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Do the Math!
Another presidential election is fast approaching, and with the upcoming conventions this summer, the rhetoric is sure to heat up – and with it, the inevitable war of sound bytes. We all remember such classics as Reagan’s “There you go again” and “It’s morning in America.” And Bush the Elder’s quip asking us to “Read my lips: No new taxes.” And then there was the grassroots effort of a Texas billionaire named H. Ross Perot, who gave us such memorable lines as “Do the math.”
I raise this last example because there’s another Texan who recently wrote to me about the importance of obtaining adequate maintenance funding to assure “green” assets. And I can assure you, David Tod Geaslin, an operations and maintenance consultant from Houston, “did the math” in making a very clear point about the real and opportunity costs of delaying scheduled, and even unscheduled, maintenance.
Mr. Geaslin’s “Inverse-Square Rule for Deferred Maintenance” is a game-changer. I guarantee it will not only provide you with a credible argument for adequate maintenance funding, but it will have a lasting impact on your professional and personal budgeting processes. He has been lecturing on this subject, along with three other principles that he discovered in 2001. When all is said and done, this may well become the “Magna Carta” of maintenance, and we are quite fortunate that he offered to share this information in this forum.
It doesn’t matter how green an asset is if the proper manning and funding for the maintenance of that asset is not supported by upper management. I would suspect that 80 percent of all pollution in this country is due to assets being operated in a degraded status – and the subsequent leakage in valves, pipes, seals, and exhaust are out of spec. The same applies for automated asset software that is no longer measuring data within spec. This is caused by upper management failing to manage the maintenance of those assets by using the wrong risk/reward ratios for budgeting decisions.
In my quest to quantify the relationship between pre-breakdown and post-breakdown maintenance expenses, I made a discovery that can create a paradigm shift in how we manage maintenance.
We all know the longer we operate a machine that needs repair, the more it will cost to fix it. People I know who are in upper management (who have not been directly involved in maintenance) know it will cost more, but think that the worst-case penalty for deferring maintenance might be up to twice as much.
Those of us who have had many years of direct experience in managing maintenance have tried to tell them that the penalty is significantly more than that. I, personally, felt that the cost of deferring maintenance was three to four times as much as a timely repair.
What I discovered in my research is that the penalty for deferring maintenance is not more, not twice as much, not four times as much, but that the real penalty for deferring maintenance that becomes a breakdown event is 15:1 minimum, and often exceeds 40:1!
This shocker came to me when I attempted to find a metric that would explain the before-and-after breakdown cost difference. I had to go to an exponential factor! Arithmetic and geometric progressions could not consistently produce the dramatic cost differences. When I realized that the cost penalty was exponential, I was able to find the base number. I created a rule that I call Geaslin’s “Inverse-Square Rule for Deferred Maintenance.” This rule states:
“If a part is known to be failing and the repair is deferred and allowed to remain in service until the next level of failure, the resultant expense will be the square of the failed part.”
This is why a $40 brake shoe left in service (until the brake shoe rivets damage the brake drum, the drum ruins the core value of the shoes, the truck breaks down on the road, a second truck and driver has to be dispatched, the load transferred, and one driver dead, head back with the tow truck) results in an expense of the square of $40 ($40 X $40=$1,600) and becomes $1,600. If the brake problem causes a personal injury accident, the cost can be easily squared again to $2.5 million.
This rule explains how a leaking $50 toilet valve, if left in service until it overflows, can easily cost the square of $50 to create a total flood damage cost of $2,500 in carpet, pad, electrical, and document destruction.
This is why a failing industrial electric motor bearing valued at $100 can create a $10,000 repair if left in service until failure, and the rotor wipes out the windings and damages the stator.
This rule explains how deferring a $1,000 cleaning of a heat exchanger can easily create a $1 million expense in corrupted product, re-refining, packaging, and shipping costs.
My students were not quick to accept that the penalty could be the square of the failed part. “It couldn’t be the square. Squared numbers get too big, too fast,” they said. So I challenged them to take their last maintenance event invoice that was so stinky it ended up on the boss’s desk; add in all the collateral damages such as idled worker salaries, quality control events, ruined materials, customer dissatisfaction, and lost production or profits, and put that number in their calculator; and click the SQRT (square-root) button. I asked them to see if the number they get is the cost of the primary failure part (the part that, if repaired early, would have prevented the breakdown expense). Everybody was amazed at how close the answer came to the purchase price of the primary failure (root-cause) part.
Then we computed the total invoice cost for parts and labor to have repaired the primary failure part at the earliest moment discovered and divided it into the total maintenance event cost. This ratio turned out to be a minimum of 15:1, and often exceeded 40:1.
At this point, I began to understand why final budgeting authorities have always seemed willing to take the breakdown risks associated with deferring maintenance. Their Risk/Reward Ratio Analysis computations have been based on taking their maintenance manager’s worst-case scenario of about 4:1, discounting it to a ratio of about 2:1, and then basing their budgeting decisions on that risk factor. My new discoveries show that the real Risk/Reward Ratio is between 15:1 and 40:1, and the consequences of betting that a breakdown will not occur are much more disastrous than ever thought. No one would ever take those odds at a craps table.
When I explain this rule to maintenance managers, they embrace the analysis immediately because it explains what they see in the field every day.
When I explain this rule to executive and budget managers, they recognize it as a metric they can use to create a new matrix for budgeting and managing maintenance to a lower cost value. The application of this new rule creates one of the few win/win situations between the maintenance department and final budgeting authorities that gives each what they need to succeed.
The application of this rule can be as important to managing maintenance as The Deming Method is to quality control. The application to maintenance budgeting is that powerful. If you wish to test this rule, pull that big maintenance invoice out of your inbox; add in the maintenance, operational, and customer collateral expenses; take the square-root of the total; and see if that is the price of the primary failure part. Discuss the results with your staff. If you see the relationship, it can offer a better way to manage maintenance budgets.
If you would care to know more about this rule and my other discoveries, more detail is available on my website at www.ManagingMaintenance.com.
Wow! I’ve re-read this three or four times and each time, I learn something new. Though it may be too long for a bumper sticker, here’s your sound byte: “Budgets cannot play games with scheduled and timely maintenance.” Next month, we’ll learn more from Mr. Geaslin about avoiding maintenance budget failures. Until then, enjoy a safe and happy start to summer!