3.

MAINTENANCE COSTING

3.1 Maintenance Costs

Maintenance cost is generally the total cost incurred in doing maintenance jobs and keeping a
maintenance organization.
Costs of inadequate or no maintenance are in the nature of “opportunity” costs which are not
recorded in any system of cost accounting as part of regular reporting system. These “opportunity”
costs are in form of lower rate of output, poor quality, wastages, defectives, damage to equipment
and reduction in the useful life of the equipment.
A well-conceived maintenance policy must minimize the total maintenance cost and also costs of
inadequate maintenance.
3.1.1 Categories of maintenance costs
One way of classifying maintenance costs is to categorize it as fixed and variable costs:
1. Fixed costs: a plant/industry has a maintenance department/section/service with necessary
equipment/facilities/key workmen/technicians and supervisors in readiness to attend to
breakdowns, urgent jobs and to render other services, demands of which may arise in
course of operation of the equipment or as demanded by operating personnel. The cost of
maintaining the “ready –to- serve” men and facilities are what are referred to as fixed costs.
2. Variable costs: maintenance costs such as major repairs and overhauls, cost of
maintenance spares, materials and facilities tend to vary directly with the level of
maintenance activities. These are referred to as variable costs.
The other way of categorization is to divide the maintenance costs into three categories which
include:
1. Direct maintenance costs: these are essentially required to keep the equipment and systems
operable. These result from periodic inspection and condition monitoring, routine repairs,
PM, corrective maintenance and overhauls etc. These are costs of input to carry out the
maintenance jobs e.g. materials, overtime, planning time, tools and equipment
2. Extra costs for standby equipment to put on line when primary equipment is inoperable or
is undergoing maintenance. Often such equipment is run for regular operation by rotation so
that both sets of equipment remain in good condition.
3. A penalty cost for production loss when primary equipment is down and there is no standby.
3.1.2 Components of maintenance costs
Components of maintenance costs include cost of a lot of activities some of which include:
• Cost of “ready to serve” men and facilities
• Cost of men, equipment and facilities for CBM and diagnostic maintenance
• Cost of PM intended to minimize breakdowns
• Cost of corrective maintenance
• Cost of major repairs, overhauls, revamping and other such activities
• Cost of material (spares, co-nsumables, tools etc)
• Cost of indirect labor

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 • Overtime costs
• Costs of external agencies and external services including contracts
• Cost of training and development of maintenance personnel
The planning and control of maintenance costs calls for analysis of all the costs mentioned above
and taking necessary cost reduction measures.
Maintenance activities should be imagined as being measured by a “rate of maintenance” indexed
from 0 to 1, where 0 corresponds to no maintenance at all and 1 to a rate of maintenance which
keeps the equipment in perfect working order with a perfect remedy always on hand to deal with
eventual breakdowns. These extremes are utopian, but allow the problem to be placed in its
economic context.
Concerning direct costs (costs of input to carry out the job), it is easy to see that an increasing “rate
of maintenance” results in increasing costs. This evolution is represented by a constant growth
curve 1 in Figure 3 - 1.
Likewise, the “rate of maintenance” has an effect on the failures, and thus on indirect costs (costs
that arise out of maintenance e.g. lost production). Failure costs appear as high as the maintenance
rate is weak, which means that they should be considered as a decreasing function of the rate as
represented by curve 2. The same applies for physical depreciation cost –curve 3

Figure 3 -1: Effect of maintenance level to the different types of costs

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Considering direct costs together with indirect costs/failure and depreciation costs is a basic
approach of management. It is obvious that a better financial result cannot be obtained by reducing
only the direct costs to a minimum. Both costs must be dealt with together. The sum total of both
costs can be easily obtained by combining all the curves to get curve 4 as shown above. This curve
shows that the management of maintenance and of post-investment is not a question of reduction
but minimization, which is shown in the diagram as a minimum of total maintenance cost.
3.2 Life Cycle Costing Introduction
Life cycle costs are total costs from inception to disposal for both equipment and projects.
Analytical studies and estimates of total costs are methods for finding life cycle costs. The
objective of LCC analysis is to choose the most cost-effective approach from a series of
alternatives so the least long-term cost of ownership is achieved. LCC is strongly influenced by
equipment grade, installation/use practices, and maintenance practices. The issue: Make LCC
understandable and usable by the average engineer as a working tool to "buy right rather than
buying cheap".

