Subscribe
Intelligence Unit
Special Reports
Special Events
Sponsored
Departments
- Leadership
- Finance
- Technology
- Physicians
- Community Hospitals
- Health Plans
- Marketing
- Quality
- Nursing
- HR
Follow Us
Analyzing Total Maintenance Expenditures
Jon Yow, for HealthLeaders Media, June 21, 2007
When determining expenditure levels for healthcare equipment maintenance to include in an asset management program, a complete business analysis will help to reduce total business costs. Comparing all options with objective information will also generate decisions that preserve a facility's assets, minimize downtime, and reduce the total cost of ownership.
Two basic factors help to determine the most cost-effective approach: the direct cost of maintenance and the indirect cost that impacts maintenance and healthcare operations. Analysis of both these factors will reveal the true maintenance cost.
For an objective comparison of maintenance models, costs should be evaluated with the present worth of doing business, because using present worth calculations allows all future cash flows to be compared to one point of reference.
Types of maintenance
To determine the true cost of maintaining a facility's asset, it is important to clearly define the types of maintenance associated with the equipment and then determine all possible costs that might be encountered.
Following are the four basic categories of maintenance, and some of their characteristics:
1. Preventive maintenance
2. Minor corrective maintenance
3. Major corrective maintenance
4. Predictive Maintenance
Our goal here is to help identify and reduce the cost of maintenance and thus the total cost of ownership. So we must look at all costs that can be impacted by a well-run asset management program. In addition, we must evaluate the importance of the money spent each year on particular assets.
Types of costs
Many healthcare organizations underestimate their facility's equipment maintenance cost and only budget for the preventive maintenance and minor corrective maintenance. However, unplanned, major corrective actions often result in reducing the preventive maintenance performed, even though deferring maintenance on a regular basis only leads to higher costs and more major failures in the future. It is these major failures that impact operations and generally have a negative effect on patient/staff productivity and revenue generation.
It is critical to understand both direct and indirect costs when determining the total cost of maintenance and establishing the most effective program.
Direct cost
Indirect Cost
Indirect cost and risk assessment
In analyzing indirect costs, include risk assessment for a full understanding of cost of ownership. All technology equipment in a hospital has some inherent risk for clinical operations. The impact of failures ranges from minor inconvenience to work stoppage. As a result, concentrate your reliability efforts on items that impact operations most significantly-- proactive maintenance is always the most cost-effective. Invest now to reduce increasing maintenance costs and your total cost of equipment failure and downtime.
Historically, well-maintained equipment has a longer lifecycle and works more efficiently. Residual savings from utility usage, increased comfort of occupants (higher productivity), and less impact on operations from unscheduled outages all indicate that a proactive plan is the more productive and cost effective one.
Cost analysis and staffing
Staffing issues call for special consideration when analyzing costs. A common method of determining staffing needs is to look at the historical records for the total number of hours used by maintenance technicians and convert them into required number of staff. But this is a reactive method that builds inefficiency into the facility's operation. While PM work can be scheduled, it is difficult, if not impossible, to assure complete balance across the work schedule.
Unexpected CMs can cause productivity to decline. There will be times when only part of the in-house staff is needed to handle maintenance events. There will be other times when you will need to pay overtime or use supplemental staff.
Management must assure that the staff maintains vigilance on preventive maintenance and not sacrifice them in reaction to corrective maintenance. If not, more corrective maintenance will be required and more preventive maintenance will be missed, creating a cycle of increasing inefficiency.
Many healthcare organizations find that the most cost-responsive maintenance program is to utilize some in-house staff and supplement it with outsourced time-and-material support for high-technology and critical equipment. Depending on the level of competency and cost of the internal labor force, this is generally at the 90 percent level of the minimum monthly requirement.
In making total cost maintenance decisions, your goal always is for the best value option. This is not always an easy process, but it can be facilitated by using the appropriate tools to reach objective conclusions. A present-worth analysis of the cost incurred over the lifetime of the equipment provides a valid base for financial decisions.
Shrinking budgets drive the need to maximize efficiency across the lifecycle of healthcare capital equipment. Hospitals that have an organization-wide asset management strategy in place are realizing significant gains associated with maintenance cost reduction. This is reflected in preservation of assets, reduction of downtime, and lower costs--all impacting financial and operating strategies short term and over time.
Jon Yow is Central Region Manager for Client Services at Thermo Fisher Scientific Asset Management Services, which serves healthcare, university and research organizations. He may be contacted at jon.yow@thermofisher.com.
Two basic factors help to determine the most cost-effective approach: the direct cost of maintenance and the indirect cost that impacts maintenance and healthcare operations. Analysis of both these factors will reveal the true maintenance cost.
For an objective comparison of maintenance models, costs should be evaluated with the present worth of doing business, because using present worth calculations allows all future cash flows to be compared to one point of reference.
Types of maintenance
To determine the true cost of maintaining a facility's asset, it is important to clearly define the types of maintenance associated with the equipment and then determine all possible costs that might be encountered.
Following are the four basic categories of maintenance, and some of their characteristics:
1. Preventive maintenance
- Scheduled periodic inspections, adjustments, and lubrication designed to maintain optimum performance
- PM is a fixed cost that can be analyzed and budgeted
- Quality of PM determines its total cost
- Inadequate PM may require a higher rate of capital improvement and modernization in building systems which impact healthcare operations
2. Minor corrective maintenance
- Minor CM is the replacement of minor components. These are typically spare parts that are on hand or are readily available. If the equipment is covered by a service contract, these parts are usually included.
