Equipment Cost Metrics

Performance and maintenance metrics are crucial for the proper use of the company's equipment.

Effective cost management is essential for an organization's success. Collecting detailed component data on individual equipment helps the organizational management to develop and implement preventive-maintenance program. Without unit-level information, it is impossible to make good repair-rebuild-replace decisions. This information is the starting point for an effective equipment management system.

At the next level, however, individual units should be grouped together into various equipment classes comprising machines of a similar type, size, capability and cost-recovery rate. Important performance indicators such as cost, average age, reliability and others are established at a class level. Besides, unit-level decisions should be taken in order to ensure that the equipment class produces the best possible results. It is crucial to clearly define equipment classes, as well as determine cost-recovery rates for units within each class.

Setting targets and goals is an important part of the cost management program. Each equipment class must have well-defined financial, performance, reliability and production targets. As cost structure is not similar in different classes of equipment, there are frequently different financial expectations for each class. The important thing is that classes must balance their own books and that different equipment classes should not subsidize each other.

Dividing equipment costs into categories provides a more sophisticated view of the cost structure. The first and foremost division of cost into categories requires a distinction between owning and operating costs. The main challenge with owning costs is to ensure that all the equipment operates sufficient hours to recover fixed annual costs at a reasonable unit rate. In case of operating costs, however, it is important to optimize the equipment maintenance, repair and rebuild activities.

Owning costs fall into the following sub-categories: solely financial expenses associated with depreciation; interest; loans and leases; as well as the annual costs associated with licenses, insurances and property taxes. Each subcategory has its own set of metrics which should be measured separately.

Proper management of operating cost requires that the cost of the equipment repair parts and the cost of labor are calculated separately. Besides, these metrics should include additional complex variables, such as the equipment lifetime and age. It is also important to keep track of actual hourly costs of the equipment and compare it with the planned budgets and models. In the long run, operating cost measurements are essential for the management's decision-making as to when the equipment should be repaired or replaced.

Information is only of value if it helps the company take the right action and improve overall performance. Global figures that do not assist in identifying the root cause of the problem are not valuable and usually lead to inaccurate or inappropriate actions. On the other hand, the performance data with too fine level of detail does not allow the company to focus on the existing problems.

A careful categorization of all equipment and classification of collected performance data into a set of units, classes and groups provide a clear and precise view of the company's equipment costs and expenses. This view enables timely and accurate decisions on the equipment maintenance.