Maintenance cost as a percentage of replacement asset value

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What is MC/RAV?

Research has shown that US companies spend upwards of $100 billion a year on repairs and maintaining facilities and equipment. One common way of tracking these costs accurately for better planning and forecasting is to calculate the annual maintenance cost as a percentage of the replacement asset value(MC/RAV).

This benchmark metric is great for measuring asset performance and maintenance performance. MC/RAV tells you how much you are spending on maintenance compared to the value of the asset. It measures how well you are doing at creating and maintaining a cost-effective maintenance strategy.

Using MC/RAV helps answer what the cost would be today to replace existing assets with brand new, identical equipment against the total cost of all expenditures for materials, labor, and services expected to be used annually.

How is MC/RAV measured?

MC/RAV uses two measurements: Maintenance costs and replacement value.

Maintenance costs are calculated by adding together the cost of parts, labor, and miscellaneous expenses for all closed work orders in a time period for a particular asset. Replacement asset value is the present cost to replace the existing asset with a new, identical asset. Note that calculating MC/RAV doesn't take into account other costs for production, disposal, etc.

You can determine the maintenance cost as a percentage of RAV by calculating the amount of money spent annually on maintaining an asset divided by the replacement value of that asset.

This equation looks like the following:

Total Maintenance Cost/RAV (%) = (Annual Maintenance Cost ($) x 100) / RAV ($)

For example, you may spend $50,000 a year on maintenance for an asset. If you were to replace that asset tomorrow with a brand new version of it, it would cost $1,000,000. Therefore, the MC/RAV for this asset would be 5%.

A good benchmark for MC/RAV is between 2% to 3%.

Benefits of MC/RAV

MC/RAV allows you to adapt your maintenance habits to reduce your maintenance expenditures. It helps you decide whether you should repair, maintain, or replace your assets.

It does this two ways:

  1. MC/RAV gives you insight into the areas of your operation where you can spend less while still providing high-quality preventive maintenance.

    For example, if MC/RAV spikes, it may mean a piece of equipment is breaking down more frequently, which means more reactive maintenance, more labor hours, and more spare parts.

    You may need to schedule more preventive maintenance, order more parts, and provide training on a certain kind of failure to reduce the impact on the bottom line.

    Keeping an eye on MC/RAV is more important as an asset ages and the decision to repair or replace it grows closer.

  2. MC/RAV calculates if the value of an asset is worth the number of maintenance resources being given to it. A culture of total productive maintenance and better maintenance processes can reduce MC/RAV and have an indirect, but huge, impact on PM scheduling.

    For example, one of your assets might break down a lot. You’re spending more time (and money) on PMs to reduce the frequency of failure. This puts strain on the maintenance schedule.

    Calculating MC/RAV helps you visualize these inefficiencies and find alternatives, like investing in new equipment, higher-quality parts, and better training.

    This leads to fewer breakdowns and less frequent PMs, leaving more time and money for other assets and PMs.

Three ways to improve MC/RAV

Improving MC/RAV involves balancing the cost of maintenance with the health of assets.

This can be done in three ways:

1. Schedule maintenance on a regular basis

Regularly scheduled maintenance will help keep maintenance costs low. This might seem counterintuitive. More maintenance means more labor and more parts, which all cost more. But by consistently tending to equipment, you can find potential failures before they turn into something more serious. The result is less downtime and fewer emergency repairs, which are often much more expensive.

A computerized maintenance management system (CMMS) makes it easy to schedule preventive maintenance. It allows you to track all service requests and complete work orders with ease. With features like maintenance reporting, you can see real-time KPIs, create benchmarks, and make data-driven decisions without sifting through a mile of numbers.

2. Keep track of all cost-related activities

Another way to keep your MC/RAV balanced is by having greater visibility into operational expenses.

A CMMS is also a great tool to help you spot trends in expenditures and adjust your maintenance strategy accordingly. The software allows you to store detailed records for each asset, like how often it gets used, repaired and replaced.

These types of insights help you budget appropriately and decide whether it is worth it to repair or replace depending on the MC/RAV.

3. Make use of maintenance analytics

Having access to software that offers analytic capabilities is critical if you want to be thorough in finding areas of improvement in the repair and maintenance process, such as reducing costs or improving efficiency.

When you use maintenance metrics to analyze your operational expenses, look at if you were able to stay within budget, and break down the spend based on asset, location, and internal vs external contractors. Also, consider if there were any changes implemented that may have positively or negatively impacted spending activity.

All of these considerations are best informed by data. When you utilize maintenance analytics, not only can you gain deeper insights into how costs are being allocated, but can begin to strategize best practices that will help to improve your MC/RAV.

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