Maintenance Performance Indicators “Balanced Scorecard"

Maintenance Performance Indicators “Balanced Scorecard"
Luis Amendola, Ph.DUniversidad Politécnica de Valencia, SpainAsociación Española de Mantenimientoe-mail: luiam@dpi.upv.es, luigipmm@yahoo.es
En Español


Key words: Indicators, Reliability, Business, Strategy
Summary: The transformation that had happened in the world business in the last years has created the need of the substantial and supported improvement of the operational and financial results of the maintenance in the enterprise. This has carry out the search and application of new and more efficiently techniques of management and measurement of the performance of the business of maintenance. The technical financial indicators must permit in one side to identify which are the strategies that should be followed to achieve the business vision in an enterprise (a high performance) and on the other hand they must express those strategies in specific objectives that would have as goal the measurement of the whole indicators of the business. In a process of transformation, in order to be adapt to the requirements of the dynamic world and new era of maintenance, the leaders of the enterprises of the world or enterprises of “World Class”, this guide us to a systematic vision of the business environment, identifying the roles and needs of every factor, with an orientation of the plans of evaluation of the results and definition of the strategies in the maintenance business.
1. Introduction
The management of the maintenance is seen in many corporations as a service or like a centre of cost, assigning short attention to the opportunities that today have the intelligence of the business, that cover all the administrative and operational functions of maintenance. The enterprises and organizations of maintenance measure their performance just with the technical indicators, leaving in a side the System of Measurement of the Performance Balanced Scorecard and financial indicators EVA (Economic Value Added), ROI (Return Over Investment) and ROCE (Return on Capital Employed).
The maintainer use to sell their plans and projects elderly terms as “Save”, “Operational Loss” or “Avoid cost” that are used like indicators for justified the advance in the maintenance management.
The industrial maintenance is breaking everyday the barriers of the past. Today in the practice a lot of enterprises, managers of maintenance have to think that is a business to invest in actives of maintenance and stop looking at it as a cost. This change is happening in the world of maintenance and have created the need of a substantial and sustained improvement of the operational and financial results of the enterprises, all this has took us to the progressive search of the application of new and more efficiently techniques and managerial practices of planning and measurement of the performance of the business. This integral vision of the business allows the maintenance organizations to take decisions (figure 1), give the pursuit and establish plans of action in order to achieve the goals of the company. The maintenance management through out the technical and financial indicators of the organization are the graphic representation of the maintenance situation, and also known by the abbreviation in English KPI (Key Performance Indicator).
Figure 1. Strategic Value
The technical and financial indicators allow to identify which are the strategies that must be follow in order to achieve the enterprise vision (a high performance), on the other hand, they express this strategies in specific objectives that have a measurable goal through the whole performance of technical-financial indicators, in a process of transformation consecutively adapting to the exigencies of the changes and challenges that we should face in medium rum.
Between the factors that could arise in this evolution is the orientation toward the systematic vision of the importance of the maintenance business, identifying the challenges and needs of each one of the factors involved (stakeholders), this take us to the reorientation of the evaluation of the result plans and the definition of the strategies of the technical and financial indicators to measure the profitability of the business.
2. System of Measure the performance of the financial indicators
Actually must be taken into account, the tendency of the consideration of the financial indicators in the performance of the business maintenance. The importance of invest to create future value, and not only in the traditional areas of development such as new installation or new equipments, moreover in the maintenance of the actual actives, all this make us look for the implementation of economic indicators in the management of the maintenance actives.
Balanced Scorecard (BSC) means to translate the strategy into four perspectives: customer, internal business, innovation and learning and financial perspective, each one of them sustained in a set of objectives, management indicators, goals, interactively connected in a relation cause-effect. The BSC goes from the vision and the strategy of the enterprise. From here all the objectives are defined in order to achieve the vision, and this would be the result of the mechanisms and strategies that control the results of the customers.
Economic Value Added (EVA) this product is obtained with the difference between the profitability of the actives and the cost of finance the capital required to have them. This is one of the best measures of the creation of financial value in an enterprise. A company could add value when benefits are obtained and in this way cover all the costs, including the capital ones. Representing a goal of real economic benefits produced by an enterprise in an established period, and indicating the efficiency in which the operational active have been managed.
Return Over Investment (ROI) is an estimation of the benefit (the “return”) about the money spend (the “invest”) in a particular alternative, and consist in the determination of the benefit, calculation of cost and summarize the results.
Return on the Capital Employed (ROCE) is calculated expressing the profitability before the payment of the interest and taxes as a portion of the total capital employed in the business. This indicator shows a global perspective of the financial situation of the business, and is the initial analysis of the performance of the business and a parameter which you could compare its global performance.
