When you’re trying to convince your leadership team to invest in asset management software, numbers speak louder than words.
While discussing the benefits of increased efficiency and asset reliability can start the conversation, you need estimated cost savings to build your case.
Here’s how to calculate a clear-cut return on investment to justify your purchase.
3 steps to calculate the ROI of asset management software
Step 1: Calculate the total cost of ownership (TCO)
Before you can calculate ROI, you need to fully account for the costs involved in purchasing asset management software. This includes one-time upfront costs as well as ongoing, long-term costs. Here are a few items to consider:
Initial purchase costs
To calculate the software purchase and licensing costs, you need to look at the pricing model closely. In some cases, this is a variable cost based on the number of users. Other software vendors have a standard monthly or annual subscription fee. Some EAM softwares offer custom pricing depending on your needs. Take the time to talk with each vendor you’re considering as you evaluate your options.
IT infrastructure costs
If you decide to set up your infrastructure on premise, you’ll need to determine the hardware costs along with software licenses. This will likely require additional IT investments. Fortunately, if you opt for a software-as-a-service (SaaS) asset management solution, you can eliminate these upfront costs. Instead, you’ll just need to determine how many users or modules you’ll need and make sure each user is equipped with a laptop, tablet, or mobile device to access your EAM software.
Setup costs or transition costs
Many EAM software vendors charge a one-time fee for installation and setup. If you’re switching from one system to another (such as moving from a CMMS to EAM) you will need to factor in additional time for onboarding and training your team.
Ongoing maintenance, support, and upgrade costs
When it comes to maintaining and upgrading your asset management software, this is another case where SaaS solutions offer a clear advantage. On-premise software updates can involve significant costs, planning and time. That’s assuming you have a dedicated IT team to handle them. With a SaaS model, the software vendor rolls out updates to all users as needed. The cost of those upgrades is typically factored into your monthly subscription fee.
Step 2: Estimate your savings from asset management software
Once you figure out the TCO, you’ll need to estimate how much you expect to save.
Asset management software savings can come in various forms, so you’ll likely need to talk with several people at your organization and analyze data from different sources.
Here are four areas to focus on:
Savings from better asset life cycle management
To determine this component, you need to estimate the percentage improvement in the asset life you expect to gain using your EAM system. Then, you can calculate the savings as expected increase in asset life multiplied by the total fixed asset costs.
Savings from reduced equipment downtime
EAM solutions are expected to reduce downtime hours and associated costs. Take a look at what those costs amounted to in the previous year and set a realistic target for reducing them.
How much would your organization save if you reduced your equipment downtime by just 10%? This will give you a good sense of your expected savings.
Savings from reduced labor
For every unplanned downtime or unscheduled maintenance activity your team handles, you also incur overtime hour costs. Using enterprise asset management software to schedule preventive maintenance can significantly reduce these costs. Asset management systems also give you greater transparency into how your team is spending their time. If you’re using software with a mobile app, technicians can complete tasks and log their hours from anywhere.
Savings from improved inventory management
Inventory management can be tricky. While you want to have the necessary parts available when you need them, you also want to avoid high storage costs that can come from keeping a large stockpile on hand.
The transparency you get from using an asset management solution can help you estimate your stock more accurately and generate savings. Savings from better asset tracking equals the total cost of carrying unnecessary parts.
To calculate these numbers accurately, you need a thorough understanding of your processes. If this proves too difficult and you’d rather refer to industry averages, this guide by our maintenance management partner, Hippo, can help. You can also look at case studies within your industry to get a better idea of your potential savings.
Step 3: Calculate expected returns
Now that you have an idea of the estimated costs and savings from your EAM software, you can calculate your returns. Follow this simple equation:
ROI% = 100 x (Total savings – TCO)/TCO
Congratulations — you have successfully quantified your expected savings! Now you can take this information to your leadership team and present an airtight case to justify your investment.
Continually monitoring your software ROI
Having these numbers on hand will also help you set expectations. Now you know exactly what metrics you’ll need to track to measure your progress over time. Keep in mind that in the first few months, your asset management software ROI might be slightly less as you factor in the costs of implementation and training. However, with the help of powerful dashboards and reporting, the solution you choose should make it easy for you to see your returns.
ManagerPlus offers powerful, lightning-fast, cloud-based enterprise asset management software that achieves excellent ROI. Our solution also makes it easy to measure asset data and real time KPIs, including preventive maintenance compliance, work order efficiency and response time to maintenance tasks. Because it’s designed as a cloud-native solution, there’s no significant upfront investment — just a small initial setup cost and monthly subscription fees designed to fit your needs and budget. Learn more about how you can accelerate your ROI using our software. Schedule a demo today.