LCC analysis helps engineers justify equipment and process selection based on total costs rather
than initial purchase price. The sum of operation, maintenance, and disposal costs far exceed
procurement costs. Life cycle costs are total costs estimated to be incurred in the design,
development, production, operation, maintenance, support, and final disposition of a major system
over its anticipated useful life span. The best balance among cost elements is achieved when total
LCC is minimized. As with most engineering tools, LCC provides best results when both art and
science are merged with good judgment--a portion of the work effort involves applying art and
science to practices of installation, maintenance and use of pumps.

Procurement costs are widely used as the primary (and sometimes only) criteria for equipment or
system selection--i.e., cheap is good. Procurement cost is a simple criterion. It is easy to use. It
often results in bad financial decisions! Procurement costs tell only one part of the story. The major
cost lies in the care and feeding of equipment during its life. A simple procurement criterion often
damages the financial well-being of the business enterprise as simple procurement cost is so cheap
it's not affordable. Tools which only measure one thing usually give simple results which are
insubstantial, superficial, and not to be taken seriously. Remember the adage attributed to John
Ruston: “It’s unwise to pay too much, but it’s foolish to spend too little”.

Usually the only value in the life cycle cost equation which is well known and clearly identified is
procurement cost—but it’s only the tip of the iceberg. Seeing the tip of an iceberg (similar to the
obviousness of procurement cost) does not guarantee clear and safe passage around an iceberg.
Hidden, underlying, substructures of an iceberg (similar to the bulk of other costs associated with
life cycle costing for equipment and systems) contain the hazards.

Engineers must be concerned with life cycle costs for making important economic decisions
through engineering actions. Management deplores engineers who are engineering smart but
economics stupid. Engineers must get the equation balanced to create wealth for stockholders.
Often this means: stop doing some things the old way, and start doing new things in smarter
financial ways.

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Engineers usually identify obvious issues such as procurement cost, contract administration,
installation cost, and other easily identifiable items. But here's the problem:
1. Engineers seldom get failure costs and routine operating costs correct, and
2. seldom do they quantify the effects of installation, operating, and maintenance
practices on life costs.
Engineers know in their hearts the effects of installation and use but they have difficulty
quantifying and expressing the issues.

3.3 What goes into LCC and Steps in Carrying out Life Cycle Costing
The basic tree for LCC starts with a very simple tree based on the costs for acquisition and the
costs for sustaining the acquisition during its life as shown in Figure 3-2.

Figure 3-2: Top levels of life cycle tree

Acquisition and sustaining costs are not mutually exclusive. If you acquire equipment or processes,
they always require extra costs to sustain the acquisition, and you can’t sustain without someone
having acquired the item. Acquisition and sustaining costs are found by gathering the correct
inputs, building the input database, evaluating the LCC and conducting sensitivity analysis to
identify cost drivers.
In general, cost details for the acquisition tree shown in Figure 3-3, are usually identified and
collected correctly. The collection of costs for the sustaining tree shown in Figure 3-4 is the major
problem!

Figure 3-3: Acquisition cost tree

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 Figure 3-4: Sustaining cost tree

Frequently the cost of sustaining equipment is 2 to 20 times the acquisition cost. The first obvious
cost (hardware acquisition) is usually the smallest amount of cash that will be spent during the life
of the acquisition and most sustaining expenses are not obvious.
For the sustaining tree, the four items most difficult to collect are:
1. replacement/renewal costs,
2. replacement/renewal transportation costs,
3. support/supply maintenance costs, and
4. operating costs - particularly electrical costs because of varying loads on the equipment.
Most capital equipment authorizations ignore major portions of the sustaining cost tree as they
lack sustaining funds expenditures--based on some "justifications": equipment never fails and
surprisingly, some of the equipment never uses electricity!!. When failure costs are included, they
appear as a percentage of the initial costs and are spread evenly through every year of the typical
20-year life for the project--for wear-out failure modes, the analysis is penalized by not including
failures in the proper time span.

