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Justifying an Asset Management Software Purchase
- Nov 16, 2011
How Your Organization Can Benefit:
The concept of spending money to save money makes perfect sense when the savings are substantial and involve not only money but time as well. Taking advantage of this potential savings can only take place once a convincing argument has been made to management to fund the project.
Quantifying the benefits:
The best way to justify the initial costs of implementing a fleet maintenance management program is to quantify the benefits.
Intangible benefits (time savings, improved efficiency, etc) are important, but since they are difficult to quantify, our focus will deal with putting a dollar figure on tangible benefits.
Taking an overall view of the operational benefits of complete fleet maintenance software involves several assumptions:
- We will assume that a training program will be an integral part of the implementation process.
- We will also assume that your organization will configure internal procedures to take full advantage of the fleet maintenance program.
While not absolutely necessary, implementing these assumptions will help achieve the highest ROI possible.
The formulas used here are applicable to nearly any organization. The numbers used in these examples are hypothetical. Numbers that more accurately reflect the current reality of your organization should be available with in your organization.
In many, if not most organizations, whether public or private, downtime has a major impact on the bottom line. Preventative maintenance procedures play a key role in limiting down time and its related costs. Downtime produces both tangible and intangible costs. The most damaging intangible cost includes lost business due to service failures.
An example tangible downtime cost is as follows:
If a company with a fleet of 100 vehicles typically has one vehicle out of service for unscheduled repairs each day at a cost of $1,000.00 per day (your figures may vary) will cost the organization $5,000.00 a week. A reduction in this unscheduled downtime by as little as 25% will result in an annual savings of $65,000.00 based on the following formula:
Cost = $1,000.00 x 5(days) = $5,000.00(week)
$5,000.00(week) x 52(weeks/year) = $260,000.00 (year)
Savings = $260,000.00(year) x .25 = $65,000.00(year)
A well-planned and implemented fleet maintenance management program should provide a greater impact on downtime than 25% reduction by identifying reoccurring equipment failures that may have gone unnoticed in the past. But even at this conservative estimate, the savings is substantial when compared to the cost of implementation.
Manage Staffing Costs
Fleet managers with internal shops know how important proper mechanic staffing is to the shops workflow. They also know that labor costs are a major expense. Implementing a comprehensive fleet maintenance program can effect a 10% or more savings on labor costs based on the experience of organizations that have implemented Asset Management Program.
Providing managers with a comprehensive PM scheduling ability gives them the ability to more precisely schedule maintenance staff.
This newfound precision can produce a tangible savings as described by the following example:
A shop employs 10 mechanics with an average labor rate of $25.00/hr. A 10% savings in labor costs generated by precision scheduling can result in improving productivity by 6 minutes each hour, which translates into an annual savings of $48,000.00 as described by this formula:
6 min/hr x 8 hrs/day ÷ 60 min/hr = 0.8 hr/day
0.8 hr/day x 240 working days/yr = 192 hrs/yr
Savings: 192 hrs/yr x $25.00/hr/employee x 10 employees = $48,000.00/yr
Extend Useful Life of Equipment
Proper preventative maintenance procedures play an important role in maximizing the useful life of your key assets. A fleet maintenance management program will give managers the tools they need to achieve a potentially substantial tangible benefit. The savings will vary based on asset type and usage.
The following example and formula will describe potential savings:
An organization has a 1997 Caterpillar D5H Dozer with a life expectancy of 15 years. Poor maintenance practices have cut the useful life expectancy to only 10 years. Implementing proper maintenance procedures will extend the useful life of the dozer to 14 years with a long-term savings of nearly $20,000.00.
Inflation rate = 3%
Cost of Capital = 8%
Replacement value today = $70,000.00
Replacement value in five years = $81,149.00
Replacement value in nine years = $91,334.00
Increase over four years = $10,185.00
Future value of $81,149.00 after four years= $110,402.00
Savings realized from delaying replacement purchase by four years:
= $110,402.00 – $81,149.00 – $10,185.00
Savings = $19,068.00
Clearly the tangible benefits and savings derived from properly implementing a comprehensive fleet maintenance program can be substantial. These examples are just a few in the long list of opportunities for improving operational efficiency and controlling costs with an effective Asset Management Program. Some of the other easily quantifiable benefits include; more precise inventory management, savings from improved fuel economy, savings on captured warranty work, and many more.
If your organization is currently working without a modern, comprehensive asset maintenance program, you’re probably spending money you don’t need to every day. Delaying the implementation of an Asset Management Program is far more costly in the long-term than the short-term costs of implementation.
See how Compliance Safety Manager’s asset management program can help:
Or contact us today and speak directly to a Craig Safety Technologies team member.