Measuring Effectiveness

Learning Objectives By the end of this chapter, you should be able to: List the two categories of measurements of maintenance effectiveness and activity management. List four important types of measurements that indicate effectiveness of maintenance management. List eight other types of measurements to follow specific areas of maintenance activity. State the five adverse effects that excessive overtime has on maintenance operations. State the three phases in the implementation of total productive maintenance.

INTRODUCTION "How am I doing?" is the question we ask ourselves, and the question others ask us, as well. In this course, we have developed tools to improve efficient and productive maintenance operations. But how effective are they? The answer lies in measuring maintenance efforts. Intelligent measurements provide a basis for making better decisions about managing maintenance. There are a number of ratios and indexes that measure the effectiveness of the organization and management and the activities that affect the overall success of the organization. Each type of measurement contributes solid feedback to the responsible manager, indicating where problems exist and what attention might be needed. These measurements are related. Too much emphasis on cost reduction will eventually result in unacceptable performance maintaining equipment
123

124

How to Manage Maintenance

and facilities. Other relationships will also be discussed. To understand the maintenance operation and to effectively balance the use of available resources to achieve the most effective program, measurements similar to those that follow should be implemented, reviewed, analyzed, modified, and customized.

SAFETY MEASUREMENTS One of the best measurements of a manager's effectiveness is the ability to run a safe operation. Achieving high levels of safety involves training and use of people. Consequently, a department with a minimum of lost time accidents reportable to the Occupational Safety and Health Administration (OSHA) exhibits managerial concern for people in the department and demonstrates overall management effectiveness. A safety audit of such a department would show a set of safety policies and standards, a daily review of hazardous conditions, a record of periodic safety orientation meetings, and appropriate discipline meted out to violators of safety requirements. These activities can be measured and reported on a continuous basis.

BUDGET VARIANCE Budget variance is a simple measurement of how well maintenance expenditures conform to estimates in the budget or to references such as industry averages for similar activities. Variance should be monitored for expense, or operating, and capital budgets. Variance is usually shown in terms of percentages or dollars over or below the current budget on a monthly basis and yearto-date. In Chapter 2 we looked at ways to analyze budget variances and at how ongoing awareness of variances aids in effective management. Budget variance is likely to be smaller as the size of the budget increases and varies with individual items included in the budget. All line item variances should be reviewed, but experience tells which ones are high-leverage indicators of problems and management challenge. Some managers keep watch on the budget variances alone, but this may be an incomplete review. Other measurement indexes allow the manager to know how much was actually spent on the items that caused the variances and whether the expenses were justified.

MAINTENANCE COST PER UNIT Maintenance cost per unit is another method of measuring the cost, or effectiveness, of maintenance. The unit in maintenance cost per unit can be defined in any way local management considers important. Generally, the unit is a unit of production or service. Examples include number of manufactured products produced, pieces of equipment maintained, pounds, barrels, tons, geographic areas, departments or plants, energy systems, or any other unit used by the cost accounting organization to measure products or service.

125

How to Manage Maintenance

Watching the maintenance cost per unit figure provides valuable trend information for the manager. Specific indicators, or measurements, can be affected by changes in volumes or processes in manufacturing, introduction of new products, changes in the weather or seasons, introduction of new or different equipment, and by more or less effective maintenance activities. These factors that influence the maintenance contribution to the cost of production or to the cost of operations in nonmanufacturing organizations, must be taken into account when determining the portion of the total product cost that can be attributed to maintenance. Some costs included in maintenance, such as building maintenance, heat, light, grounds, and depreciation, are constants and are therefore not proportional to the level of production. Consequently, maintenance cost per unit of production increases when production decreases, and decrease when production levels peak. The maintenance cost per unit only indicates that a closer look should be taken if the figure makes a change in either direction. Action should be taken quickly to reduce costs of all kinds whenever there is a drop in production or operations. A similar index is maintenance cost per sales dollar. The same problems exist as with maintenance cost per unit. There is also a concern with the time lag between the time sales are credited and the time production levels change to reflect the sales volume.

