Dollars: The Only Real Measure of Equipment Effectiveness
EP Editorial Staff | October 2, 1998
I’ve been talking so much about the necessity to build equipment effectiveness on a sturdy financial base that people are accusing me of being a “bean counter.”
I must admit it is a bit frustrating to believe very strongly in a concept that others may not consider especially important. After numerous discussions and presentations over the past couple years, I’ve decided to try a sports metaphor to better explain the opportunity, challenge, and threat.
Ever consider how sports might change and how differently they would be played if no one cared about the score? Think about football. Fourth and goal with 40 seconds to play. There will be major differences in the play call if the team with the ball is behind by 2, behind by 3, behind by 4, or ahead by 20. Consider set and match points in tennis The point is played very differently if the score is 40-love or love-40. Almost any sport you can think of is the same. Watch the last minutes of a close professional basketball game and try to convince anyone that score doesn’t matter.
You may be thinking all this is very interesting but how does it apply to maintenance? I believe the answer is simple. Maintenance is scored in financial terms by those who count–the people who sign your checks. Maintenance costs as a percentage of replacement asset value is one widely used measure–there are others. Whether you agree or not, are comfortable or not, the fact is that we and our effectiveness are scored by money–how much was spent last year, how much will be spent this year, and if B is greater than A, your job may be in jeopardy.
Most equipment practitioners aren’t allowed to spend money without a guaranteed return of at least 30 to 40 percent. And this is why the so-called streamlined reliability centered maintenance (RCM) has become popular. RCM without initial prioritization can be hugely expensive. There are many stories of an expensive RCM that resulted in added maintenance to avoid unlikely failures on nonvital equipment with a long history of reliability operation and low cost of failure. Keith Mobley recently wrote of a survey where nearly 51 percent of respondents reported their predictive maintenance programs did not return costs.
What’s wrong in these pictures? The answer is that many people measure success in technical terms such as preventive maintenance completed, regardless of whether value is added and flawed bearings are identified and replaced. When dollars are the only score with any importance to executives, measures like these are like having the best passing statistics on a winning football team.
Most people are well aware of the characteristics and pitfalls of a cost center. In a cost center, everyone knows the reward for ending the year under budget. Foolish action taken late in the year to avoid finishing below budget was recently illustrated in the comic strip rendition of management incompetence–Dilbert. If our game is being scored in dollars, let’s figure out a way to use the scoring system to demonstrate conclusively that we can make more money for our companies by using better methods.
As mentioned, cost per replacement asset value is a frequently used scoring measure for maintenance effectiveness. This measure says we must reduce costs to some arbitrary value. What would be the reaction if we could begin from this measure to demonstrate conclusively that we could make more money for our company by playing the game from a profit perspective? The game would be scored on effectiveness measured in opportunities gained, increased output, quality, and profit rather that cost. Some are doing just that with spectacular results.
In a prior editorial I mentioned economic value added (EVA) as a more comprehensive measure of value and equipment effectiveness. The complete paper is posted on the MIMOSA web site: www.mimosa.org. If you think we ought to be playing a profit center game and scoring results in terms of effectiveness, please take a look and let me know what you think about EVA and producer value as a beginning. It certainly isn’t the complete answer but it’s probably part of the answer.
I’m convinced that if we want to be recognized for our contribution to enterprise profitability, we need to change mentality from cost to profit, and demand a scoring system that conclusively demonstrates real contribution in financial terms. MT