Industrial operations that use physical assets for production or service delivery need their assets to run optimally, with minimal operational disruption when they do not.
Spending too little overall, or spending on the wrong things, always backfires. Short-term savings can lead to breakdowns that disrupt operations and cost far more in lost revenue than was saved through under-spending.
This Executive Brief is intended to help financial managers understand the hidden benefits of proactive maintenance and avoid the issues caused by reactive maintenance and under-spending.
A proactive maintenance approach decreases the overall cost of maintenance without sacrificing asset performance, asset lifespan, or workplace safety.
Why this matters
Maintenance decisions affect more than the maintenance budget. They influence capital requirements, revenue continuity, margins, safety exposure, environmental risk, insurance confidence, and the organisation’s ability to deliver predictable performance.
The financial logic behind proactive maintenance
The contribution maintenance makes to financial results rests on two basic facts:
- Proactive work is less expensive than reactive work.
- The more proactive work is done, the less overall work is required.
All physical assets eventually age beyond their useful life. By catching failures before they result in major damage or losses, proactive maintenance keeps assets in good condition for longer, extending their useful life.
Eventually, the cost of maintaining ageing assets increases to the point where replacement is economically preferable to additional maintenance. Until that point, the right maintenance discipline helps leaders defer unnecessary capital spending and reduce avoidable operational losses.
Reactive maintenance, including rushed or shortcut maintenance, the use of sub-standard parts, and poor repair processes, detracts from an asset’s useful life. Proactive maintenance prevents extensive damage by implementing less extensive and less expensive repairs. Well-planned repairs, done on schedule, with quality replacement parts and workmanship, return the asset to a condition close to “as new”.
Financial contributions
Maintenance and physical asset management contribute to financial performance in three main areas:
1. Capital and balance sheet
- Deferring replacement capital spending
- Keeping improvement efforts off the balance sheet
- Freeing up working capital
2. Income statement
- Reducing costs
- Increasing revenues
- Increasing margins
3. Indirect benefits
- Reducing safety and workers’ compensation premiums
- Reducing environmental risk and compliance fines
- Enhancing working environments
- Reducing turnover and retention costs
Capital and balance sheet
Replacement capital
By keeping aged assets in top condition, proactive maintenance can defer their replacement and move capital spending further into the future.
For example, proactive maintenance practices can result in extending the replacement age of a fleet of vehicles from five to seven years.
In a fleet environment, if each truck can operate even 10% longer, each truck can carry more capacity before replacement. Instead of using 40 trucks to achieve full capacity, if each operates 10% longer, only 36 trucks may be required for the same performance outcome.
If each truck costs between $3 million and $5 million, four fewer trucks can represent a significant saving in capital outlay.
Off-balance-sheet financing of improvements
Improvements that expand capacity and extend the life of capital assets are often capitalised, then depreciated as a non-cash cost over time.
Maintenance improvement, however, is often achieved through changes to business processes and practices, training and skills upgrades, and the use of technologies that detect equipment failure conditions sooner.
If left entirely to internal staff, improvements are often done piece by piece and gradually. The resulting performance changes may take several years to achieve.
With the right support, it may be possible to move faster or begin sooner. Improvements can sometimes be financed in ways that behave more like lease-style arrangements, turning the work into an investment that saves money in the long term.
Working capital
Proactive maintenance contributes to working capital by reducing current liabilities, lowering labour and material costs, reducing costly equipment failures, lowering inventory values, and reducing operating costs.
For example:
- more efficient equipment operation can reduce energy costs
- operators spend less time waiting for broken-down equipment to be repaired
- maintainers spend more time on lower-cost proactive work
- material and supplier costs can be reduced through fewer failures and better planning
The same actions that reduce the need for replacement capital also contribute to lower working capital requirements. Keeping assets running longer delays replacement costs. Keeping them running more reliably increases availability and useful output.
In some environments, particularly fleet operations or multi-shift plant operations, productivity can be increased with fewer operating assets or fewer operating shifts.
Income statement
Costs are reduced by shifting the focus from repairing breakdowns to preventing breakdowns, and from unplanned work to planned and scheduled work.
On average, the cost to repair breakdowns is at least three times higher than the cost of preventing failures.
Breakdowns do not only reduce income. They can also put equipment into abnormal states that increase the risk of accidents, environmental incidents, fines, operating licence exposure, and in some cases, higher insurance premiums.
The goal of proactive work, including preventive, predictive, and detective maintenance, is to avoid breakdowns as well as the operational losses and costs that accompany them.
Proactive work is cheaper to perform and produces significant savings.
Good planning precedes effective scheduling. Strong scheduling increases the utilisation of the maintenance workforce and improves maintainer “wrench time”, also known as “hands-on-tools” time. This additional productivity gets more work done in the same timeframe, shrinks work backlogs, and keeps costs low.
Increasing revenues
Proactively maintained assets are reliable assets.
They require fewer repairs, fail less frequently, and incur less downtime.
Less downtime means more uptime. More uptime means increased productivity, output, or service delivery.
In a fixed plant environment, leaders cannot easily shrink the size of the plant in the way they might reduce a vehicle fleet. Increased capacity can therefore be used to produce and deliver more.
If the organisation can sell all it produces, revenues increase.
If not, spare capacity still creates options. It may be sold or rented to other producers. It may also allow more output in less time, reducing operating shifts. Spare capacity can also create time to perform proactive maintenance without interrupting production.
Increased margins
All of the above contributes to increased margins.
Variable operating costs usually rise as production levels increase. Each additional unit produced carries an additional cost. If the last few units of output are much more expensive to produce than the first units, the organisation may be running its assets too hard and creating too many breakdowns.
