A Return on Investment (ROI) calculation results in a value that represents the benefits received from a project against the total costs of the project. That's basically all there is to it, but if you ask ten different accountants how to calculate ROI the chances are that you would get ten different answers. A certain amount of "poetic license" can also be evident, depending on whether the person crunching the numbers is "for" or "against". This does not mean that it is impossible to arrive at a reasonable and sensible ROI figure.
If you search around for information on ROI calculation you will find many examples of "Calculating ROI for IT projects/engineering projects/training/asset acquisition, etc." You will be seeking to justify a CMMS but what must not be forgotten is that the principles for building a business case for any project are broadly similar. The standard ROI calculation can be simply expressed as follows:
If you need to calculate the annual percentage savings over a period of years the original calculation can be developed further. Let's say,
In this example the sum of the benefits and costs for each year are divided by the number of years used in the calculation, (three).
OK - we now have our formulae, but the overriding problem is that some of the benefits of a CMMS may be intangible. Calculating the costs should be relatively easy, the clever part is in being able to determine or forecast what the tangible benefits will be. Many maintenance departments will not be able to provide an accurate figure for their total annual maintenance budget. If this total is not available you will have to use what figures you do have.
For example most departments have a good idea of what they are spending specifically on overtime. The introduction of a CMMS software usually leads to better planning of work and the subsequent reduction of planned versus unplanned jobs should lead to a reduction in overtime levels. You can then look at the projected ROI on your overtime component alone.
Example A small maintenance department spends £40K per annum on overtime. With a goal of halving this, it is estimated that the CMMS software implementation can reduce it to £31K in the first year, £23K in the second year and £20K in the third year. Implementation and software costs are 18K for the first year, 8K for the second year and 4K for the third year.
Assuming that the estimated overtime savings are met this means that you can demonstrate a 53.33% ROI per annum for the first three years on overtime savings alone. Savings on other costs such as headcount, inventory and production downtime can be calculated in a similar way. Ultimately, using this model, the cost of a CMMS software is fairly easy to justify.
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Two other related and valuable resource by Perspective CMMS that we highly recommend you download today are ...
The CMMS Selection KIT (downloadable version)
The CMMS Insider's Guide e-Book
Perspective CMMS came up with the original article above and Business Industrial Network developed the calculator below. Therefore any questions or comments about the calculator below should be directed to BIN95.com
Also, Please read disclaimer below.
We start out the process of calculating ROI for CMMS program by setting a 3 year goal. For example by year 3, the user feels they should see a 50% reduction in annual overtime cost.
The next step is to enter your estimated cost to implement the CMMS program each of the 3 years. It should get less expensive each year.
The final step before pressing the "Calculate" button, is to enter your current cost for for each category you want calculated in to the savings and ROI totals.
The calculator will automatically show your cost savings of 1/2 your 3 year goal for year 1. Year 2 will show cost savings at 3/4 of your 3 year goal, and year 3 will show cost savings figured at percentage you entered for your 3 year goal.
Holding your curser over underlined areas of the calculator will display pop up help screens to further explain the calculator.
Business Industrial Network has offered this online CMMS ROI calculator in good faith. We recognize that there are other methods of ROI calculation and you must decide for yourself if this one is applicable to your CMMS selection process. You must also use your own data and Business Industrial Network (and all associated entities) cannot be held responsible for the accuracy of any results.
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