Asset performance management is essential to achieving operational excellence. What is your ROI?

A CMMS/EAM (Enterprise Asset Management) is a complete solution for managing preventive and corrective maintenance. This type of solution provides, through the management of maintenance, inventories/stocks, and purchases, greater visibility and automation of processes according to our requirements as an organization. In turn, it is the cornerstone of the maintenance strategy and allows us to adapt to the internal processes of companies and various sectors, integrating and automating their maintenance processes under established workflows and approvals.

Therefore, by increasing the visibility of maintenance history, inventory, and acquisitions, through the implementation of a preventive and corrective maintenance program, we can maximize the return on investment of our assets.

I But how can we assess the return on investment (ROI) of a CMMS/EAM implementation project?

Industrial organizations seek to optimize production while also trying to improve operational profitability. To do this, they must use current technology as an ally to establish an optimization strategy in order to obtain maximum performance.

The CMMS/EAM Asset Performance Management (APM) solution allows our clients to gain a clear understanding of the current state of their business and where improvement opportunities will provide the fastest financial return. Our action strategically integrates the alignment of people, processes, and systems (IT and OT) oriented towards the same goal and under the same platform.

In response to our question of how can we assess the ROI of a CMMS/EAM implementation project?, we will try to help provide an answer.

Establishing the return on investment (ROI) for the implementation project of a CMMS/EAM consists of demonstrating to the organization the value generated in maintenance activities and in the rest of the organization by applying said project. It involves justifying the allocation of resources for maintenance activities and how they will contribute to the generation of results, whether quantitative or qualitative.

Each effort made by a company in a CMMS/EAM implementation must be measured in terms of improved productivity and results obtained from the amount invested in it, and to assess this action, we have the ROI.

The ROI (Return On Investment) is the economic value generated as a result of the implementation of different actions. Therefore, this indicator allows us to measure the performance we have obtained from an investment, in this case, in a CMMS/EAM. By definition, the ROI is a financial ratio that compares the profit or utility obtained in relation to the investment made:

CMMS/EAM ROI = [(Profit – Total Investment) / Total Investment] * 100

• The ROI calculation can be performed before, during, or at the end of the project implementation. We advise that it always be done before and at the end, at a minimum, to compare both indicators.
• The return on investment formula contains two fundamental variables: investment made and benefits in a given period.
• The total investment: in the investment in CMMS/EAM Licenses, the investment in the implementation of the solution by an APM Integrator, and its own investment in application time in the project. This investment value will be mainly limited by the scope of the project, but its assessment will be relatively easy.
• The quantification of the benefits of applying a CMMS/EAM is a little more difficult to calculate, but no less evident, especially because in many cases it is not so common to measure the productivity of a process if you do not have the appropriate tools and, therefore, it is difficult to measure that improvement. The benefits generated by the CMMS/EAM project can be divided into quantitative and qualitative.
• The quantitative ones (those that we can measure/assess) we can establish them if we have tools to measure and account for how much range of improvement I can obtain with the implementation of the project. If we cannot apply a direct measurement technique, we have indirect techniques to make an estimate, measuring the variation of the consequences that a process improvement has produced. (E.g. Hours of unscheduled downtime caused by maintenance, unnecessary administrative management times, purchases of stocks that are not applied and are in storage, etc.)
• The qualitative ones are more difficult to determine, and we will have to apply approximations or indirect techniques to reach their numerical approximation, but surely their quantification will be much more difficult. (E.g., quality losses before knowing an incident, problems generated in the various departments when having an unscheduled stop, order, control, etc.).

Therefore, there are multiple values that make the investment profitable in a CMMS/EAM project, but to a greater or lesser extent they will be difficult to quantify. Nobody said it was easy, but experience in maintenance does not help to appreciate the advantages it entails:

1. Benefits in quality and safety. Investment in maintenance implies greater safety for users of facilities and equipment. As well as a better product quality, which translates into less work and costs. A more efficient system means lower costs, which will translate into a competitive advantage.
2. Benefits for greater availability. Better use of assets will increase production capacity. Reducing the likelihood of failures in systems and facilities also leads to less frustration for various customers, whether internal and/or final.
3. Financial benefits. Thanks to the reduction in the use of spare parts and greater productivity of the facilities; freeing up working hours and reducing hours of unavailability. This optimization improves cash flow and contributes to the profitability of the owners.
4. Reduction of unnecessary administrative processes. Direct management of work orders through a mobile tool and the administrative support provided by a CMMS/EAM will greatly help us reduce the management, organization, and planning of maintenance work.
5. Energy Reduction. Optimizing the preventive maintenance of machines allows, for most mechanical equipment, to reduce the amount of energy between 5 and 10%. In turn, if we connect our CMMS/EAM with the equipment, we can monitor the status of these and their consumption, acting proactively and automatically when deviations occur.

I What Does the ROI Result Indicate to Me?

When a company considers a project of this type, it is clear that the ROI will be positive. A positive ROI means that the performance generated exceeds the investment made to obtain it in the period that has been considered in the calculation. Therefore, it is a very desired situation but rarely possible in a short period of time. Depending on the size and operational characteristics of the company, this could translate into huge annual savings.

As we have already mentioned, we know that it can be complicated to calculate the ROI of a project of this type, given the complexity that can lead to quantifying the benefits provided, but in order to shed some light on the calculation of the ROI, it will be necessary to assess the results of the A.Kearney Report.

A. Kearney, published in Industry Week magazine a customer satisfaction survey with 558 companies that used maintenance management software (CMMS). The report revealed that through a CMMS, a company could significantly reduce the number of breakdowns and the loss of time resulting from the lack of parts stocks. The companies surveyed contributed the following benefits to the report:

• 20.1% reduction in equipment downtime
• 19.4% savings in material costs
• 17.8% reduction in MRO inventory spend
• 28.3% increase in maintenance productivity.
• Average return on investment “Payback” time of 9 months for a PC-based system

Sources: Better Buys A.T. Kearney’s and Industry Week’s survey of 558 companies.

On the other hand, the French Association of Engineers and Maintenance Managers (AFIM) published several studies indicating the following contributions:

• Reduction of 20 to 30% in preparation times.
• Reduction of 10% to 40% in interventions.
• Possible extension of the useful life of equipment between 20% and 50%
• Reduction of the energy required between 5 and 10%
• Reduce the value of stocks between 10% and 20%
• Reduction of supply costs between 5% and 10%

Sources: https://www.afim.asso.fr/

In addition, the 2020 Benchmarks & Best Practices for Maintenance Management Report indicates that 88% of facilities that have implemented a CMMS/EAM report significant cost savings, ranging from tens of thousands to millions of dollars.

Sources: https://www.accruent.com/resources/ebooks/2020-benchmarks-best-practices-maintenance-management

In Summary

Establishing the return on investment (ROI) for the implementation project of a CMMS/EAM can be, to a greater or lesser extent, complicated and/or costly if certain tools are not available.

Experience confirms that depending on certain variables (company size, risks, maintenance organization, state of maturity, etc.) we can determine the advantages provided and savings that can be obtained with the implementation of a project of this type.

Do you want to know how a CMMS/EAM can add value to you? Do you want us to help you know the ROI of your CMMS/EAM project? Contact Wonderware APM.

CONTACT US