Rate of Return (ROR)

The focus up to this point has been to maximize the ROI.  For many facilities the ROR or payback period is equally as important.  Many manager’s ask the questions:

·          “When will the bleeding stop?”

·          “When will I break even?”

The answer for this, much like the one around ROI, is that it depends.  Several factors will impact the ROR:

·          Current Cost –what is the current maintenance cost/replacement asset value of your plant.  How much low hanging fruit is there at a plant?  Clearly it is easier to reduce this rate from 12% to 10% than it is from 4% to 2% 

·          Current Work Flow Percentage - clearly if you are currently doing a lot of the right things, such as already owning the inspection equipment, less time and money is involved in getting them in place. 

·          Current Asset Health – does your plant have a history of cheap project delivery and deferred maintenance?  If so, more will have to be invested.

·          Culture – does your plant culture embrace change or fight change?

·          Urgency/Active Participation – positive rewards such as profit sharing or negative consequences such as threat of bankruptcy or plant closure have proven to drive some of the most aggressive implementations.

Summary – In the last 12 years, industry has spent millions and millions of dollars trying to implement various elements of Asset Management.  They have done this because of a well-founded belief in a business case and several documented success stories.  It is well known that going into the 1990’s maintenance costs were believed the largest, most out of control “controllable” cost in a plant.  Maintenance represents 9 to 15% of every sales dollar and 8 to 12% of every dollar that goes into the cost of making the product.  Yet 12 years later, less than 10% of the organizations that have embarked on a reliability improvement initiative have reached their anticipated returns and less than 20% of implementations are considered successful even by the employees of that facility.

Is there a logical explanation for this or was the anticipated contribution of maintenance too large?  Hopefully, after reviewing this document and sitting through the presentation, you will realize that we continue to practice insanity.  The numbers have shown us for years that we need to have 45-55% of our work flow come from PdM results, yet the average is still well below 20%.  The numbers and success stories have told us for years that if this is a maintenance initiative…it will fail.  If it is an IT, purchasing, or accounting initiative, it will fail.   As stated earlier, a rule of thumb that seems to hold true is that if only one organization is driving this initiative, take your worst case business case and simply put a minus sign in front of it and take the best case and divide it by four.

The Asset Management initiatives have typically been implemented as “flavor of the month” instead of as an orchestrated and engineered initiative that is being deployed in a way that it becomes ingrained in the culture.  We find that often so much attention is paid to the glitzy new elements, that the BASICS of having good work flow models, good measurements, good equipment lists, good parts lists, and good data going into the system are ignored.  Hopefully you also take away that the team that is responsible for designing and deploying this initiative must be fully cognizant of how each element relates to the ROI and the ROR.  Otherwise it is very possible to implement an Asset Management initiative that has a negative return on investment…look around … they are not hard to find!

 “It’s OK to get Excited about Maintenance !”