MC/RAV Metric Drives Improvement
Klaus M. Blache | May 17, 2018
One metric that can help target improvement goals is MC/RAV (Maintenance Cost/Replacement Asset Value), used by all types of industries and scalable to all sizes of facilities.
What does the metric really tell you? The formula and definitions below are consistent with the SMRP Body of Knowledge (used with permission):
Total Maintenance Cost/RAV (%) = [Total Maintenance Cost ($) × 100]/Replacement Asset Value ($)
Total Maintenance Cost (TMC) is the total expenditures for maintenance labor, including maintenance performed by operators such as total productive maintenance (TPM), materials, contractors, services, and resources. It includes all maintenance expenses for outages, shutdowns or turnarounds, and normal operating times, and also capital expenditures directly related to end-of-life machinery replacement so that excessive replacement versus proper maintenance is not masked. It does not include capital expenditures for plant expansions or improvements.
Replacement Asset Value (RAV) is also referred to as estimated replacement value (ERV), the amount of revenue required to replace the production capability of the existing assets in a plant. RAV includes production/process equipment, utilities, facilities, and related assets, and the replacement value of buildings and grounds, if these assets are included in maintenance expenditures. RAV doesn’t include the insured value or depreciated value of the assets, or the value of real estate. RAV should be determined even if the calculation is not exact. It should be measured consistently each year to track real improvement.
The MC/RAV shows how well asset maintenance expenditures are controlled. It measures the annual cost of maintaining a plant against the value of the plant. The lower the percentage, the more valuable an overall maintenance program is to an organization (but only if you are getting there by implementing plant-floor best practices). Are annual maintenance expenditures such that, in less than seven years, you could have used that amount to buy a new plant (MC/RAV=15%)? Wouldn’t you rather have a value of 2% (Top Quartile), meaning that it would take 50 years to accumulate an amount equal to your RAV? It’s also important to look at industry-specific values to set realistic goals. High-tech product manufacturers, discrete manufacturing, chemical processes, steel manufacturing, and mining have similar, but many different maintenance needs. If some of these facilities have the same RAV, it’s treated the same with this metric. Always use a combination of metrics that force clarity.
An MC/RAV for a Third-Quartile operation is more than four times the value for a First-Quartile plant. If you operate in the Third Quartile, your spending is a factor of four greater than your First-Quartile competitor. Costs need to be reduced by implementing best practices. Simply cutting costs will make things worse. Understand and use MC/RAV to measure your improvement. EP
Based in Knoxville, Klaus M. Blache is director of the Reliability & Maintainability Center at the Univ. of Tennessee, and a research professor in the College of Engineering. Contact him at firstname.lastname@example.org.