When requesting new tools, the most powerful message that asset leaders can bring to chief decision-makers is hard numbers. You need to make a powerful business case that justifies the cost.
This is especially important when it comes to investing in equipment management software.
To pitch the benefits of the software and get your executive team onboard, be prepared with a breakdown of dollars and cents.
Consider how equipment management software will translate into savings attributed to:
- Increased productivity
- Reduced maintenance costs
- Reduced downtime
- Optimized inventory management
- Greater visibility into indirect costs
While those on the frontlines understand the value that equipment management software brings to operations, financial decision- makers want to see that the money they invest in an enterprise solution delivers a significant return on investment (ROI). It’s not enough to say that the platform makes the asset manager’s life better. Today’s cost-conscious executives are looking for measurable benefits to justify every purchase.
To make a solid business case for an investment in new software, include a focus on potential financial gains from multiple perspectives—including your customers’. When you can show that the equipment management software is your key to higher profits and gaining new customers, you have a greater chance of gaining buy-in from those outside the asset management workflow.
Your business case for equipment management software
Here is a structure that helps you begin building your business case for investing in equipment management software.
1. Tie quantified asset data to key performance indicators
Continuous quality improvement in your asset management processes can lead to a better proposition within the value chain. Prove this by tying quantified asset data to your business key performance indicators (KPIs).
KPIs are measures that demonstrate how well your organization is meeting its strategic goals over time. They are recognized by industry pros as the motivator of an efficient, data-driven organization. Start with a goal and work backwards to the specific measures you can use to track it.
Here are some KPIs examples:
- Reduce the number of open work orders by 12% next year
- Reduce the mean time to repair for your top 10 assets by 10% this month
- Increase the proportion of preventive maintenance (PM) by 2% this quarter
Pro Tip: To be effective, KPIs need clear performance criteria. This criteria can be distilled from your equipment management software platform. In some cases, your platform will have custom reporting features that make KPI tracking easier and more accurate.
Without equipment management software, measuring KPIs or rolling out a strategy to improve them is nearly impossible. After all, you can’t improve what you can’t measure.
2. Measure the high cost of downtime
In your business case, outline how equipment management software can help you avoid the high cost of downtime. You already know equipment failure is expensive in terms of both indirect and direct costs. But are you able to pinpoint that metric with specific numbers?
Here are some benchmarks:
- $260,000 per hour — the average cost of unplanned downtime, according to the Aberdeen Group
- Over $1 million per outage — the cost of each four-hour unplanned equipment downtime, according to Vanson Bourne Research
What’s more, equipment downtime has a ripple effect. Consider the additional expenses, such as lost productivity, lost production, and potential loss of customers if you miss production deadlines or ship orders late. Broadly, the losses can be classified as direct, indirect, and opportunity costs.
- Direct costs: Add up labor time spent investigating problems and implementing repairs, as well as the cost of parts or replacement assets.
- Indirect costs: Some equipment failures can also create safety issues, which can result in fines or legal costs. Downtime also drags down morale, potentially causing staff turnover.
- Opportunity costs: These include lost time (calculated as the percentage of equipment downtime compared to total time available) and lost revenue.
Pro Tip: Equipment management software helps reduce downtime by automatically prompting preventive maintenance work orders so your equipment keeps production rolling as planned. It also connects your operators to the technician teams so they can complete repairs without delay. Additionally, you can rely on the software to document your parts inventory with bar codes or QR codes so the right part is always verified for each job, avoiding wasted time and costly mistakes.
3. Factor in the ROI of improved preventive maintenance
Too often, those outside of the asset management space think of maintenance mostly as a cost center. But it’s actually an investment that provides a return.
A University of Nebraska study found that an $80,000 tractor typically requires $24,000 in repairs for every 5,000 hours of operation. Obviously, high costs like these can be significantly lowered through a thoughtful preventive maintenance strategy. In the tractor example, repair cost dropped by 25% when preventive maintenance stayed on schedule.
According to Plant Services, the total cost of a single vacuum pump failure added up to more than $9,500 when parts, labor, and downtime was factored in. In contrast, the cost of early detection and preventive maintenance was just $1,500.
Better equipment maintenance practices could mean the difference between profitability and just breaking even. That’s why automated PM work orders generated by your equipment software are your pathway to savings.
Pro Tip: In your business case, outline how equipment management software will help you improve preventive maintenance. Estimate your current ratio of preventive to reactive maintenance and benchmark against the ideal of 80/20. If your PM schedule isn’t near 80%, then you have a huge opportunity to gain new, unrealized savings.
4. Track the value of inventory on the shelf
Managing your inventory of parts and materials can become a balancing act between having too much (thereby, tying up your capital) or delaying work due to lack of inventory (which causes costly downtime).
Effective inventory management means that you have exactly the parts you need when you need them to complete your work orders, but not so many parts that they’re eating away at your budget unnecessarily. It also means knowing when to order more parts, and exactly how much to order.
Your equipment management software should allow you to connect parts and materials to individual work orders so you can track when items are being used. Doing a physical inventory every week or even every month is time consuming. Using software to do it for you saves on time and balances inventory expenditures.
Cost advantages to automated inventory management include:
- Preventing an accumulation of outdated parts by reducing excess inventory purchases
- Reducing downtime by always having the right parts on hand for repairs
- Better capital management
- Less space dedicated to storage
Pro Tip: Inaccurate inventory counts can lead to delays with work orders or unexpected rush charges when the parts are not available when you need them. These cost are avoidable. Software that includes inventory management eliminates the guesswork by automating cycle counts and tracking inventory use in tandem with work order completion.
What to look for in equipment management software
Many organizations with the best of intentions still have a tendency to run equipment to failure. This is widely recognized as poor practice. At the same time, it’s more expensive than investing in equipment management software and creating a strategic plan that offers a return on your asset investment as well as a return on your software investment.
To bring your business case full circle, look for a solution that includes mobile tools in a cloud-based environment. That way, your teams can connect from anywhere, every asset status is always up to date, and your data remains secure and accessible.
Ready to begin building your business case for equipment management software? Start by scheduling a personalized demo of ManagerPlus Lightning to see everything it can do for your bottom line.