Chapter 7: Maintenance Costing

1
Chapter 7 Maintenance Costing

• Overview
• Maintenance Budget
• Maintenance Labor Cost Estimation
• Maintenance Material Cost Estimation
• Maintenance Cost Estimation Models
• Cost Data Collection

2
Maintenance Budget

• Classifications
• Operating Budget
• Project (or Approximation) Budget
• Budget Preparation Approaches
• Historical Approach
• Zero-based Approach
• Procedure to Prepare the Maintenance Budget
• Collect information on trends over past few
  years
• Seek input from accounting dept. concerning cost
  trends and improvements
• Seek input from the operations group concerning
  its plans for the coming year
• Obtain information on sales by product and
  department
• Determine maintenance labor-hours by skill and
  dept., particullarly for equipment with high
  repair cost
• Estimate the amount of material required by
  department, in particular high-cost and
  high-volume items
• Estimate overhead expenses
• Distribute expenses or costs by weeks and total
  them for each month
• Establish separate cumulative cost charts for
  every important variable, e.g. material, labor,
  overhead
• Update individual and total costs periodically
  and plot them on appropriate charts

3
Maintenance Labor Cost Estimation

• Labor cost from the accounting department
  ?payroll information
• The Cost per employee
• Cem LR(1BR)TAH
• Where LR hourly labor rate BR benefit
  ratio
• TAH total number of annual hours
• Standard hourly cost estimation
• Csh (PDFBF)/(PHP EPHP)
• Where PD payroll dollars per period PHP
  planned hours produced EPHP equivalent PHP
  FBF fringe benefit factor

4
Maintenance Labor Cost Estimation

• Manpower repair cost estimation
• RCa(1-RSF)Cum?nrLsHo(1-RSF)MCHAMHPRMUF
• Where a number of repairable units failing
  over the system life span RSF repairable
  shrinkage factor (0 - 0.1375) Cum unit repair
  cost with respect to manpower ? item constant
  failure rate nr total number of repairable
  items Ls system life Ho operating hours per
  year MCH manpower cost/h including overhead
  AMHPR average number of man-hours/ repair
  action MUF manpower use factor
• Corrective maintenance labor cost estimation
• CMal (SOHLCHMTTR)/MTBF
• Where LCH corrective maintenance cost/h SOH
  annual scheduled operating hours

5
Maintenance Material Cost Estimation

• Total cost of stock at the time of repair
• TCS PDC IC (WI-PDC) (0.01TPDC)
  (0.1PDC) WI IC (TPDC)(10PDC)/100
• PDC wPP(1LsLu)-SM
• WI PDC(1i)n
• IC(FSCB)/(KR)
• Where T time the stock items is in inventory
  (months) PDC present value of the inventory
  item (price delivery cost) WI worth of the
  inventory item after n periods IC inventory
  cost/item PP purchase price of material/unit
  Lu loss due to unused stock returned to
  inventory that is too small for future use w
  weight/other unit of quantity of material used
  SM unit price of material salvaged Ls loss
  due to scrap.. FSC annual floor square
  cost/ft2 B bin size (ft2)R reciprocal of
  years item normally spends in inventory K
  average number of items stored in bin

6
Maintenance Cost Estimation Models

• Building Cost Estimation Model
• BC NCFICPCF
• Where ICPCF initial cost/ ft3 NCF number
  of ft3 needed for maintenance buildings
• Maintenance equipment cost estimation model
• CME RDC ?UPC
• Where RDC RD cost associated with the
  maintenance equipment ? total number of
  maintenance equipment UPC maintenance
  equipment unit procurement cost

7
Maintenance Cost Estimation Models

• Production facility downtime cost estimation
  model
• PFDC Si Cr RCr RL Cc Cp
• Where Si salary of idle operator Cr rental
  cost of replacement unit (if any) RCrcost for
  replacement of ruined product, RL revenue loss
  Cc tangible and intangible costs associated
  with customer dissatisfaction, loss of goodwill,
  hidden costs, etc. Cp costs associated with late
  penalties, etc.

8
Cost Data Collection

• Labor Costs
• Equipment Costs
• Cost of spare parts and supplies
• Overhead costs

9
Examples

• Example 1 assume that in a maintenance
  organization we have the following data
• TAH 2000h, BR 0.2, LR 15/h, N 40
  workers. Calculate the total cost associated with
  the maintenance activity
• Example 2 A system is scheduled to operate for
  1500h/year. The system MTBF 500h and MTTR
  10h. Calculate the annual labor cost of
  corrective maintenance if the maintenance labor
  cost is 300B/h