- Generally, minor CM would be less than 5 percent of the value of the equipment
- Minor CM must be expected and accounted for in the maintenance budget
3. Major corrective maintenance
- Major corrective maintenance is unexpected and requires a financial and operational decision related to the repair
- Major CM falls in the range of 6 percent to 50 percent of the value of the equipment.
- It generally results in significant downtime. For critical equipment, this will have a financial impact on the operations of the facility.
- On average, most mechanical and electrical equipment that is maintained according to specifications will last longer and have less major corrective maintenance.
4. Predictive Maintenance
- Maintenance intervals are determined by the operational condition of the equipment
- Operational condition is determined by non-intrusive testing such as vibration analysis, infrared scanning, and ultrasonic scanning
Our goal here is to help identify and reduce the cost of maintenance and thus the total cost of ownership. So we must look at all costs that can be impacted by a well-run asset management program. In addition, we must evaluate the importance of the money spent each year on particular assets.
Types of costs
Many healthcare organizations underestimate their facility's equipment maintenance cost and only budget for the preventive maintenance and minor corrective maintenance. However, unplanned, major corrective actions often result in reducing the preventive maintenance performed, even though deferring maintenance on a regular basis only leads to higher costs and more major failures in the future. It is these major failures that impact operations and generally have a negative effect on patient/staff productivity and revenue generation.
It is critical to understand both direct and indirect costs when determining the total cost of maintenance and establishing the most effective program.
Direct cost
- includes easily quantifiable and easily tracked items (such as parts, labor, tools, training and management cost).
- includes all defined items within the facilities' maintenance budget.
- includes benefits and general overhead cost
Indirect Cost
- Is not always easily quantified and is sometimes subjective
- May include energy waste attributed to misaligned or poorly maintained equipment, as when out-of-balance mechanical equipment is inefficient and uses more energy than it should. Another example is a slightly out-of-balance 480V motor that may require .5 Amps additional current, and will use an additional 2052 kWh/yr. At $0.05 per kWh, that amounts to $104 in wasted energy per year.
- Indirect cost also can include lost productivity of staff due to fluctuations in electrical power, impacting both staff efficiency and patient comfort
- There could also be lost revenue due to unplanned downtime related to equipment failure. For example, the motor in the air handling unit for an operating room may fail. It may take 48 hours to have a replacement delivered and installed. Revenue lost from the inability to have the operating room (or rooms) available is an indirect cost. Payroll for any support staff who were not fully utilized in another location also would be an indirect cost.
- Changes in the lifespan of equipment also can affect indirect costs. Equipment that is not properly maintained will deteriorate faster and fail substantially sooner than identical well-maintained equipment.
Indirect cost and risk assessment
In analyzing indirect costs, include risk assessment for a full understanding of cost of ownership. All technology equipment in a hospital has some inherent risk for clinical operations. The impact of failures ranges from minor inconvenience to work stoppage. As a result, concentrate your reliability efforts on items that impact operations most significantly-- proactive maintenance is always the most cost-effective. Invest now to reduce increasing maintenance costs and your total cost of equipment failure and downtime.
Historically, well-maintained equipment has a longer lifecycle and works more efficiently. Residual savings from utility usage, increased comfort of occupants (higher productivity), and less impact on operations from unscheduled outages all indicate that a proactive plan is the more productive and cost effective one.
Cost analysis and staffing
Staffing issues call for special consideration when analyzing costs. A common method of determining staffing needs is to look at the historical records for the total number of hours used by maintenance technicians and convert them into required number of staff. But this is a reactive method that builds inefficiency into the facility's operation. While PM work can be scheduled, it is difficult, if not impossible, to assure complete balance across the work schedule.
Unexpected CMs can cause productivity to decline. There will be times when only part of the in-house staff is needed to handle maintenance events. There will be other times when you will need to pay overtime or use supplemental staff.
Management must assure that the staff maintains vigilance on preventive maintenance and not sacrifice them in reaction to corrective maintenance. If not, more corrective maintenance will be required and more preventive maintenance will be missed, creating a cycle of increasing inefficiency.
Many healthcare organizations find that the most cost-responsive maintenance program is to utilize some in-house staff and supplement it with outsourced time-and-material support for high-technology and critical equipment. Depending on the level of competency and cost of the internal labor force, this is generally at the 90 percent level of the minimum monthly requirement.
In making total cost maintenance decisions, your goal always is for the best value option. This is not always an easy process, but it can be facilitated by using the appropriate tools to reach objective conclusions. A present-worth analysis of the cost incurred over the lifetime of the equipment provides a valid base for financial decisions.
Shrinking budgets drive the need to maximize efficiency across the lifecycle of healthcare capital equipment. Hospitals that have an organization-wide asset management strategy in place are realizing significant gains associated with maintenance cost reduction. This is reflected in preservation of assets, reduction of downtime, and lower costs--all impacting financial and operating strategies short term and over time.
Jon Yow is Central Region Manager for Client Services at Thermo Fisher Scientific Asset Management Services, which serves healthcare, university and research organizations. He may be contacted at jon.yow@thermofisher.com.
Most Viewed
Most Emailed
- Some physicians not always honest with patients
- CMS Reveals Central Line Infection Rates, Finally
- Keeping Readmission Rates Low with Treatment Guidelines
- 5010 Logjam Means No Pay for Physicians
- Parkland Keeping Consultant's Analysis Under Wraps
- Getting to the Heart of Cardiology Alignment
- Payment Cuts to Critical Access Hospitals 'Inevitable'
- Medicare Physician Payment Rule Factors in GPCI
- Leading Change is Tough from the Back of a Limo
- Marketing Health Coach Services
