Should You Measure Maintenance Costs?

Don Armstrong, Veleda Services

Maintenance is a cost of doing business and is required to be reported as such in your financial statements. In manufacturing plants, it is common for all maintenance costs to be charged to work orders, which are in turn charged to assets, usually at the equipment or functional location level. In some facilities, all costs, including labor, are charged to work orders. This process requires extensive and costly administration.

As with any other measurement, the purpose of measuring maintenance costs is to compare actual equipment maintenance costs to some target and to take action when the difference is significant. Most commonly, that action will be to rebuild, redesign or replace the equipment.

However, for fixed manufacturing equipment, the cost of maintenance is seldom a reason for such action. Major rebuilds, redesigns or replacements usually occur because the equipment is unreliable, has operating costs that are too high, can no longer manufacture a product that can compete in the marketplace, can no longer meet changing environmental standards, or requires too much downtime for routine inspection and servicing.

It is unusual for the cost of maintenance itself to be a significant factor. If maintenance costs for a specific equipment item are thought to be too high, it is extremely likely that the equipment is also unreliable, and the cost of the losses resulting from that unreliability is many times greater than the maintenance costs. For this reason, it is much more important to measure reliability than it is to record the cost of maintenance.

Also, work order records of maintenance labor costs are notoriously unreliable for several reasons, such as the people who enter labor records in the maintenance computer system recognize that this information has minimal value and as a result sometimes make little effort to ensure accuracy.

Because detailed work order labor cost records are unlikely to have sufficient value to justify the recording cost, the practice of charging maintenance labor to area accounts is probably the most sensible approach. It is quite different for most mobile equipment, where maintenance costs may be the most significant factor when making decisions to overhaul or replace units.

For infrastructure in manufacturing plants and especially service institutions, maintenance costs are critical, although the decisions that maintenance cost information may drive are more subjective and based on management standards. For example, the decision on whether to paint a facility every five years or every 10 years will normally be driven by a subjective assessment of appearance rather than a need to protect the structure.

Finally, the budgeting process in many publicly funded institutions requires that maintenance and redesign activities are charged to different accounts, which significantly increases the administrative cost as well as the importance of accurately recording maintenance costs at the work order level.

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About the Author

Don Armstrong is the president of Veleda Services Ltd., which provides consulting and training services to maintenance departments in industrial plants and i...