Complications arise in the sustaining tree which are driven by planned costs in the acquisition tree.
About 65-75% of the total LCC is set when the equipment is specified--and most decisions are
based on the acquisition tree which is the smallest portion of the LCC!!

LCC is a process for including appropriate costs as shown in Figure 3-4.

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Figure 3-4: Process flow for LCC calculations
3.4 Minimizing Life Cycle Costs
Considering alternative options open to management regarding any project/plant installation, the
principle objective (s) would be:
1. To minimize the life cycle costs without degrading the required performance
2. Modification/overhaul of existing plant machinery is an optimum measure which
economically may make good sense when the capital expenditure on new equipment either
cannot be justified or afforded.
The introduction of modification or overhaul which leads to an instantaneous increase in cost
certainly improves the plant machinery reliability and tends to reduce the gradient of the ongoing
cumulative maintenance costs. It is important that modifications, if possible, be introduced early

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in the life of the plant to ensure that the cost is recovered by the subsequent maintenance cost. In
modernization or overhaul the life of the plant is extended at bearable cumulative costs.
The principles of maintenance cost control though easy to understand and simple to practice;
require discipline in carrying them out. The first step is to evolve good standard operating
practices, work instructions and standard maintenance practices and strictly observe them. Other
specific principles of cost control include:
1. Keep breakdown maintenance costs separate from PM costs. Breakdown maintenance
costs try to maintain the status quo and do not add any value to the equipment, product or
process. As such breakdown should have been prevented and the cost incurred should have
been saved in the first place. If there is no clear-cut distinction between breakdown cost
and PM costs, often, in order to cut down apparent overall maintenance cost, PM jobs are
taken using make-shift methods. This does not yield desired results and ultimately adds to
maintenance costs.
2. Extra cost-consciousness on the part of maintenance engineers often does not bring in good
results. They should be more quality-conscious which automatically leads to cost-
consciousness. Extra cost-conscious engineers often use little inferior (but cheaper) quality
or old spares and insist on replacing spares only after physical failure but that probably
leads to development of failure in other components resulting in more breakdowns.
3. Cost prevention must precede cost control in maintenance. The first task of maintenance
personnel should be to prevent breakdown cost by improving technical systems and
practices and taking preventive action in time. If the frequency of breakdown is high, it is
futile to design and develop cost control systems. Cost control in maintenance is basically
concerned with controlling PM costs. All PM costs are to be collected and analyzed for
their essentiality and these costs should be controlled and kept to optimum level by
eliminating over maintenance. i.e. breakdown maintenance costs are to be prevented and
PM costs are to be controlled.
4. Waste reduction and waste recovery. The generation of waste such as used engine oil,
welding electrodes, tool bits industrial water should be reduced to a minimum since all
these are money wastages. E.g. through:
i. using high performance and long drain interval engine & lubrication oils to
make oil changes less frequent
ii. reducing sources and chances of oil, water acids, air and gas leaks and
contamination
iii. recycling or waste recovery
5. Measurement of cost ratios. This is an extension of points 1 and 3 above. The effectiveness
of the maintenance engineer can be measured in two terms
i. breakdown cost to total maintenance cost
ii. PM cost to total maintenance cost
A higher percentage of breakdown cost indicates that the person in charge is doing mostly
fire-fighting. For competence PM costs must be at least 80% of the total maintenance cost.
However care should be taken to avoid “over-maintenance”.

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 6. Salvaging of spare sub-assemblies. For normal jobs, the cost of salvaging may not be more
than 45% of the present market value of the sub-assembly making salvaging an attractive
proposition as the “amount salvaged” is nearly equal to the “amount not purchased”.

