A simple but effective methodology for costing downtime

By FLEET e-news posted 28 May 2014 19:55

  
~ By Ross Moody, Executive Officer IPWEA

Operations managers in particular will be aware of how machine downtime can affect their productivity. However, based on my experience, little is being done to capture downtime – let alone report on the full cost of downtime. Fleet managers can play an important role in recording machine downtime, but the hard part has been the ability to report the full cost of plant and vehicle breakdowns.

In this article I will explain a shortcut to costing downtime and how this can be used to support optimum replacement in tough times.

Correct recording of downtime and being able to report on the associated cost is vital for fleet managers:

Equipment downtime is often called the hidden cost of fleet management. The iceberg diagram tells the full story about downtime, but most people only report on what they see above the line – that is, the item repair cost – and they don’t report at all on downtime cost.

What makes up the total cost of downtime? 

Downtime refers to all costs associated with an item out of operation for repairs or maintenance, other than the repair cost. There are two major components of downtime costs: the hire of replacement machine and the fixed costs related to the loss of an operational machine. 

Reporting on the repair cost is the easy part, as is the fixed cost of the item being idle for the period during which it is not available for the operations department. The fixed costs related to the loss of an operational machine are the costs incurred irrespective of ownership. These include licenses, insurance, finance costs and depreciation. 

The hire of a replacement machine also incorporates the cost of holding additional machines such as a spare truck in a waste collection fleet in order to compensate for the mechanical downtime on other machines. Furthermore, dry hire of an externally supplied machine may involve on-site and off-site charges and these too need to be incorporated into the downtime cost. 

In addition, there is the cost of operator(s) downtime, work crews and other associated plant/vehicles. 

Capturing downtime hours 

The task of recording and costing downtime is a function best managed by the mechanical workshop, as downtime hours are easily captured by the workshop. This will include:

Start to finish time on a scheduled maintenance job.
Time of breakdown call to repair job completion.

(Note: Downtime hours are only calculated when the fleet is not available to work crews i.e. 6am – 4pm.)

The hard part for the workshop is knowing if there was any idle time of the operator while the item was down, the loss of income from associated plant, cost of labour (operator, supervisor, and operators of associated equipment) and the cost of replacement hired plant.

Is there a shortcut for estimating downtime impact and cost? 

Following discussions with Fleet Manager Andrew Railz on practices in place at Bundaberg Regional Council to highlight the impact of downtime, a methodology was developed to provide a 'shortcut' to costing downtime. The methodology was workshopped with attendees at the recent May 2014 IPWEA Plant & Vehicle Management Workshops. 

The criteria that needed to be satisfied to deliver a viable methodology included:

Under- rather than over-estimate the likely real cost,
Be easily understood, and 
Be accepted by accountants and senior management.

In the first part of the workshop exercise, the activities listed in Table 1 below were discussed and downtime cost factors agreed.

In order to calculate (estimate) downtime cost, the downtime factor is to be applied to equipment downtime hours multiplied by the hourly hire rate for the item to come up with a downtime cost estimate. The methodology would equally apply to scheduled maintenance and repairs.

TABLE 1 – Downtime factors for estimating cost impact

Activity

Scenario

DowntimeCost Factor

Activity 1

Item operating on own.

Non critical service.

No replacement hire needed when down

1

Activity 2

Critical service.

Hire of replacement needed and readily available

2

Activity 3

Item operating with support plant/vehicles.

Hire of replacement needed but not readily available and/or support items will be idle for a period.

3



To validate the downtime factors, the various groups were asked to consider the downtime factor they would apply to a list of plant and vehicles in a public works fleet. (See Table 2 below.) It was remarkable how close the groups were in their assessment of the downtime factor, irrespective of where they were in Australia – metropolitan or rural made little difference.

The final questions put to delegates were:

1. Are the scenarios appropriate?
2. Are the factors acceptable?
3. Could we convince the accountant?

The response was a resounding yes – and this included two accountants who attended the Perth workshop.

The methodology and factors will be published as a guide to costing downtime. However, we recommend fleet managers, operational managers and accountants discuss the factors and, where necessary, amend to suit their particular operations. This way we will achieve the criteria established for the project. 

Summary 

Downtime is a valuable tool to highlight the full cost when a fleet item is down for maintenance or repair
Measuring downtime improves overall awareness of costs
Downtime provides a key performance indicator for plant availability (not workshop performance).
Knowing full downtime costs supports optimum replacement 

"Costing downtime plays a big role in our business processes at Bundaberg Regional Council," says Andrew Railz. "Not only is the information highly valuable when assessing tenders, it can also indicate other problems including workshop turn-around time, parts availability from different suppliers, shortage of mechanics in the workshop and performance of external maintenance suppliers." 

For more information on the best practice for monitoring downtime and calculating the most accurate information, obtain your copy of the IPWEA Plant & Vehicle Management Manual 


The below screenshot from a report generated for Bundaberg Regional Council provides a snapshot of the various reasons for fleet or equipment ‘Downtime’ and ‘Availability’: 



TABLE 2 – Downtime impact

Group/Type

Hourly Rate

Downtime
Factor

Downtime Cost Estimate$/hr

Grader (Maintenance working on own)

61

1

61

Grader (Maintenance working with plant)

61

3

183

Grader (Construction)

68

3

204

Backhoe Loader

35

2

70

Loader

40

2

80

Skid Steer

25

1-2

37.5

Excavator (15tonne)

70

2

140

Medium - Heavy duty Truck (HR & HC)

44

2

88

Light - Truck

23

1

23

Rubber Tyred Roller

35

2

70

Vibrating Drum Roller

28

2

56

Mower Front Deck

15

1

15

Slasher Mower

6

1

6

Tractor (PTO Hrs)

16

1

16

Rear Lift Compactor

68

2-3

170

Side Lift Compactor

70

2-3

175

Landfill compactor

86

3

258

Road Sweeper

75

2

150

Car Park/Footpath Sweeper

65

1

65

Wood chipper

22

1

22

Bus Mini

8

1

8

  
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