Extended Warranties Protect Customers from Costly Downtime
Downtime in the construction industry is expensive. No news there. Unexpectedly idle equipment can rob you of profits and the ability to meet project completion dates. But what does that mean, exactly? As we swing into another busy season, your customers and your dealership’s rental department should be asking: how much does downtime really cost? And is there any way I can control that potential expense?
There is more to maximizing uptime than simply keeping up with preventive maintenance schedules and hoping for the best. Factors such as the quality of maintenance service, how the machine is used and operator skill all affect a machine’s risk of failure that results in downtime. Despite the intangibles, however, there are ways to better understand your costs.
Figuring the cost of downtime
You can track the number of down events for each machine, figuring the cost per event. The fewer events, the more reliable the machine is. You can also track the total duration of down events for each machine, figuring the cost per hour. Fewer-but-longer episodes may have a different impact than more-but-shorter events, in terms of dollars spent and also in scheduling headaches. In the real world, both frequency and duration determine the cost of downtime.
Cost of ownership
The easiest and most conservative method is to use the machine’s hourly cost of ownership. You are losing that hourly amount over the duration of the down event. For instance, for a machine with an owning cost of $25 per hour that is down 8 hours, you lose $200. You’re paying to own it, whether it’s doing any work or not.
Cost of replacement
But what if you need to rent a replacement machine to keep the job moving? If the rental rate is $100 per hour, then you are out $800 in addition to the $200 lost ownership cost on the down machine. And, since many jobsites involve a complex choreography of machines, there is a good chance that your down unit will generate additional costs in lost or reduced productivity of associated resources.
Now the total cost of downtime will be much higher, but it’s very difficult to accurately quantify. Unless, of course, the down unit is so critical that the entire job comes to a halt, in which case downtime cost is the total cost of all down machines. This scenario is extreme, however, as the project manager would surely try to reassign resources however possible to keep work progressing.
Mitigating the cost
Our project manager’s quick action to reassign resources or otherwise work around the idle machine can dramatically reduce the total cost of downtime for this event. Let’s say it takes an hour to revise the work plan, so there are no savings for that hour. Then, however, costs start to go down as work starts to resume. As more resources are brought in to assist, the cost per hour continues to decrease. After 8 hours, the total cost could be considerably less than the do-nothing alternative – though, again, virtually impossible to quantify.
Finding a happy medium
For obvious reasons, it is important to understand clearly what downtime costs your organization. Nonetheless, you don’t want to get so nitpicky that you find yourself wasting precious time trying to calculate every possible scenario. The bottom line is that whatever the cost per hour of a specific downtime event, it would be zero if the machine didn’t break down in the first place. The fewer down episodes you have, the lower your cost will be.
Extended warranties have your back
Adhering to preventive maintenance schedules and tracking service data to identify common causes of downtime will help you reduce costs. But the truth is, things go wrong anyway – usually at the worst possible time. Extended warranties can be a lifesaver, covering the cost of repairs to powertrains, hydraulics, or even entire machines. You may still have to pay to rent a replacement machine, but that extended warranty can significantly reduce your total downtime cost.