Figure 2. Balanced System of Indicators
3. Technical Indicators of the Maintenance
The technical indicators are related with the quality of maintenance management and allow seeing the operational behaviour of the installation, system, equipment and device; additionally they measure the quality of the work and the grade of complimenting the plans of maintenance.
Mean Time to fail (MTTF) is an expected value or average of the time of the aleatory variable of failure. This indicator measures the average of time that the equipment could operate with all their capacities and without any interruption in the considered period, and is the mutual of the rate of failure in an exponential distribution of the aleatory variable.
Mean Time to Repair (MTTR) is the measure of the distribution of time repairing the equipment or system. In a different way, the TPPR measures the effectiveness of the restitution of the unit to optimal conditions, once it is out of service by a failure, in an estimated period, and considering the time of failure equal to the time of repairing.
Availability (A) it is defined like the capacity of the equipment or installation to make a required function under specific conditions and in a determinate period of time, taking into account that the external resources are provided. Is a fatalist indicator that translates the results of the maintenance actions to a joined index for an equipment or system. It is based on the question “Is the equipment available and in conditions when it is required?” The analysis of disposability is used to obtain a solution that allows establishing the requirements of the reliability and susceptibility of the maintenance. This is useful to determinate the symbols of the equipment or system, and the frequency and type of occurrence of failure, possibility of reparation (time of active reparation) and analysis of works of maintenance.
Utility (U) it is also known as factor of use or service, it measures the effective time of operation of an active during a determinate period.
Reliability (R) is one of the principal attribute that determinate the effectiveness of the equipment or system. It is defined as the probability that an equipment or system redeem satisfactory the function that is required from it, under specific conditions of operation, during a establish period of time.
4. Strategies and Practices
Actually, the sudden changes in competitive areas, the increasing speed of the globalize tendencies and the impact of the technological gaps define a new business space, where the threat, powers and competition of the factors of the industrial sector are empowered.
In this uncertain environment, the search is focus on the managerial tools, that facilitates the change trough a more strategic management, permanently centred in the vision of the enterprise, with a enormous participation of the personnel and interrelated with the customer, with emphasis in achieving the excellence at the process level, not only let to obtain the technical aim furthermore to keep the hard mechanism of control with the capacity of adjustment the strategic route to the real time.The goal, is to generate a successful and competitive strategy, and be able to achieve excellence results from a process of integrated strategic of management in different areas of the enterprise between them maintenance function, this represent an alteration in the traditional concept of management, as we assume now a position of self control.
The implementation of technical and financial indicators in the management of the maintenance begins with the changes of paradigm that guide us to a strategy and politics of business management.
Balance the maintenance budgets with more integrated schemas “operational, invest and management of the stoppage of plants budget” with the aim of guiding the benefits of the enterprise. With an impact of change in the restrictive politics reducing the costs in an incentive politic of integrated optimization in order to find a higher return of the investment.
In order to establish any program of improvement is required the management and implementation of management financial indicators models. It is important for the enterprises to focus on the profitability, or in how to create a value that justified the use of the resources. In my experience in the management of the maintenance area and others specialists, it has shown that the money in the future would only be available for those organizations that generated an important return on the capital. Low performances, poor intentions of generating results and adverse manners of interacting with the customers, give more costs and less access to them.
The first step trough a bigger and cheaper access to the capital is the definition of profitability in the maintenance business and what the enterprise would do in order to grow. The combination of the technical and financial indicators are the one that the organizations must adopt to measure the profitability/performance, it is very important the implication of the employees.
5. Models of Implementation
The implementation starts with the application of strategies orientated to balance the operational budgets, invest and stoppages of plants conducted to increase the benefits and value of the actives and the productivity capacity. With this orientation we could optimize the benefits and reduce costs.
The strategy considers the compliment of the plans of maintenance, allowing assuring the actives of the enterprise, the reliability, security, productive capacity and active value of the shareholder. The maintenance strategy as return of the investment is directed to increase the value, assure the return of the investment and maximization of the benefits of the active, with this model the decision are orientated to support plans and actions in order to create value on active cycle life.
The EVA (Economic Value Added) = Income – Expenditure – Capital Costs; this define the total strategy with the rest of the business indicators (ROI, ROCE) and BSC; its objective is to analyze the technical indicators of the equipment, to establish the areas where the incomes could be improved with the maintenance strategies and where the expenditures could be reduced and the use of capital optimized. The strategy takes us to estimate the impact of the VEA. If we base on the indicators we could establish the opportunities of improvement the investment in resources, promoting the analysis of sensibility of the indicators to determinate which initiation could generate more return of the resources invested.
The application of the strategy must change into a plan directed to make stronger the financial indicators of the business, improving the way of working and the culture of the enterprise. The implementation should be measured and monitored with base to specific indicators and execute with a high level team, where the advances could be acknowledge by all the company. Requiring specific plans of action in each area as per the opportunities detected locally and performing in an integrated and coordinated way in order to generate the economic impact in the business.
