How Much Should Your Equipment Reliability Program Save You?
Learn To Quantify Your Equipment Reliability ROI.
Quantify the financial benefits of preventive and predictive equipment reliability maintenance plans.
Equipment reliability maintenance is a never-ending responsibility. To remain productive and competitive, more and more companies are improving their maintenance plans by switching to synthetic lubricants and grease and implementing a preventative or predictive maintenance plan.
Plant Engineering recently released its 2021 Maintenance study showing that “eighty-eight percent of American industrial facilities follow a preventive maintenance strategy1.”
Running to failure (reactive maintenance) is quickly becoming a thing of the past. Whether you’re preparing to implement a preventative or predictive maintenance plan or you’re already operating one, it is important to understand the financial impact this should have on your ROI.
This article explores methods and formulas to help you quantify financial benefits so you can calculate your ROI. If you are already operating with one of these maintenance strategies you will know that the results generally range from modest to significant, depending on the facility. Individual results vary but commonly reported benefits demonstrate less downtime, lower energy costs, reduced equipment failures, and fewer oil changes as some of the most common benefits.
To effectively quantify the change in your ROI, you must have an established baseline of data to compare to your post-investment results. You can determine this via your current equipment expenditures and the costs associated with your current maintenance plan.
It’s essential to conduct a thorough analysis to ensure the accuracy of your calculations. The table below outlines some of the costs you should anticipate, but again, every facility has variables specific to its operations.
The tables below provide a quick reference of costs and benefits.
| Probable Costs |
|---|
| The initial cost of purchasing and installing new equipment. |
| Cost of equipment modifications or upgrades as required. |
| Cost of contracting external maintenance service providers. |
| Cost of additional maintenance labor required. |
| Cost of training personnel on new maintenance practices and equipment. |
| Cost of additional inspections and testing required. |
| Cost of switching to synthetic lubricants and grease. |
| Cost of implementing new maintenance procedures and documentation systems. |
| Cost of ongoing maintenance and support for new equipment and software |
| Cost of ongoing training and education for personnel |
| Potential Benefits |
|---|
| Increased equipment reliability, energy efficiency, and production benefits. |
| Better planning and scheduling of maintenance procedures. |
| Optimized equipment maintenance intervals. |
| Improved energy efficiency and reduced energy costs. |
| Extended equipment lifespan and less downtime. |
| Improved operational knowledge to more effectively maintain your equipment. |
| Reduced maintenance costs improved operating efficiency and fewer bearing failures: extended equipment lifespan & less downtime. |
| Increased productivity and reduced downtime. |
| Early detection and prevention of equipment failures. |
| Reduced need for emergency repairs. |
| Lower overall maintenance and repair costs. |
| Increased operational efficiency and throughput. |
| Enhanced regulatory compliance. |
| Improved asset management and tracking. |
| Probably Costs | Potential Benefits |
|---|---|
| The initial cost of purchasing and installing new equipment. | Increased equipment reliability, energy efficiency, and production benefits. |
| Cost of equipment modifications or upgrades as required. | Better planning and scheduling of maintenance procedures. |
| Cost of contracting external maintenance service providers. | Optimized equipment maintenance intervals. |
| Cost of additional maintenance labor required. | Improved energy efficiency and reduced energy costs. |
| Cost of training personnel on new maintenance practices and equipment. | Extended equipment lifespan and less downtime. |
| Cost of additional inspections and testing required. | Improved operational knowledge to more effectively maintain your equipment. |
| Cost of switching to synthetic lubricants and grease. | Reduced maintenance costs improved operating efficiency and fewer bearing failures: extended equipment lifespan & less downtime. |
| Cost of implementing new maintenance procedures and documentation systems. | Increased productivity and reduced downtime. |
| Cost of ongoing maintenance and support for new equipment and software | Early detection and prevention of equipment failures. |
| Cost of ongoing training and education for personnel | Reduced need for emergency repairs. |
| Lower overall maintenance and repair costs. | |
| Increased operational efficiency and throughput. | |
| Enhanced regulatory compliance. | |
| Improved asset management and tracking. |
Calculating Return On Investment
ROI is calculated using the following formula:
ROI = (Annual Benefit – Initial Investment) / Initial Investment x 100%
ROI Case Study
To demonstrate the ROI calculation, consider the following example case study.
A manufacturing plant that produces plastic containers operates 24/7 and uses 2010-era equipment. They have decided to switch from mineral oil to synthetic oil and upgrade their maintenance plan from a reactive to a preventive plan.
They have limited their new equipment purchases to $30,000, not including the cost of synthetic oil and grease. The annual cost of new equipment for monitoring and storage of oil products is estimated to be $12,000.
The estimated costs and benefits for the upgrade and implementation are as follows:
| Potential Investment | Estimated Cost |
|---|---|
| Synthetic oil and grease | $80,000 |
| New maintenance equipment | $30,000 |
| Consulting services | $15,000 |
| Oil monitoring and storage | $12,000 |
| Training and Education | $8,000 |
| Total Initial Investment | $145,000 |
| Potential Benefit | Estimated Benefit |
|---|---|
| Energy savings | $62,280 |
| Increased equipment uptime | $78,250 |
| Reduced maintenance costs | 50,000 |
| Total Annual Benefit | $190,530 |
The potential ROI to upgrade the maintenance plan to a preventative maintenance plan can be calculated as follows:
ROI = (Annual Benefit – Initial Investment) / Initial Investment x 100%
ROI = ($190,530 – $145,000) / $145,000 x 100% ROI = 31.4%
For every dollar invested in the upgrade and maintenance plan, the plant can expect to receive a return of $1.31, or a 131% return on investment, in the first year.
