CMMS ROI Calculator
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How to cost justify your CMMS software.
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ROI Calculation for CMMS Projects
Return On Investment (ROI) calculations are a result value that represents the benefits received. That's all there is to it, but if you ask ten different accountants how to calculate ROI, you will 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". Those approach variables do not mean that arriving at a reasonable and sensible ROI figure is impossible.
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 seek to justify a CMMS, but remember that the principles for building a business case for any project are broadly similar. The standard ROI calculation, expressed in simple terms, is:
If you need to calculate the annual percentage savings over a period of years, you can further develop the original calculation shown above. Let's say,
In this example, the sum of the benefits and costs for each year is 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 cannot provide an accurate figure for their total annual maintenance budget. If this total is unavailable, you will have to use what figures you have.
For example, most departments have a good idea of what they are spending specifically on overtime. The introduction of CMMS software usually leads to better work planning, and the subsequent reduction of planned versus unplanned jobs should reduce overtime levels. You can then look at the projected ROI on your overtime component alone.
For example, a small maintenance department spends $40K annually on overtime. With the goals shown set, 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, 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 similarly. Ultimately, using this model, the cost of CMMS software is relatively easy to justify.
We highly recommend you download two other related and valuable resources by Perspective CMMS today:
The CMMS Selection KIT (downloadable version)
The CMMS Insider's Guide (downloadable version)
Also, another great cost justification resource is at the bottom of this page.
We start calculating ROI for the 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 every three years. It should get less expensive each year.
Before pressing the "Calculate" button, the final step is entering your current cost for each category you want to calculate into the savings and ROI totals.
The calculator will automatically show your cost savings of 1/2 of your 3-year goal for year 1. Year 2 will show cost savings at 3/4 of your 3-year goal, and year three will show cost savings figured at the percentage you entered for your 3-year goal.
Holding your cursor over ⓘ areas of the calculator will display a pop-up help screen to explain the calculator further.
True Downtime Cost Analysis - 2nd Edition
EBook By Don Fitchett and Mike Sondalini
"Costing methods & techniques for manufacturing processes to offer the greatest return on capital employed (ROCE)."
Description:
True Downtime Costs™ Analysis focuses on costing methods and costing techniques that quantify activities. Even those that previously fell under the indirect cost definition, like the hidden cost of outsourcing, warranties, etc. This technique is necessary for bottleneck management and applies to piece manufacturing and other industries.
Authors Don Fitchett and Mike Sondalini coauthored the extension of the original eBook "The True Cost of Manufacturing Downtime" (ISBN 1-933047-15-1). This second edition also provides an action plan to utilize existing shop floor data collection to monitor all the manufacturing processes and associated costs.
Also see Training Cost Justification (ROI)
And ... How to Calculate ROI for Downtime Big Data
Disclaimer:
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 if this one applies to your CMMS selection process. You must also use your data, and Business Industrial Network (and all associated entities) cannot be held responsible for the accuracy of any results.
Jump to online calculator - Read about calculation