5. MAINTENANCE HUMAN RESOURCE DEVELOPMENT

5.1 Introduction
Human Resource Management (HRM) is the function within an organization that focuses on
recruitment of, management of, and providing direction for the people who work in the
organization.
Human Resource Management is the organizational function that deals with issues related to
people such as compensation, hiring, performance management, organization development, safety,
wellness, benefits, employee motivation, communication, administration, and training.
Humans play an important role during the equipment life cycle in the design, production, and
operation and maintenance phases. The degree of their role may vary from one type of equipment
to another and from one equipment phase to another. Human interaction is subject to deterioration
because of human error.
5.2 Human Error
Human error may be defined as the failure to perform a specified task (or the performance of a
forbidden action) that could lead to disruption of scheduled operations or result in damage to
property and equipment. Some of the causes of human error include:
✓ poor equipment design,
✓ poor work environment,
✓ poor work layout,
✓ improper work tools,
✓ inadequate training or experience, and
✓ Poorly written or outdated equipment maintenance and operating procedures.
✓ Complex maintenance tasks
✓ Fatigued maintenance personnel
With respect to training and experience, a study of maintenance technicians revealed that those
who ranked highest possessed characteristics such as more experience, higher aptitude, greater
emotional stability, fewer reports of fatigue, greater satisfaction with the work group, and higher
morale. On the other hand, a significant degree of negative correlations were discovered between
task performance and anxiety level and fatigue symptoms.
Maintenance error occurs due to incorrect repair or preventive actions. Two typical examples are
incorrect calibration of equipment and application of the wrong grease at appropriate points of the
equipment. It is usually an accepted fact that the occurrence of maintenance error increases as the
equipment ages due to the increase in maintenance frequency. To reduce these errors, human
resource development is important.

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5.2.1 Guidelines for reducing human error in Maintenance
Over the years guidelines have been developed to reduce human error in maintenance. The
guidelines cover nine areas: procedures, human error risk management, tools and equipment,
training, design, supervision, communication, shift handover, and maintenance incident feedback.
Procedures are covered by the following four guidelines:
i) Ensure, as much as possible, that standard work practices are followed all across
maintenance operations.
ii) Periodically review documented maintenance procedures and practices to ensure they are
accessible, realistic, and consistent.
iii) Periodically examine work practices to ensure that they do not differ significantly from
formal procedures.
iv) Evaluate the ability of checklists to assist maintenance persons in performing routine
operations such as preparing an aircraft for towing, activating hydraulics, or moving flight
surfaces.
There are three guidelines concerning human error risk management:
i) Carefully consider the need to disturb normally operating systems to perform nonessential
periodic maintenance inspections, as there is risk of maintenance error occurrence
associated with a disturbance,
ii) Formally review the adequacy of defenses, such as engine runs, designed into the system
for detecting maintenance errors,
iii) Avoid, as much as possible, the simultaneous performance of the same maintenance task
on similar redundant systems.
Two guidelines that cover tools and equipment are ensuring the storage of lockout devices in
such a manner that it becomes immediately apparent if they are left in place inadvertently and
reviewing the systems by which equipment, such as lighting systems and stands, is maintained for
the removal of unserviceable equipment from service and repairing it rapidly.
The following guidelines are associated with training:
✓ Consider introducing crew resource management for maintenance professionals and others,
i.e., persons interacting with the maintenance professionals.
✓ Offer periodic refresher training to maintenance professionals with emphasis on company
procedures.
Two important guidelines concerning design are: ensure that manufacturers give proper attention
to maintenance of human factors during the design process and actively seek information on the
errors occurring during the maintenance phase for the input in the design phase.
A guideline in the area of supervision is to recognize that supervision and management oversight
need to be strengthened, particularly in the final hours of each shift as the occurrence of errors
becomes more likely.

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In the area of communication, ensure that satisfactory systems are in place to disseminate
important information to all maintenance staff so that changing procedures or repeated errors are
considered in an effective manner. Shift handover can be a factor in maintenance error. One
particular guideline concerns ensuring the adequacy of shift handover practices by carefully
considering documentation and communication, so that incomplete tasks are transferred correctly
across shifts.
Maintenance incident feedback is covered by the following guidelines:
✓ Ensure that management receives regular and structured feedback on maintenance
incidents with particular consideration to the underlying conditions or latent failures that
help promote such incidents.
✓ Ensure that engineering training schools receive regular feedback on recurring
maintenance incidents so that effective corrective measures for these problems are targeted.

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