Over the lifetime of the equipment, the plant is expected to realize even greater savings and benefits.
Extending The Case Study
Evaluating the return on investment (ROI) of various investments is an important part of managing finances. One investment that will lead to significant savings and improved equipment reliability is upgrading from mineral oil to synthetic oil and implementing a preventative or predictive maintenance plan.
To evaluate the ROI of this investment, we need to consider the costs and benefits of the upgrade and maintenance plan. Let’s break down the process into several steps.
Step 1: Calculate the Costs of the Upgrade and Maintenance Plan
The first step is to calculate the costs associated with upgrading from mineral oil to synthetic oil and implementing a preventative or predictive maintenance plan. These costs can be broken down into two categories: initial costs and ongoing costs.
Initial Costs:
- Cost of synthetic oil: The cost of synthetic oil is typically higher than mineral oil. Let’s assume that the cost of synthetic oil is $50 per gallon while mineral oil is $30 per gallon. If your equipment requires 100 gallons of oil, the cost difference would be $2,000.
- Cost of maintenance plan: If you don’t already have a maintenance plan in place, you’ll need to hire a consultant to help develop one. Let’s assume that the cost of the consultant is $5,000.
Ongoing Costs:
- Cost of oil changes: With synthetic oil, you can extend the time between oil changes. Let’s assume that you can go from changing your oil every three months to every six months. The cost of each mineral oil change is $1,000. With mineral oil, you would need four oil changes per year at a cost of $4,000. With synthetic oil, your cost per change is $1,500 would need two oil changes per year at a cost of $3,000.
- Cost of maintenance: Let’s assume that the cost of maintenance with the new plan is $10,000 per year.
With these assumptions, the total cost of the upgrade and maintenance plan for the first year would be:
Initial Costs:
- Cost of synthetic oil: $3,000
- Cost of maintenance plan: $5,000
Ongoing Costs:
- Cost of oil changes: $3,000
- Cost of maintenance: $10,000
Total Costs: $21,000
Step 2: Calculate the Benefits of the Upgrade and Maintenance Plan
The second step is to calculate the benefits of the upgrade and maintenance plan. There are several potential benefits, including:
- Reduced downtime: By implementing a preventative or predictive maintenance plan, you can reduce the likelihood of equipment breakdowns and minimize downtime. Let’s assume that the cost of downtime is $2,500 per hour, and you can reduce downtime by 20 hours per year with synthetic lubricants and grease and your upgraded maintenance plan.
- Improved equipment reliability: Synthetic oil has better lubricating properties than mineral oil, which can lead to improved equipment reliability. Let’s assume that the cost of equipment failures is $5,000 per incident, and you can reduce the number of failures by 50% with synthetic oil.
- Cost savings from oil changes: With synthetic oil, you may be able to extend the time between oil changes. Let’s assume that by switching to synthetic oil, you can reduce the number of oil changes per year from four to two, saving $1,000 per year.
With these assumptions, the total benefit of the upgrade and maintenance plan for the first year would be:
- Reduced downtime: 20 hours x $2,500 per hour = $50,000
- Improved equipment reliability: (0.5 x $5,000) = $2,500
- Cost savings from oil changes: $1,000
Total Benefits: $53,500
Step 3: Calculate the Return on Investment
The final step is to calculate the ROI of the upgrade and maintenance.
ROI = (Total Benefits – Total Costs) / Total Costs x 100%
Using the values from the example, the ROI is:
ROI = ($53,500 – $22,000) / $22,000 x 100%
ROI = 143.18%
This means that the investment in the upgrade and maintenance plan is expected to generate a return of 143.18% in the first year. In other words, for every dollar invested in the plan, we can expect to receive a return of $1.43 in benefits. This is a positive ROI, indicating that the investment is expected to be profitable. However, it’s important to note that this is just a projection based on our assumptions, and actual results may vary.
Summary Costs Verses Benefits
| initial Costs | Ongoing Costs |
|---|---|
| Cost of purchasing and switching to synthetic oil | Cost of ongoing synthetic oil purchases |
| Cost of training maintenance staff on new oil and maintenance plan | Cost of additional equipment inspections and oil analysis |
| Cost of oil filter replacements | Cost of oil disposal and waste management |
| Immediate Benefits | Long-Term Benefits |
|---|---|
| Increased equipment reliability | Extended equipment lifespan |
| Reduced maintenance costs | Improved equipment performance |
| Enhanced safety for personnel and equipment | Reduced risk of environmental contamination |
| Improved energy efficiency | Increased productivity due to reduced downtime |
| Improved product quality | Potential for increased revenue due to improved production capacity |
Lubricants and greases are designed to provide a specific level of protection and performance, and using the wrong product will reduce the lifespan of your bearings.
Summary
Calculating ROI on synthetic can be an involved process; the math calculations are simple once you have correctly collected the data you require to make them.
To help you, we have created some worksheets for you to complete while compiling your information, whether realized or estimated. You may download these worksheets at no cost at this link. Additionally, an ISL Group professional can help you determine the potential ROI for your situation.
As an equipment reliability professional, you have a significant responsibility to keep your equipment running and produce the best results possible. Our case studies and coverage of emerging technologies will help you stay informed on the latest developments in the equipment reliability industry.
For further assistance, please contact ISL Group. One of our equipment reliability consultants will gladly assist you with your ROI calculations, and we are highly trained and experienced in all aspects of equipment reliability.
To learn more about ISL Group, listen to what one of our customers had to say
Subscribe to our FREE Quarterly Equipment Reliability Communication and receive the ebook, “Consumer Guide To Equipment Reliability: Oil Lubrication” at no cost.