Maintenance Costing

1. MAINTENANCE LABOR COST ESTIMATION

The cost of labor is an important component of the maintenance cost.

Labor costs are made up of payroll information that is usually obtained from labor
distribution reports prepared by the accounting department. The information is
required for four key areas:

1. Total number of hours worked annually on a per-employee basis

2. Hourly cost of employee benefits on a per-employee basis

3. Ratio of cost of annual benefits to yearly wages

4. Base pay rates per hour by labor grade

 The cost per employee is expressed by :

Cem = LR(1 + BR)TAH……………………………………..Eq(1.1)

Where :

Cem = cost per employee,

LR = hourly labor rate,

BR = benefit ratio,

TAH = total number of annual hours.

 The total labor cost is given by :

TLC = CemN……………………………………………….Eq(1.2)

Where :

TLC = total labor cost,

N = number of employees

Example :

Assume that in a maintenance organization we have the following data:

TAH = 2000 h

BR = 0.2

LR = $15 per hour

N = 40

Calculating the total labor cost associated with the maintenance activity by

inserting the above values into Eqs. (1.1) and (1.2), we get :

Cem = 15 × (1 + 0.2) × 2,000 = $36,000

And

TLC = 36,000 × 40 = $1,440,000

Thus, the total labor cost associated with the maintenance activity will be $1.44
million.

2. CORRECTIVE M AINTENANCE LABOR COST ESTIMATION

In this case corrective maintenance labor cost is estimated when the
item/system mean time between failures (MTBF) and mean time to repair
(MTTR) are known. Consequently, the annual labor cost of corrective
maintenance is expressed by :

………………………..Eq(2.1)

Where :

CMal = annual corrective maintenance labor cost,

LCH = corrective maintenance labor cost per hour,
SOH = annual scheduled operating hours.

Example :

A system is scheduled to operate for 2000 hours per year. The system’s MTBF and
MTTR are 400 h and 20 h, respectively. Calculate the annual labor cost of
corrective maintenance if the maintenance labor cost is $20 per hour. By
substituting the specified data into Eq. (2.1), we get :

The annual labor cost of corrective maintenance is $2000.

3. EQUIPMENT OWNERSHIP CYCLE MAINTENANCE COST

ESTIMATION

This section is concerned with estimating the maintenance cost of the

entire ownership cycle of equipment, so that its present value can be added to
acquisition cost to obtain equipment life cycle cost. The following two formulas
are often used to find present value of a sum of money. They can equally be used
to obtain present values of equipment ownership cycle maintenance costs :

FORMULA I
This formula is used to estimate the present value of a single amount of money
after k periods and is expressed by :

………………………………….Eq(3.1)
Where :
PV = present value,
AM = single amount,
k = number of interest or conversion periods (normally taken as years),
i = interest rate per period.

FORMULA II
This formula is concerned with obtaining the present value of equal amounts of,
say, maintenance costs occurring at the end of each of k conversion periods
(usually years). The present value is given by :

…………………………………Eq(3.2)
Where :
MC = maintenance cost occurring at the end of each (interest) conversion
period.
Example :
A maintenance department considers procuring an engineering system. Two
manufacturers are bidding to provide the system and their corrective maintenance
costrelated data are given in Table 3.1. Determine which of the two systems will
be less costly with respect to present
values of corrective maintenance and by how much :

Tabel 3.1 Maintenance Cost-Related Data

Manufacturer A System
The annual expected cost, ACcm, of a corrective maintenance action is :

ACcm = 1000 × 2.5 = $2500

The present value, PVA, of the engineering system life cycle corrective
maintenance
cost using Eq. (3.2) and the specified and calculated values is :

Manufacturer B System
The annual expected cost, ACcm, of a corrective maintenance action is :

ACcm = 1400 × 2 = $2800

The present value, PVB, of the engineering system life cycle corrective
maintenance
cost using Eq. (3.2) and the specified and calculated values is :

Manufacturer A’s engineering system will be less costly with respect to present

values of corrective maintenance by $2,260.81.

4. ACTIVITY EXPECTED DURATION TIME ESTIMATION

The PERT scheme calls for three estimates of activity duration time using
the following
formula to calculate the final time:

…………………………………………Eq(4.1)
Where :
Ta = activity expected duration time,
OT = optimistic or minimum time an activity will require for completion,
PT = pessimistic or maximum time an activity will require for completion,
MT = most likely time an activity will require for completion. This is the
time
used for CPM activities.

Example 3.1
Assume that we have the following time estimates to accomplish an activity:
OT = 55 days
PT = 80 days
MT = 60 days
Calculate the activity expected duration time. Substituting the given data into Eq.
(4.1), we get :
The expected duration time for the activity is 62.5 days.

5. MAINTAINABILITY MEASURES AND FUNCTIONS

Various measures are used in maintainability analysis: for example, mean

time to repair
(MTTR), mean preventive maintenance time, and mean maintenance downtime.
Maintainability
functions are used to predict the probability that a repair, starting at time t= 0, will
be completed in a time. Some maintainability measures and functions are
presented below.

MEAN TIME TO R EPAIR

Mean time to repair (MTTR) is probably the most widely used maintainability
measure.
It measures the elapsed time required to perform a given maintenance activity.
MTTR
is expressed by :

………………………………………………..Eq(
5.1)

Where :
k  number of units or parts,
i  failure rate of unit/part, for i  1, 2, 3, k
CMTi corrective maintenance/repair time required to repair
unit/part i, for i  1, 2, 3.….,k

Usually, times to repair follow exponential, lognormal, and

normal probability
distributions.

Example :