The Value of Preventive Maintenance

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On May 5, 2016, Posted by , In Preventative Maintenance, With Comments Off on The Value of Preventive Maintenance

The cost of a business’s facilities portfolio is one of the most expensive items on the balance sheet. As everyone is increasingly expected to do more with less, it can be challenging to argue the decision to “fix something that isn’t broke” – also known as preventive maintenance.

But according to a case study by Jones Lang-Lasalle, it’s possible to put real defensible numbers behind a preventive maintenance plan. Here, we’ll break down how you can find those figures for your business to determine how preventive maintenance could affect your bottom line.

The Cost of Maintenance

According to the Building Owners and Managers Association (BOMA), as mentioned in JLL’s case study, repair and maintenance account for about 15 percent of property management’s total expenses. About 30 to 50 percent of that repair and maintenance figure goes toward preventive maintenance, or 4.5 to 7.5 percent of annual operating costs. How do you justify that?

Building a Financial Model

Although your facilities team can probably recall plenty of anecdotal evidence behind the importance of preventive maintenance, those stories don’t hold enough weight in budget meetings. Instead, it’s important to understand how to show the possible return on investment of routine maintenance based on a solid preventive maintenance plan. In JLL’s case study, a business partnered with the commercial real estate company to figure out the following:

        • Actual cost of preventive maintenance
        • Cost of repair/corrective maintenance
        • Cost of replacing equipment
        • Expected useful life of equipment
        • Effects of preventive maintenance on expected useful life and energy consumption
        • Frequency of required repairs without preventive maintenance

By figuring out the above, the business was able to build a financial model specific to their portfolio. They used a sample size of 12 percent of their square footage, identified the types of equipment and amount of each, their size and their age. After narrowing down their study to 15 types of equipment, they researched those equipments’ manuals and other sources of reference to determine the industry-recommended amount of preventive maintenance that should be spent on each.

Understanding the Impact

With these numbers on hand, the business then illustrated one scenario of a compressor’s lifecycle with preventive maintenance versus repairs only. With preventive maintenance, the compressor was expected to need repair every four years at a cost of $944 and replaced at year 10. Without preventive maintenance, the compressor would need maintenance every three years at the same cost of $944, and replaced at years 6 and 20.

Although this difference may seem negligible, the preventive maintenance scenario has a net present value (NPV) of $6,359. Take it to the portfolio level, and the analysis indicated an NPV of $2 billion over a 25-year period with a $39 million per year, or $0.33/square foot preventive maintenance program.  By increasing the equipment’s lifecycle through preventive maintenance, the business would realize a 545 percent ROI.

Going Forward

Whether or not your facilities team is given a bigger budget for preventive maintenance in the next cycle, developing a financial model will help you to continue building your defense for a well-funded preventive maintenance program.
Track the cost of preventive care you are currently doing to uncover positive trends – such as equipment needing less reactive maintenance than the industry benchmark, longer lifecycles, and less downtime for repairs, which can lead to significant costs elsewhere in the business. As you gather data and analyze their impact, you are equipped to prove the value of preventive maintenance.

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