AUINTENANCE COST AS A PERCENTAGE OF CAPITAL INVESTMENT The function of maintenance is to maintain equipment, systems, buildings and grounds, and other assets at an optimum level of performance and with an optimum outlay. Because equipment, systems, buildings, and grounds are included in the capital investment of the business, the cost of maintaining them can be compared with the capital invested as another way of measuring maintenance effectiveness. Accountants look at capital investment in several ways. One is the book value, the original purchase cost less the accumulated allowance for depreciation. When book value is used, the maintenance cost of individual assets always show an increase each year because the book value decreases while maintenance and inflation generally increase as the asset gets older. The original purchase price of the asset (not depreciated) can also be used, but this generally has little relevance in measuring current maintenance performance. A better value to use as a base for calculating an index is the cost of replacing an asset. This appears to be the best method for measuring maintenance cost as a percentage of capital investment, although it makes no allowance for the fact that the physical plant is always aging and more maintenance is required. An allowance figure is often used to recognize this cost. The insurance department in most companies keeps asset replacement value information. If not, estimates should be made by persons having knowledge of current costs of equipment and facilities.

126

How to Manage Maintenance

The three measures mentioned-budget variance, maintenance cost per unit, and maintenance cost as a percent of capital investment-can be used individually or together to monitor trends in the cost of providing maintenance.

ADDITIONAL MEASURES Additional measures follow specific areas of maintenance activity and are used to: highlight trends, problems, and areas of improvement; gauge the success of changes in methods or equipment; and create special reports for activities of special interest designated by management. In the following sections some of these measurements are discussed. These are valuable tools if properly developed and diligently pursued and should be used where appropriate to monitor progress and performance. Percentage of Uptime This measure is the percentage of time a piece of equipment is operable. The percentage might also be shown for a system, line, department, facility, product area, or any meaningful designation. An average for all equipment or groups of equipment is more valuable as an indicator of trends over time. Some organizations measure downtime, but measuring uptime is a more positive approach. The index can be constructed using the 24 hours of the day or, more reasonably, a number such as the hours the department is scheduled to operate for the month. Managers should take care working out the basis for this measure. A high uptime rate must be balanced against the cost of obtaining it; the last few percentage points will probably be costly. Each case has to be judged separately, taking into consideration the number of machines available, redundancy, importance of the equipment (that is, the risk factor if it fails or does not run up to par), costs of overtime, and many other factors. Maintenance managers concerned with achieving high uptime must make informed decisions about preventive maintenance, overhauls, replacement, and interruption of operations or production. Exhibit 8-1 shows the relationship of maintenance efforts to uptime results. Creative planning and scheduling of maintenance can increase the uptime without being excessively costly. Percentage of uptime, budget variance, maintenance cost per unit of production, and maintenance cost per dollar of investment offer four measurements of the effectiveness of the maintenance organization. Other measures important to individual organizations could and should be developed and used. The next series of measures indicates how well management uses the work force. Improvement in these ratios indicates the effects of proper planning and scheduling, employee training, motivation, and management's direction.

127

How to Manage Maintenance

This classic graph has appeared in maintenance procedure manuals in many companies. It illustrates the point at which the attempts of maintenance to provide the availability of equipment (or uptime) becomes more costly than the return realized from continuous production. The last few percentage points are the most expensive. The desired effort is where the two lines intersect. To the left of this point are the combined costs indicating not enough maintenance (meaning the return from production is decreasing because of the unavailability of equipment); to the right are the combined costs indicating too much maintenance. Maintenance can only guarantee the availability of equipment to a certain point. At that point, the cost of maintenance to avoid the unavailability of equipment becomes greater than the losses because of reduced production. In other words, maintenance costs are rising faster than the return from guaranteed uptime. Using a buffer of plus and minus 10 percent helps in controlling the desired level of maintenance. To maintain the lowest practical cost of maintenance, costs must stay within this 10 percent range. The cost of the availability of equipment in this graph is not the measure of a single uptime statistic alone. It represents the total maintenance effort.

