within next year’s budget for personnel, contractors and/or purchases.

Since maintenance is typically performed during outage, maintenance is conducted at the expense of production. With the use of CMMS, facility managers can achieve an average of 5 percent reduction in outage time as a result of shortened downtime. The result? A markedly beneficial effect on the overall operational efficiency, also known as OOE.

When maintenance managers stop spending so much on maintenance, the money can bet directed to other areas, such as personnel, contractors and/or purchases.

3. In-House Employees vs. Contractors – or Both?

Since a CMMS allows for efficient cost tracking, maintenance managers can easily determine whether they should use in-house employees or contractors. Given that every piece of machinery is actively monitored to prevent breakdowns, allowing for less use of contractors.

How many labor hours per week are wasted waiting for work orders and revisions, waiting for parts, rescheduling work orders? By reducing emergency maintenance, maintenance managers can implement more reliable work order scheduling, and determine whether they should use in-house employees, contractors, or a mix of both.

4. Costs Are Known for Each Work Order

Every CMMS software includes a work order section that allows facility managers to define costs and charges associated with work orders. Costs can be broken down by estimated or actual costs. Usually, the different costs that can be defined include labor (employee and/or contractor work cost), materials (stocked or non-stocked parts), and other costs like truck rentals and meals. When work orders are successfully completed, you don’t have to go through the same process of determining its cost because it’s been already settled from the beginning.

The CMMS ROI Calulation

A CMMS software includes a work order section that allows facility managers to define costs and charges associated with work orders. Costs can be broken down by estimated or actual costs. Usually, the different costs that can be defined include labor (employee and/or contractor work cost), materials (stocked or non-stocked parts), and other costs like truck rentals and meals. When work orders are successfully completed, you don’t have to go through the same process of determining its cost because it’s been already settled from the beginning.

The basic tenet CMMS takes in its approach is the following calculations:

When calculating the ROI on any project, first put in the figure for the total benefits, subtracting the total costs you have to invest in the project, then divide by total cost, then multiply by 100. This will yield the ROI or percent of your return that you invest on a given project.

Why a CMMS?

Something this important, where you are investing a great deal of money in a project, requires absolute correctness in your calculations, as well as a system that will be able to predict within a small margin of error what the results will be.

CMMS software offers the solution for businesses who know that they should invest but expect a high ROI. In essence, it reduces the risk of such investments and makes calculating CMMS ROI simple and straightforward. This is the essence of ROI calculation, which has as its goal not only to get it right but to produce an increase in your bottom line. After all, isn’t that the ultimate goal for your business?

‍