Define objectives and indicators that ask to the business expectations with reference to the financial parameters: Growth, Benefits, Return of the capital and use o the capital, and have as purpose the maximization of the Added Value, the increase of the incomes and the improvement of the efficiency of the operations.
At the beginning the designs of the plan establish a vision of what is followed and what must be achieve (figure 3). Behind the action plans would be established in order to achieve the vision, objectives and financial impact. In this step:
Figure 3. Model of Implementation
The specific initiatives or practices that would be implemented are specified. All personnel would be informed of the general vision and plans. The indicators would be defined in the way to establish the goals and measure the progress. Resources and responsible personnel would be identified to take specific actions and concrete time to achieve them. The advance would be checked periodically and a feedback with the personnel may occur.
It is important to consider that the periodically revision give us the possibility to redesign and innovate the process and activities, taken advantage of the latent opportunities with reference to the continuous improvement or re-engineering of the process (figure 4), in order to reach the expectative of the customer, improve costs, efficiency of the processes and give the correct use to the actives.
This activity of analysis must be strengthened and communicated in the objectives and indicators proposed, they must remark the activities of permanent renovation and improvement of process.
Figure 4. Re engineering and Programs of Exchange
The implementation must supported by documents integrating all the strategically plans of maintenance, indicators, procedures, inventories, hiring, management of human resources and other relevant factors of the management of the working, technological process.
6. Philosophy of World Class
The enterprises are always looking for the excellence, in their process, this model let us get the “World Class” in the maintenance process, directing the efforts to the obtainment of the levels of excellence, in the implementation of 10 practices:
Adapt the organization to work teams.
Contractors oriented to the productivity.
Integration with suppliers of services and raw materials.
Support and managerial vision.
Planning and Proactive programming.
Continuous improvement.
Discipline management of process of material and procurement.
Integration of process and systems.
Management of plant stoppage.
Production Based on the Reliability.
In the implementation of these practices, the objectives of maintenance are established, in all levels, and must be responsible of creating Operational Reliability, from their four perspectives:
Reliability of the Equipments.
Human Reliability.
Reliability of the Process.
Maintainability of the Equipments.
The philosophy of the World Class, implicate the implementation of methodologies and specific keys that empower the obtainment of fast, optimal and lasting results. For this reason, methodologies have been introduced to balance the technical and financial indicators, the ones that would let to obtain the benefits in business of maintenance.
If we base on the last paragraph, as strategic factors of the attention of the business management, in order to achieve the category of the “World Class”, the action must be directed to:
Strengthen the attention in the implementation of recommendations and maintenance plans.
Fortify the training of the maintenance annalists, in a way to guarantee the management and advantages of the data.
Reorient the efforts of the specialists trough the obtainment of the unify diagnostics of the installations, fortifying the natural equipments of work.
Reinforce the process of execution of maintenance process, plants stoppages, from the point of view of the planning and management of changes.
Make stronger the activities of monitoring, diagnostic and control of the operational and functional variables of the processes.
7. Conclusions
The focus of the model of implementation requires establishing a vision of the maintenance business and an action plan, where the practices, initiatives, objectives, indicators and financial goals are specified.
The use of the technical financial indicators give us an orientation to measure the physical and economical advance for the control of the maintenance management balanced for operational, investment and plants stoppages budgets, in the way to search the return of investment improving the reliability of the equipments, human reliability, process reliability and maintainability of the equipments.
The adequate use of the balanced indicators systems, permit to select in a finest way: the frequency of maintenance and inspections, inventory levels, management and optimization of budgets, considering in an objective sense the impact of the failures on the operations, production, security and the environment. In addition helping to reduce the production costs and increasing the value of the actives on the life cycle and enlarging the benefits of the enterprise.
References
Kaplan, R, Norton, D.; “The Balanced Scorecard Measures That Drive Performance” Harvard Business Review. USA, 1992.
Porter, Michael, “What Is Strategy,” Harvard Business Review, 1996.
Norton, David, “Building A Management System to Implement Your Strategy,” Renaissance Solutions. USA, 1996.
Paul R. Nive.; “Balanced Scorecard Step-by-Step Maximizing Performance and Maintenance Results” John Wiley, Inc, New York, USA, 2002.
Terry Wireman.; “Developing Performance Indicators for Managing Maintenance”, Industrial Press, Inc, 1999.
Author:
Luis Amendola, Ph.D is the professor of Department of Projects Engineering, Polytechnic University of Valencia Spain, has over 23 years of experience in the petroleum, gas and petrochemical industry. He has carried out technical positions and management engineering projects, maintenance and business development in international company, PMI membership.