Workload Backlog Workload backlog compares the amount of work on hand, assigned or ready to be assigned, with the amount of labor hours available. It should include work required by blanket work orders and planned preventive and predictive maintenance for the period. It is generally thought that a lack of backlog indicates overstaffing. In some operations this is not the case. On the other hand, a 10-day backlog may signal the need for more staff or overtime or perhaps a need to review the work to see what can be postponed or eliminated.

128

How to Manage Maintenance

Days of backlog are usually expressed as crew days, although some organizations prefer total labor hours. For example: Mechanic section employees Normal work week Total available hrs./wk.(15 x 40) Absenteeism Dept. meetings, administration, etc. Available hours/wk. 600 - (2.1 +.5)% Regular PM allocated (16 hrs./day) Blanket work orders allocated (8 hrs./day) Reserve for emergency order response* Average actual hours available/wk. Hrs./day avail. for backlog (454.4 + 5) Estimated hours of work orders to issue Workload backlog (981 -.91.98) May be provided for in planned work estimate as allowance %. Overtime Ratio The amount of overtime, expressed as a percent of regular hours, is called the overtime ratio. It affects budget performance employee morale and plans for staffing. Overtime is an important factor in preventive maintenance, backlog, uptime ratios, and other forces within maintenance. The objective of management is to keep the ratio within planned limits. If no overtime is ever needed, it may be a signal that staffing may be too high. Excessive overtime usually means poor management. The ratio should be monitored to indicate trends, to highlight major problems, and to evaluate supervisory effectiveness. Excessive overtime also creates classic personnel problems when it becomes a way of life with employees. If it is suddenly reduced or eliminated, employees may suffer great reductions in take-home pay. Overtime often masks management deficiencies in workload planning and scheduling, training, labor planning, and discipline. Moreover, constant use of overtime works to decrease productivity as work tends to expand to fill available time to do it. It is the maintenance manager's responsibility to keep the overtime as close as possible to the optimum planned levels. Emergency Work Ratio The emergency work ratio is the number of hours spent on emergency work (Chapter 3) as a percentage of the total hours worked by the maintenance department. Some managers break it out according to regular and overtime hours. It is common to find maintenance groups so busy putting out fires they cannot find time to plan and schedule properly, do preventive maintenance, and control overtime costs. As a result, emergency work increases. To control this situation, it is necessary to redefine emergency work, establish a more reasonable set of priorities, eliminate trying to satisfy all customers immediately, and enlist top management of the organization in the quest for scarce maintenance resources. Users of maintenance usually cooperate if they are convinced their work will be done according to a fair set of schedules and priorities. Constant review of the emergency work ratio pro= 15 employees = 40 hrs. = 600 hrs. = 2.1 = .5% = 584.4 hrs. = 90 hrs./wk. = 40 hrs./day = 0 hrs./day = 454.4 hrs./wk. = 91.98 hrs./day = 981 hrs. = 10.66 crew days

129

How to Manage Maintenance

vides timely ammunition in gaining control of this work and in getting support from the users of maintenance services. Labor Versus Materials Ratio The average labor cost compared with average materials cost is called the labor-materials ratio. It can be calculated for trades, shops, department, or by units of production or operations. For example, the ratio might be 1.2: 1.0, or 1.2 dollars of labor for 1.0 dollars of materials used. The labor versus materials ratio is useful only when measuring a large amount of work over a period of time because many labor jobs require little material. This ratio is a general indicator of the effectiveness of labor in using or installing materials. But it is also useful for evaluating training, supervision, and planning. The ratio can be affected by such variables as overtime, the balance between new work and repairs, and new construction. Some trades are more affected than others: auto mechanics typically use a lot of parts, for example, whereas electricians might not.

