When companies implement a computerized maintenance system, they care mainly about calculating CMMS ROI. They want to know the impact on ROI and how CMMS implementation can increase industries’ return on investment (ROI).
We all know that companies’ primary target is reducing costs and increasing profit margins. So, anything that does not benefit the business is useless to them.
Many new tools can seem prohibitively expensive and risky, especially for ease of use, ability to integrate with current systems, and ROI is unclear.
Therefore, all companies should seek to learn how a CMMS implementation will raise their ROI, as the correct implementation of CMMS software improves ROI and eliminates significant inefficiencies. Let’s know learn how to calculate your CMMS ROI.
CMMS ROI Formula
The first step in determining and calculating CMMS ROI is understanding the CMMS ROI formula.
It is a simple formula you can calculate if you determine CMMS value and CMMS cost.
To calculate these values, you need to know about the following:
- How much money can you save by implementing CMMS software (CMMS Value)?
- How much money do you spend on CMMS software implementation and running (CMMS Cost)?
- The time frame you are evaluating (this will give you more accurate data and numbers about CMMS Value).
So, CMMS ROI formula = (CMMS value – CMMS cost) \ CMMS cost
You can calculate CMMS value by summation of asset life, inventory spare parts savings, downtime reduction, productivity gain and more.
CMMS cost is calculated by summation of implementation cost, running cost, software and hardware cost.
An example of CMMS ROI calculation: If Your company has total savings of $360,000 for one year from implementing a CMMS, and the cost for one year to implement and run the software is $41,000.
CMMS ROI = ($360,000 – $41,000) / $41,000 = 7.78
This means that after one year, the CMMS return on investment on your company is almost eight times (or 778%) its value.
CMMS Value: Key components to measure CMMS Impact on your operations
An effective CMMS can save money and impact your return on investment by saving time or improving results.
To Calculate the accurate CMMS value, you can look at five critical components of maintenance work.
With CMMS value, you can calculate CMMS ROI accurately.
1. Asset life
Tracking asset history, scheduling PMs, or performing preventive maintenance is challenging.
Companies that depend on reactive maintenance may suffer from reduced safety, increased unplanned downtime, and short asset life. These companies save asset data on paper or in outdated ways.
CMMS software extends the lifecycle of assets and reduces both labour costs and the cost of unplanned failures. So to calculate annual savings from extending the life cycle of assets, divide the total cost of the asset by its lifetime.
2. Spare parts inventory
CMMS has features such as inventory notifications, item searches, and automated parts usage tracking.
These features help automate inventory management and reduce the cost of shipping outdated items.
To calculate your spare parts inventory savings, you need to know spare parts cost (per month) and how much a CMMS will save for your company.
Downtime costs are the most difficult to be determined, leading to lost revenue.
Proactive maintenance allows you to quickly plan and track all maintenance work, improve communication flow, and track inventory so that you can focus on your high-priority assets.
CMMS software achieves proactive maintenance to decrease downtime.
Reducing downtime is one of the major goals of CMMS. Users think with CMMS software, there will be an average reduction in downtime of 26%.
4. Productivity Gains
A CMMS solution can improve your workflow and productivity by giving everyone a fixed structure. It allows the employees quick access to critical asset information and an uninterrupted flow of communication.
To Calculate CMMS ROI, you need to calculate your productivity gains by a CMMS. To do that, you need to know the hourly rate per employee, the number of employees using CMMS, saved hours and working days (per year).
The government and regulatory agencies audit compliance rules in companies and industries. Failing to provide the correct documentation or maintain compliance can make your company face heavy fines.
A CMMS provides a view of preventive maintenance checklists, schedules, and historical maintenance records.
Access to this information helps organisations maintain compliance and pass regulatory audits properly.
How to calculate CMMS cost for CMMS ROI
The initial licensing and implementation costs are the most obvious. They give you an excellent starting point for CMMS, such as software and hardware.
1. Licenses Costs
This information is usually available on the CMMS provider’s website. Many providers charge per user, so you need to multiply the per-user price by the number of users to get the total price.
2- Implementation Costs
CMMS implementation can cost both money and time. It is a complex process in which thousands of company assets need importing. You also must ensure that the data is ready to feed to the system.
Implementation cost = implementation time × hourly pay of the team working on implementation.
3. Software Cost
These are directly calculated costs. Most CMMS providers base their pricing plans on users.
You can multiply the number of people using the CMMS by the price per user. Annual subscriptions are often cheaper than monthly subscriptions.
4. Hardware cost
If you need a maintenance software device such as a mobile or tablet to take full advantage of your CMMS’s mobile capabilities, It will cost you extra money. You should consider that when calculating CMMS Cost and CMMS ROI.