Maintenance is part of both variable and fixed cost.
If assets are not being used, they need less maintenance. But idled assets still require preservation work or they may not be available when needed.
Better maintenance lowers both fixed costs, through the right preservation work, and variable costs, through more proactive work and less breakdown work.
These savings lower the total cost curve.
When total costs exceed revenue, the organisation is not making money. As production increases, costs rise, but ideally at a lower rate than revenues. The point where revenue exceeds cost is the breakeven point. To the right of that point is margin.
Lower maintenance costs lower the cost curve and move the breakeven point to the left. Higher reliability lowers operating costs further and provides greater availability. The organisation can produce more, move further into profitable output, and improve margins.
Indirect financial benefits
In addition to direct benefits to capital, income, and costs, proactive maintenance delivers several indirect benefits.
Safety and workers’ compensation
Many industrial accidents involve slips on wet or lubricated surfaces caused by leaks or spills. Workers trip over items left in walkways, fall while climbing temporary access equipment, or are exposed to rushed repair environments.
These accidents often occur around maintenance work.
When work is rushed and unplanned, it is more likely to create conditions that lead to accidents.
Safety incidents also occur when operators scramble to compensate for failed equipment, shut it down, clear it of working fluids and gases, isolate energy sources, perform repairs, and restore equipment to normal operation.
As reliability improves, safety incidents tend to drop.
In addition to achieving safety goals and protecting people, improved safety performance can reduce workers’ compensation premiums and make the operation a safer place to work.
Environmental risk, fines, and compliance
Equipment in good condition runs as intended. It consumes energy and fuel at economical rates, emits fewer pollutants, remains within emissions limits, and avoids spills, leaks, product losses, and contamination.
Non-compliance with environmental regulations can result in fines and loss of licence to operate. Avoiding these incidents prevents financial penalties and protects revenue continuity.
Good maintenance discipline is therefore also a compliance and operating licence issue.
Working environment, turnover, and retention
Would people rather work in a clean, bright environment where everything is in its place and easy to find, or in a chaotic, dark, disorganised workplace?
Better-maintained environments support better work.
When facilities, equipment, lighting, access, storage, and work areas are properly cared for, employees are more likely to feel that the organisation values their work and their safety.
Workers are happier in better work environments. Happier employees are less likely to leave.
Lower turnover reduces the cost of finding and training replacement workers, especially skilled tradespeople. It also reduces the disruption, grievances, and performance issues that often arise in poor working environments.
Replacing an experienced employee can be costly. Retaining people saves those costs and protects capability.
To do their jobs well, proactive maintainers also require periodic training to enhance skills and motivation. Investing in training supports maintenance quality, asset performance, morale, and retention.
How these benefits are achieved
Maintenance plays a major role in producing these benefits.
Good planning and scheduling deliver efficiency by getting maintenance work done. But effectiveness depends on doing the right work.
Studies into equipment failures that led to commercial airline crashes showed that many crashes were caused by maintenance doing the wrong work. That finding helped lead to the development of Reliability Centred Maintenance, or RCM.
RCM is a method for determining the right maintenance work at the right time. It has been successful not only in aviation, but in many other sectors.
Combining planning, scheduling, RCM, and strong work execution by a right-skilled workforce keeps assets operating within their built-in capabilities and supports world-class performance.
What happens to the maintenance budget?
Cost reductions and efficiencies contribute to reducing the budget required to deliver asset reliability.
The right people doing the right work at the right time with the right support eliminates waste. In lean terms, this is known as maintenance reduction.
Doing the right proactive, planned, and scheduled work costs about 33% of the cost of unplanned, unscheduled reactive work.
For example, if 90% of work is reactive at a cost three times higher than proactive work, and 10% of work is proactive, the total cost is:
Reactive work: 90 × $3 = $270
Proactive work: 10 × $1 = $10
Total cost: $280
By shifting work from reactive to proactive, and from unplanned and unscheduled to planned and scheduled, a reasonable target might be 25% reactive and 75% proactive.
The cost then becomes:
Reactive work: 25 × $3 = $75
Proactive work: 75 × $1 = $75
Total cost: $150
That is a reduction of $130, or more than 46%.
It may take a few years to achieve this outcome, but the example shows how much money can be wasted by a break-then-fix maintenance approach.
Conclusion
Maintenance can make a significant contribution to a company’s bottom-line profits and overall financial health through cost reductions, revenue protection, and margin improvement.
These improvements do not always require capital outlays. In fact, they can defer and even reduce the need for replacement capital.
The application of good maintenance goes beyond direct operational cost savings. It reduces the need for working capital, can support safer and more compliant operations, reduces exposure to fines and penalties, and helps safeguard operating licences.
Consistent performance also improves confidence. It can make the company a better risk for lenders and insurers, support better financing terms, lower insurance and workers’ compensation premiums, and improve trust in performance forecasts.
Because operations are more stable, the working environment also improves. Where working conditions improve, employee morale rises, retention improves, and turnover costs fall.
Maintenance is often thought of as a necessary evil. In reality, it has impacts across the business. It is well worth investing in maintenance and its managers so the organisation can focus on doing the right work, at the right time, in the right way.
Board-level takeaway
- Maintenance is not only an operating cost. It affects margin, capital, risk, and revenue continuity.
- Proactive maintenance reduces the amount of reactive work and lowers the total cost of reliability.
- Better asset care can defer capital spending, reduce working capital pressure, improve safety, protect compliance, and strengthen confidence in operational performance.
Reference paper
This Executive Brief is based on the Conscious Asset paper “How Maintenance Contributes to Financial Performance”.