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When considering the purchase of enterprise level physical asset and maintenance management software the driving factor should be determining what type of return you will receive for your investment (ROI). This article will briefly discuss the more important ROI elements as well as how to use an ROI calculator to estimate the cash flow impact of a CMMS system.

Maintenance, Energy and Documents ROI

The ROI that is calculated should be based upon a combination of savings generated from each crucial cash drain area such as maintenance, energy or documents management. Each of these areas can be significantly impacted by a properly implemented CMMS system.

Maintenance

Maintenance is one of the core functions of every asset intensive industry ranging from amusement parks to wastewater utilities but also includes assets managed by Federal, State and Local governments. CMMSsystems are an important tool for changing reactive maintenance programs into efficient proactive work management operations.

“As a general rule, for every dollar spent on preventive maintenance, you will save at least five dollars in subsequent expenses.”

Source: Kansas State University

Good work management practices include the planning and scheduling of preventive maintenance, inspections, repairs and the flexibility to handle unscheduled maintenance as it arises. These maintenance practices can bring in between 12 and 18% in cost reductions for organizations relying on reactive maintenance.

The ROI math is (Annual maintenance costs) x (% savings)= Maintenance savings

Further expense reductions using a CMMS system can be realized by increasing the mobility of maintenance staff. Increasing mobility is employing the use of mobile handheld devices that reduce the amount of time filling out paperwork for work management tasks.

“Hospitality IT decision makers have made it clear that mobility is no longer an option but a necessity to survive in an increasingly competitive market… Motorola’s hospitality barometer indicates that the mobilization of key applications enables organizations to save or recover a daily average of 44 minutes per employee”

Source: Frank Riso, Motorola

The ROI math is (# employees) x (hourly rate) x (# of workdays per year) x (minutes saved/60)= Time saved by mobile software.

Energy

Energy use in commercial buildings often accounts for more than 25% of operating costs. In some industries, such as Hotels, it is not uncommon for a moderate size hotel to spend $1 million annually on utilities (gas, water and electric).

“On average, America’s 47,000 hotels spend $2,196 per available room each year on energy. This represents about 6 percent of all operating costs. Through a strategic approach to energy efficiency, a 10 percent reduction in energy consumption would have the same financial effect as increasing the average daily room rate (ADR) by $0.62 in limited-service hotels and by $1.35 in full-service hotels.”

Source: EnergyStar

Although each type of facility varies, HVAC is clearly one of the major opportunities where substantial energy savings can be found. Regularly scheduled cleaning or changing of filters, corrosion inspections and other preventive maintenance techniques allow HVAC equipment to operate at maximum efficiency using between 15-20% less energy.

 

The ROI math for a hotel is (# of rooms x energy cost per room) x (the amount of energy reduction) = HVAC energy savings

Document Storage and Handling

The costs of document management is one of the most overlooked expenses for organizations. Much of an organizations documents are a result of asset purchases and include items such as contacts, warranties, vendor information, blueprints and schematics.

“Companies spend $20 in labor to file a document, $120 in labor to find a misfiled document, and $220 in labor to reproduce a lost document.”

Source: Coopers & Lybrand

Document handling costs may include storage, copying, search and retrieval as well as distribution. For most organizations determining the amount of time spent on each of these activities is an administrative nightmare. Fortunately, there has been a lot of research already done which indicate that costs associated with document handling can be broken down as follows:

  • Services, supplies and Space – 11%
  • Space and equipment – 19%
  • Labor – 70% 

An CMMS document management tool can reduce the costs associated with asset management by allowing any document to be scanned and attached to an asset. Documents can then be retrieved or sent with a work order at the push of a button.

“U.S. managers spend an average of 4 weeks a year searching for or waiting on misfiled, mislabelled, untracked, or lost papers”

Source: AIIM, Forrester, Star Securities, US Department of Labor

The ROI math for document storage and handling is (cost of lost documents + the costs of misfiled documents)

A More Detailed Look at ROI

The ROI calculations shown above are simple views and do not include many of the intangible costs associated with a true investment decision. However, when the three areas of maintenance, energy and documents are combined they do provide a good estimate of the savings potential of implementing a CMMS system.

For more information on each of the three areas we have prepared a presentation for you that looks a little deeper into maintenance, energy and documents savings potential with an CMMS.