Many are of the opinion that the field of predictive maintenance (PdM) is not growing to its full potential. Among the stated challenges that would need to be effectively addressed before PdM’s growth hits the top line, one, in particular, seemed very interesting since it had little to do with technical things. It was a financial justification for condition-based maintenance (CBM) and its more advanced option, in terms of analytics, PdM. Since financial aspects are often overlooked by engineers or not closely examined, this article shares a few thoughts on how to overcome this situation.
It is often said that benefits resulting from mature CBM or implementing PdM include reducing catastrophic events, unplanned outages and routine maintenance costs. Some also mention reducing materials storage together with handling costs. This is all true, but still a little bit vague, incomplete and definitely not enough as a starting point to prepare an appealing business case that would justify spending money on a CBM/PdM project.
First of all, realizing all areas that can benefit from CBM/PdM is crucial for coming up with sound arguments that support a CBM/PdM initiative. Next, it is necessary to understand the mechanisms that actually make the savings happen and, ideally, to evaluate them in terms of finance. This requires more comprehensive analysis and, most importantly, certain business acumen. A shallow approach to this exercise results in leaving out important factors that can lead to false conclusions and underestimating the financial impact and added value of the CBM/PdM project.
At a glance, the ultimate goal of any CBM/PdM project is to optimize operations and maintenance (O&M). Hence, reducing unscheduled downtimes and making a shift to reliability-centered maintenance are among the most recognized deliverables. Therefore, it is hardly surprising that labor and overtime costs, and expedite spending for materials and fleet costs, which correspond to downtimes, are evaluated in depth. This analysis is even more comprehensive since O&M is usually the domain expertise of people directly involved in CBM/PdM projects.
A more challenging area of the O&M analysis is to estimate the value of optimized maintenance resulting from CBM/PdM implementation. This is challenging mainly because of the fact that the prerequisite to accomplishing this task is being aware up-front of the business challenges a CBM/PdM solution should address and its expected functionality.
In particular, when dealing with a baseline to optimized maintenance, it is worth taking a closer look at these aspects:
- Decreased maintenance on low-risk assets;
- Maintain high priority, high return on failure (ROF) assets and reduce maintenance on low consequence and low ROF assets;
- Better planning of resources based on assets’ performance predictions;
- The optimized scope of maintenance and longer time intervals between routine maintenance;
- Other productivity gains from deploying resources elsewhere.
This lists only a few topics. However, no matter how comprehensive and detailed the O&M study is, identified savings are just the tip of the iceberg. Another savings category is capital expenditures (CapEx). If only evaluated well, CBM/PdM initiatives can reveal their full potential and provide great insight for a business case. The challenge here is that a lot of activities and processes that can be addressed by CBM/PdM are happening behind the scenes from the O&M point of view. Also, people involved in managing CapEx are not necessarily aware of how they could benefit from CBM initiatives. The following points can be considered a baseline for identifying CapEx related savings:
- Capital deferment and depreciation savings by extending the life of existing assets;
- Capital replacement savings by avoiding replacement of the entire piece of equipment;
- Asset replacement strategy based on a risk of failure rather than an age optimized capital spend;
- Capital opportunity costs.
Figure 1 presents an exemplary structure of the possible savings CBM can bring to a power distribution company. It clearly demonstrates how important it is to go beyond classic O&M thinking. What is striking is how CapEx can greatly benefit from projects that are typically linked with O&M.
Depending on the industry and specific business drivers, there are also other aspects that, if assessed, would make good business sense. Even if the task is not straightforward, it is still a good idea to spend some time to at least try to guesstimate savings potential related to:
- Increased reliability and customer satisfaction;
- Increased safety;
- Internal regulatory defense costs;
- A justification for a redeployment of O&M expense budgets;
- Regulatory confidence in risk/cost justification process.
The long-term vision for implementing an asset health strategy is to be in full control of the extent to which a company takes on asset management risk. Because well-defined CBM/PdM is not only about improving maintenance but also managing the operational risk in a cost-effective way, it can help a lot to make this vision a reality.
When considering a CBM/PdM investment, it is definitely advisable to have an in-depth understanding of how an organization can gain leverage from such an initiative. The prerequisite is to have a comprehensive understanding of business drivers and business processes, together with their key performance indicators (KPIs) as a reference point. Knowing this context, it is then possible to identify and quantify improvement possibilities, and prepare a sound business case.
In that regard, having a broad perspective cannot be stressed enough. Bearing in mind that O&M accounts for only a portion of total possible savings, it is important to make sure the group of stakeholders of the CBM/PdM initiative is complete and not limited to O&M representatives.
CBM/PdM initiatives that give the same attention to operations, maintenance and business challenges are on the fast track to becoming vital business tools. They can help companies make the most of their assets and create value based on activities that historically used to be a cost center. Additionally, the majority of the organization’s added value might be delivered by leveraging relatively simple and well-established techniques that simply provide insight into the assets’ health status. So, perhaps some CBM/PdM projects need rethinking and business cases recalculated.