(Read Part 1 of the “Unexpected Equipment Downtime” series.)
Machine Cost: Loss Of Expected Usage
Whenever a piece of equipment is purchased, it has to run so many hours for so many days for so many years in order to pay for itself. When a piece of heavy equipment goes down unexpectedly, for every hour it sits it gets further away from the designated usage target. Let’s look at an example to better understand this.
The numbers are going to be different from industry to industry. In this article, I’m going to use generalities, but everyone should be able to apply the concepts to their individual needs. The formula is simple. You take the cost of the machine and divide it by the expected number of years you plan on using it. That gives you the annual cost of ownership. Then, you’ll need a plan for how many hours you need to run the machine at an expected rate to cover the annual cost of ownership. Lastly, you’ll need to leave some room for scheduled maintenance (PM) Based on this, we’ll use the following example:
- Machine cost = $300,000
- Expected years of use = 10 years
- Annual cost of ownership = $30,000
- Annual expected hours of use = 1,200 hours
- Hourly rate needed to cover annual cost = $30 per hour
- There will be a little leftover to cover scheduled maintenance
This means that the machine needs to run a minimum of 1,200 hours every year for $30 per hour in order to cover the cost of the machine. And, for every hour of unexpected downtime, it costs you $30.
Across the board, unexpected equipment downtime runs in the range of 20-30%. This is widely accepted by heavy equipment maintenance experts. In this range, a machine sitting idle unexpectedly could cost $7,200-$10,800 per year…per machine. Even if you get that number down to 10%, you’re just breaking even.
Also, keep in mind that the example above is an illustration for one piece of equipment. You’re going to need to take this formula and apply it to your total number of machines in order to figure the cost for your entire fleet.
So there you have it, the first step in figuring the real cost of unexpected downtime…and it only goes up from here! In the next part of this series, we’ll factor in some of the collateral costs.
I hope you’re enjoying the Equipment Downtime series. Continue reading Part 3, Part 4, Part 5, and consider downloading my exclusive whitepaper on the subject.
