Calculating the ROI of a CMMS

Calculating the ROI of a CMMS

2022-06-24
Jeffrey Taavettilan-Davis

Implementing a Computerized Maintenance Management System (CMMS) allows maintenance teams to move from a reactive to a proactive maintenance strategy. A proactive strategy is the key that allows organizations to reduce maintenance costs and improve the lifespan of assets. A good CMMS system allows managing and controlling all maintenance activity and both Inventory and Purchasing activity. All departments need to have the abililty to make more informed business decisions over time. With the shift toward automated maintenance and Industry 4.0, management can simplify maintenance tasks and make the organization more cost effective. CMMS Systems can simplify this process and give users, supervisors, managers, divisions and corporate a full and appropriate visibility into the organization's assets. Properly implementing a CMMS system saves both time and money for all levels of users, and gives everyone the appropriate information at their fingertips.

CMMS ROI Definition and Formula
As with any business investment a Return on Investment (ROI) is expected. A CMMS system must perform and realize a return. A CMMS is not just a one time cost, but instead the Total Cost of Ownership that includes both initial and ongoing costs. Implementing just a Preventive Maintenance (PM) system can generally easily lower organizational costs by 12% to 18%. The formula for determining the ROI of a CMMS is:

CMMS ROI = ( VALUE - COSTS / COSTS )

Questions to answer before calculating the CMMS ROI

What is the organization's Planned Maintenance (PM) to Corrective Maintenance (CM) ratio?
What information are supervisors requesting?
What data and reports would make the job easier?
Where does most of the maintenance budget get spent on?
What is the desired Planned Maintenance (PM) to Corrective Maintenance (CM) ratio?

Calculating the Cost of a CMMS
The cost of a CMMS is not limited to just the initial purchase price. There are many factors to consider when estimating the cost of implementing a CMMS which include:

Initial Purchase Price
Initial Implementation Costs
Initial Training Costs
Ongoing Support Costs
License and/or Upgrade Costs
Hardware Costs (computers, servers, tablets, phones, handheld units, equipment sensors)
Other software costs and licenses for the hardware

Metrics used to determine the value of a CMMS
To have value there has to be cost savings associated with a CMMS. These are the main factors to consider when determining the value of a CMMS:

Asset Lifespans. Estimate the number of years that preventive maintenance is expected to extend the asset lifecyles and compare to the purchase price.
Overtime. Calculate the average amount of hourly time, plus wasted time and overtime due to unanticipated and unscheduled repairs (emergencies).
Downtime. Calculate the estimated labour and the production time lost due to unanticipated repairs (emergencies).
Productivity. Calculate the amount of time spent manually generating work requests, work orders, inventory orders, scheduling maintenance teams and generating reports for different management levels, looking for inventory or purchased parts.
Inventory. Calculate the average amount of time in labour and lost production due to insufficient inventory, lost/misplaced inventory and any emergency breakdown purchases.
Utilities. Calculate the average amount spent on utilities compared to the amount that would have been spent if HVAC Systems and other assets were operating at efficiency levels.
Document Management. Calculate the amount of time spent creating, filing, copying, searching or finding documents.

Collectively these amounts represent the value of a CMMS and calculating the ROI is done by placing the above metrics into the CMMS ROI formula.

ROI Payback Period
Not only is it necessary to know that a CMMS will be profitable to the organization, determining how long it will take to recoup the investment is also important. The ROI Payback can generally be determined by taking the following metrics over one year and then divide by the overall CMMS costs over three years. The result will be an estimate of how long it will take to realize an ROI.

Estimated number of minutes spent on requesting work to be done each week * the labour cost * 52 weeks
Estimated number of minutes spent creating work orders each week * the labour cost * 52 weeks
Estimated number of minutes spent on scheduling / scheduling changes each week * the labour cost * 52 weeks
Estimated number of minutes in overtime per week spent not spent on PMs * the labour cost * 52 weeks
Estimated cost of both labour and parts spent on equipment that is still under warranty
Estimated number of minutes spent on unreported work done each week * labour cost * 52 weeks
Estimated number of minutes spent per week looking for parts * the labour cost * 52 weeks
Estimated fees spent for rush shipments of parts
Estimated time spent manually producing reports for management * labour cost
Cost per minute of downtime - estimate of annual hours
Estimated number of minutes spent on looking up work / request / purchasing history each week * the labour cost * 52 weeks

Is it worth the cost to Implement a CMMS?
Yes a CMMS is a worthwhile investment for an organization. However not all CMMS Systems are the same or offer the same value. A CMMS system should be easy to setup, easy to use, but complex in functionality to handle an organization's current and future needs. DynaStar™ is a cost effective solution that will improve operations and reduce costs.

When times are tough, implementing a CMMS can help reduce organizational waste, improve the bottom line and increase the organization's financial picture. When times are good, implementing a CMMS will do the same, reduce organization waste, improve the bottom line, and further increase the profit of the organization.

Looking for a CMMS/EAM?
Contact DrekiTek™ Sofware Solutions Ltd today, for a demo of DynaStar™ or
to learn more about the services we can provide your team.

Our whole team will always work to provide support and
software that empowers your team.

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