Expressing the value of maintenance is an important step in recognition

Oct. 23, 2007
We’re figuring out exactly how to calculate and express the value of maintenance.

It’s been said that money is the universal language. It certainly speaks more clearly to accountants and executives than long discussions of backlogs, OEE, PM versus PdM or any number of other measures you might use to try to convey your effectiveness and progress. Quicker, too, and that’s why management is so eager to boil the maintenance function down to single expense on the balance sheet. And cut it.

Nobody wants to buy maintenance (or any other product, for that matter, according to a presentation by Jim Panzl, General Electric sales performance trainer, at a recent GE press event). People want the benefits that come from investing in the product, and if, like all accountants and executives in manufacturing, they’re in the business of making money, the benefits are best expressed in dollars and cents.

For example, GE has figured out that few prospective homeowners are willing to pay extra for energy efficiency. If they have money to spend, they’d rather buy something they can see, like a third garage or a built-in wide-screen TV, instead of GE’s high-efficiency lighting and appliances.

But if a new house meets GE’s “ecomagination” standards for energy efficiency (which, along with tight construction, requires GE high-efficiency lighting and appliances), GE Finance will qualify buyers for a larger mortgage with bigger payments because the company knows the savings on the monthly utility bill will more than offset the extra cost. When buyers understand that means they can get a house that’s worth more with lower monthly expenditures, a positive effect on their cash flow, they see the light.

Monetization is the art of expressing benefits that might otherwise be boring, complex and incomprehensible in terms of something everybody understands: money.

GE is designing its value propositions for industrial facilities around monetization, and training its representatives to use it as a sales tool. If you talk with one of their folks about lighting, drives or other energy-saving technologies, don’t be surprised if you’re made an offer that’s hard to refuse.

Industrial maintenance and engineering departments can learn something from GE.

The problem, according to Peter Martin’s presentation at the recent Avantis user group meeting, is, “You’re driving value, but it’s not visible.” Instead of showing up as an oversimplified expense, you can get upper-level attention and support by proving that maintenance has a high, positive return on investment (ROI).

“If you’re in maintenance, engineering or operations, first, you must realize your worth. Without you and your work, there is no revenue. There is no company,” Martin says. “Second, you have to demonstrate your worth, because no one else will.”

Everybody estimates ROI before investing, “but rarely calculates it afterward,” Martin says. “When measured, the average payback on a maintenance or engineering activity is six weeks, and it’s sustainable.” But to reflect that value accurately, you have to move from estimating ROI to measuring cash flows at the points where they occur.

This concept, also known as activity-based accounting, has been the holy grail of controllers for decades. But they think it’s too complex and can’t be done.

However, you are technologists. You can use the same knowledge of technology to measure business value as you use to measure everything else about the plant. You can determine the cash flows of production, quality and equipment uptime, and measure the effects of investments in maintenance and engineering activities. (If you run into any problems, Martin and Invensys will be glad to help).

“Use technology to measure business value, and use it to drive business value – beyond maintenance to real business problems,” Martin says. “You’ll know you’ve succeeded when executives cite your work in presentations, or in the annual report. Once they see what they’re getting for their investment in maintenance and engineering, there will be no stopping it.”

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