A Business Case for Asset Management Software

It’s still critical to build a solid business case and get upfront management support to be able to justify and obtain funding for your asset management software project.

Ralph Rilo, ARC Advisory Group
Ralph Rilo, ARC Advisory Group

Even though the economy is growing, revenue growth remains challenging. As a result, C-suite executives continue to focus on costs to improve profitability. Attention has moved from outsourcing toward improving internal manufacturing productivity—including maintenance and asset management. As a result, many organizations are upgrading their plant-level computer maintenance management systems (CMMS) and enterprise asset management (EAM) systems, and modernizing business processes. However, ARC Advisory Group research indicates that it’s still critical to build a solid business case and get upfront management support to be able to justify and obtain funding for any software project.

Asset management practitioners often need guidelines to develop a business case to upgrade their CMMS or EAM software. The primary objectives of maintenance tie to the C-suite metrics in the P&L statement and balance sheet. Here, we’ll attempt to briefly outline an effective business case designed to get executive support.

>> Why Worry About Maintenance? Advances in sensing, networking, and algorithms are streamlining the flow of diagnostic and prognostic data for manufacturers. http://bit.ly/10Dznhd

Executives in the C-suite respond to their metrics just like the rest of us. The C-suite’s metrics are very public: the quarterly reports containing the P&L statement and balance sheet that financial analysts and potential investors carefully scrutinize. A good business case connects the benefits of an asset management system (or any other industrial software application) with the financial metrics in those reports.

The key business drivers for asset management systems address the basic goals of uptime, asset longevity, cost control, quality and safety. These directly affect C-suite metrics of revenue, cash conservation, profitability and risk management.

Improved uptime for production scheduling: Good maintenance reduces the chance of equipment failure and the resulting unscheduled production downtime. Unscheduled downtime causes losses in direct labor and, often, work-in-process (WIP) materials. Obviously, these losses have a direct negative impact on the P&L statement.

With today’s tight scheduling with minimal inventory, a production interruption often results in missed shipment dates, customer satisfaction issues, and reduced revenue. The lower revenue also negatively impacts P&L.

Cost control with maintenance: The demise of an inexpensive component often cascades into other, more expensive system components. Without appropriate preventive maintenance, repair costs can escalate significantly.

Maintenance managers have significant budgets with labor, contractors, materials and competing priorities. They need a modern asset management system to schedule and deliver a preventive maintenance strategy, while also controlling costs.

As an additional benefit, upgrading the system usually lowers IT costs by rationalizing applications and focusing on one CMMS/EAM instance.

Extend asset longevity: First, maintenance extends the useful life of assets, delaying the need for costly capital projects for replacement or refurbishment. Proper maintenance reduces capital expenditures and conserves cash. Second, the increased uptime provides additional production capacity and avoids procurement of more equipment as the business grows. Avoiding capital expenditures conserves cash. With more cash, metrics used by financial analysts improve, and the stock price goes up.

Improved uptime for production scheduling: This benefit also affects the balance sheet. Materials are queued between operations to buffer interruptions, including equipment failures. Better maintenance and higher equipment uptime reduces uncertainty and allows a reduction of inventory. Again, the added cash improves stockholder value.

Catastrophic equipment failure can put nearby people in danger. Also, failure of a major system can cascade into other systems, representing a significant business risk. Governance, including Sarbanes-Oxley compliance, necessitates good maintenance.

Well-executed maintenance makes nearly everyone look good. This must be communicated in terms that allow others to see the connection. Otherwise, executives will want to “optimize” (reduce) maintenance costs—with less-than-optimal results.

>> Ralph Rio, rrio@arcweb.com, is Research Director, Enterprise Software, at ARC Advisory Group (www.arcweb.com).

More in OEE