WORK MEASUREMENT One measurement desired by management and perhaps the most difficult to obtain is the measurement of actual work rather than counting work. A number of methods compare actual time spent on maintenance jobs with an established norm. Counting the actual time it takes to complete a job is relatively easy if structured and supervised correctly. Comparing the actual time with the estimated time on a work order is also a routine accounting task. But ways of determining how long it should take to do the work are numerous and varied. The question remains: Are the maintenance personnel accomplishing their jobs in a reasonable amount of time and at the right pace? This is an important issue because it has been shown that major contributions can be made to improvements in productivity and profitability through properly planned and scheduled work, coupled with efficient execution of that work. The time estimated for a work order is based on a specific work method and is used primarily for scheduling the job at a particular time. The estimated time should be a reasonable indicator of how long a competent worker needs to complete the work. However, determining if jobs are being accomplished at the right pace can be a daunting task. Work of almost any type is influenced by training, motivation, methods, planning and scheduling, supervision, and time. However, the manager who pursues this subject will be rewarded because even a simple system that collects and assigns the average time to accomplish similar jobs or tasks usually shows an increase of 10 percent or more in effectiveness over a short period. There seems to be a natural increase in productivity just because someone is keeping a record. A number of systems that help in determining norms for performing maintenance work. Among these are systems that provide historical standard data, engineered time standards, and even elemental time study data for specific tasks. Increasingly, machine operator tasks in manufacturing situations occur within the time cycles of automated machinery, so worker pace is not a prob-

130

How to Manage Maintenance

lem unless the worker exceeds the time the machine is taking. This may apply in some maintenance activities, as well. However, most maintenance work tends to be largely unstructured and nonrepetitive, so the task of establishing budgets for how long jobs or activities should take can be difficult and illusive. In meeting this challenge, maintenance planners often use time estimates based on recent local experience for similar jobs or based on best estimates of people familiar with the tasks. Some resort to published standards or information from manufacturers' manuals. Still others use sophisticated computerized techniques of estimating, coupled with databases filled with locally derived time estimates or purchased time estimates. Allowances for travel, personal time, fatigue, delay, and so on are unique to each local site. Planned work must have a time budget because this is key to being able to schedule it. Completed work should be audited to compare actual versus budgeted times so that time estimate databases can be updated and improved. A job post audit is less costly than developing new time standards for each job that comes along. Estimated Time Versus Actual Time Actual time versus estimated time ratios can be generated and published for management. These can be created on the basis of total hours worked, by craft, customer, class of work, project, or any other category that makes sense to maintenance management. As an example, Exhibit 8-2 shows a list of estimated and actual times for each completed work order. Many computerized systems generate useful reports and graphs that depict comparisons of estimated versus actual hours and dollars. Exhibit 8-3 shows graphs that represent efforts of a maintenance project of new installations. Graph A shows that work is being completed fairly close to the estimated times. The graph also shows that the amount of labor devoted to projects is growing. Graphs B and C show that some of the close-in details of work management need closer attention.

WORK SAMPLING Although work sampling is not a precise measurement of effectiveness, it does indicate how time is being used and, therefore, assists in pointing out problem areas. This technique is a statistical system that uses ratio delay and is based on the principle that what happens in a large sector of activity tends to happen in a smaller one. Managers may draw inferences about the overall situation by sampling the small sector. Most public opinion polls are based on this method. In maintenance, work sampling is most often used to determine the percentage of time spent on a number of items associated with performance of observed jobs or activities. These items may include travel time, waiting for parts, actually doing a job, idle time, and interruptions. The results are often unexpected and startling. A typical work sampling report might indicate ten

131

How to Manage Maintenance

132

How to Manage Maintenance

133

How to Manage Maintenance

mechanics in a certain part of the facility spend 20 percent of their time traveling, whereas their assigned work orders might have allowed much less. In effect, the equivalent of two out of ten people assigned are doing nothing but traveling from one place to another. The reasons for the high travel require examination by supervisors. Work sampling studies and reports offer opportunity for understanding activities in operations such as maintenance, where people move around a lot and perform varied tasks.

SUMMARY In this chapter, we looked at ways to measure the effectiveness of the maintenance function. We have also reviewed some indicators of specific activities in various functional areas. The relationship among these data and their effect on each other is important. An astute manager considers them as a group and continuously balances maintenance resources while getting the job done the best way possible. To answer the question stated at the beginning of this chapter- How am I doing?-the maintenance manager must set goals and measure the results by using the mix of indicators agreed upon within the department and with those in top management. A preferred way to record, measure, and present results is to _employ computerized systems to generate reports and graphs similar to those discussed in this chapter.