How do you justify the cost of purchasing a new CMMS system?
Justifying the cost of purchasing a new CMMS system can be done by comparing the value that the CMMS adds to the company, to the total cost of the CMMS system.
Total cost of the CMMS
The total cost of a CMMS system is relatively straightforward to calculate – this is usually defined as an outright cost by a CMMS provider. With the availability of software as a service (SaaS) and cloud technology, CMMS costs are now commonly in the form of a subscription fee (e.g. monthly or annual subscription fees).
Value of the CMMS
The value that CMMS adds to an organization is not as easily measured. At a high level, CMMS aims to perform maintenance processes more efficiently, thereby allowing cost savings from reduced failures and increased uptime.
Having a CMMS system can significantly add value to key areas by providing a systematic approach to performing tasks. The following list briefly describes how a CMMS system addresses these key areas. The sum of savings gained after implementing a CMMS system approximates the value of the CMMS.
- Asset Lifespan – extend an asset’s lifespan by scheduling preventive maintenance tasks efficiently
- Overtime – forecast labor hours effectively by reducing overtime due to inefficient work order management
- Inventory – optimize inventory management by having the right amount of stock at the right time
- Downtime – reduce production losses due to unscheduled downtime
- Utilities – reduce utility costs by scheduling preventive maintenance tasks that allow equipment to operate at peak efficiency (e.g. HVAC systems operating efficiently reduce gas and/or electricity consumption)
- Productivity – automate manual processes to allow employees to focus on more productive tasks
- Document Management – reduce the time it takes for retrieve documents
Calculating the return on investment (ROI)
Given the total cost of a CMMS system, and the estimated value of the CMMS, the ROI can be calculated to characterize how much the benefits outweigh the costs. The formula for the ROI of a CMMS is given by the following equation:
ROI = [(CMMS value – CMMS cost) / CMMS cost]
CMMS reduces inefficiencies by eliminating manual time-consuming processes. It also helps to increase safety by keeping assets in check. These benefits are obviously sought after by organizations. Calculating the ROI is a powerful metric that quantifies these benefits to highlight the cost effectiveness of having a CMMS system.