When we attempt to force maintenance spending into specific lumps of time that do not meet the needs of our machines, we create the need to defer maintenance. Maintenance budgets fail because final budgeting authorities do not understand the disastrous consequences of deferring maintenance.
In 2001, I was asked to create a 16-week college course in the management of maintenance. During the creation, I made three significant new discoveries concerning the financial management of maintenance and created rules to cover them.
- The “inverse-square rule for deferred maintenance”
- The “effects of the chaos theory on budgeting maintenance” rule
- The “cost to improve maintenance” rule
The first rule explains why maintenance budgets fail to perform, the second rule describes the trigger that initiates failure, and the third rule offers a self-financing solution to improve maintenance without having to inject cash to improve the quality and quantity of maintenance.
Let's look at the first rule. In my quest to quantify the relationship between pre-breakdown and post-breakdown maintenance expenses, I made a discovery that can create a paradigm shift in how we manage maintenance.
We all know the longer we operate a machine that needs repair, the more it will cost to fix it. The people I know that are in upper management that have not been directly involved in maintenance know it will cost more, but think that the worst-case penalty for deferring maintenance might be up to twice as much.
Those of us who have had many years of direct experience in managing maintenance have tried to tell them that the penalty is significantly more than that. I personally felt that the cost of deferring maintenance was three to four times as much as a timely repair. What I discovered in my research is that the penalty for deferring maintenance is not twice as much, not four times as much, but that the real penalty for deferring maintenance that becomes a breakdown event averages a ratio of 15-to-1.
This shocker came to me when I attempted to find a metric that would explain the before and after breakdown difference. I had to go to an exponential factor. Arithmetic and geometric progressions could not consistently produce the dramatic cost differences. When I realized that the cost penalty was exponential, I created a rule that I call Geaslin's “inverse-square rule for deferred maintenance.” This rule states: If a part is known to be failing and the repair is deferred and allowed to remain in service until the next level of failure, the resultant expense will be the square of the failed part.
This is why a $40 brake shoe left in service until the brake shoe rivets damage the brake drum; the drum ruins the core value of the shoes; the truck breaks down on the road; a second truck and driver have to be dispatched; the load transferred; and one driver dead-head back with the tow truck results in an expense of the square of $40 ($40 × $40=$1,600) and becomes $1,600. If the brake problem causes a personal injury accident, then the cost can easily square again to $2.5 million.
This rule explains how a leaking $50 toilet valve, if left in service until it overflows can easily cost the square of $50 to create a total flood damage cost of $2,500 in carpet, pad, electrical and document destruction.
This is why a failing industrial electric motor bearing valued at $100 can create a $10,000 repair if left in service until failure and the rotor wipes out the windings and damages the stator.
This rule explains how deferring a $1,000 cleaning of a heat exchanger can easily create a $1 million expense in corrupted product, re-refining, packaging and shipping costs.
My students were not quick to accept that the penalty could be the square of the failed part. “It couldn't be the square. Squared numbers get too big too fast,” they said. So I challenged them to take their last maintenance event invoice that was so stinky that it ended up on the boss's desk; add in all the collateral damages such as idled worker salaries, quality control events, ruined materials, customer dissatisfaction, and lost production or profits; and put that number in their calculator and click the square root button. I asked them to see if the number they get is the cost of the primary failure part — the part that if repaired early would have prevented the breakdown expense. Everybody was amazed at how close the answer came to the purchase price of the primary failure part.
Then we computed the total invoice cost for parts and labor to have repaired the primary failure part at the earliest moment discovered and divided it into the total stinky maintenance event cost. This ratio turned out to be about 15-to-1.
At this point I began to understand why final budgeting authorities have always seemed willing to take the breakdown risks associated with deferring maintenance. Their risk-reward ratio analysis computations have been based on taking their maintenance manager's worst-case scenario of about 4-to-1, discounting it to a ratio of about 2-to-1, and then basing their budgeting decisions on that risk factor. My new discoveries show that the real risk-reward ratio is closer to 15-to-1 and the consequences of betting that a breakdown will not occur are much more disastrous than ever thought. No one would ever take those odds at a craps table.
When I explain this rule to maintenance managers, they embrace the analysis immediately because it explains what they see in the field everyday. When I explain this rule to executive managers, they recognize it as a metric they can use to create a new matrix for budgeting and managing maintenance to a lower cost value. The application of this new rule creates one of the few win/win situations between the maintenance department and final budgeting authorities that gives each what they need to succeed.
The application of this rule can be as important to managing maintenance as The Deming Method is to quality control. The application to maintenance budgeting is that powerful. If you wish to test this rule, pull that big maintenance invoice out of your inbox, add in the collateral expenses, take the square-root of the total, and see if that is the price of the primary failure part. See what you get and discuss it with your staff. If you see the relationship, it can offer a better way to manage maintenance budgets.
If you would like to know more about this rule and my other discoveries on maintenance, more detail is available on my Web site at www.managingmaintenance.com.
David Geaslin is a consultant and offers management seminars and training through Texas A&M University's Texas Engineering Extension Service program where he is presently creating a vertically integrated program for managing maintenance. He can be reached at P.O. Box 1812, Gonzales, TX 78629; phone (mobile): 210/392-5510; home & fax: 830/672-8377; e-Mail: [email protected]; Web site: www.ManagingMaintenance.com.
