Discover the financial benefits of value-driven maintenance

Show where there's potential for value within the maintenance organization.

By Remco Jonker and John Holmes, Mainnovation

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In brief:

  • The value of maintenance comes from delivering maximum availability at minimum cost.
  • Maintenance managers must show where there’s potential for value within the maintenance organization and should focus on the value driver with the highest value potential.
  • Managing by value is not just a must; it is the only way to discover the true significance of maintenance.

What is actually the added value of maintenance? That question is frequently heard in boardrooms the world over. Even though maintenance is often critically important, few maintenance managers are able to answer the question convincingly, especially when they are asked to express the benefits in terms of economic value added or shareholder value — the language increasingly being spoken in boardrooms all over the world.

Value driven maintenance” (VDM) builds a bridge between traditional maintenance philosophies and managing by economic added value. Not only does VDM simplify the boardroom discussion, it also shows that, far from being a cost center, maintenance can create significant economic value, improving the overall business performance.

What is value?

Before you can manage by economic added value, you have to understand value, which is the sum of all future free cash flows, discounted to today.

This sounds impressive, but what precisely does it mean? Let’s start by looking at the first part of the definition. A cash flow is the difference between income and expenditure. This is not the same as the difference between revenues and costs, because that’s an item that can be greatly influenced by accounting practices. Some companies use highly creative lease, depreciation, and reservation techniques to keep their book profits artificially high or low. This doesn’t always contribute to the economic value of the company.

The second part of the definition stems from the knowledge that the value of a cash flow is related to time. One dollar is worth more today than the same dollar will be next year. This is because you can deposit a dollar at the bank today and use it to generate income over a period of one year. Therefore, we have to adjust future cash flows.

Value of maintenance

Figure 1. VDM is designed to provide answers to identify the potential of the four value drivers in maintenance and enabling those drivers to be managed.
Figure 1. VDM is designed to provide answers to identify the potential of the four value drivers in maintenance and enabling those drivers to be managed.

A maintenance manager is likely to acknowledge this theoretical approach, but be more interested in the practical application of it. The value of maintenance comes from delivering maximum availability at minimum cost. While this is true in theory, it’s of little help in day-to-day operations. This is because of priorities. Do you want to reduce costs or increase uptime? Is a 1% increase of uptime just as valuable as a 1% reduction of costs? How do you determine the value of safety? VDM is designed to provide answers to those questions by identifying the value potential of the four value drivers in maintenance and enabling those drivers to be managed (Figure 1).

Maintenance managers are constantly balancing higher machine availability (asset utilization) with lower maintenance costs (cost control). They must take into account the growing body of laws and regulations covering safety, health, and environment. To make everything work, they need to use the right technicians, spare parts, knowledge and contractors (resource allocation).

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