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How to Plan for the Cost of Unplanned Downtime

Published on February 23, 2022

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According to the report created by the General Electric Company in October 2016, offshore oil and gas organisations suffer financial losses of $38 million from unplanned downtime every year. Nevertheless, downtime costs are not only an issue in this particular industry. In fact, unplanned downtime is the number one enemy for all manufacturing businesses.

Whenever downtime occurs, business owners start to scramble in order to fix the machine and get the production up and running as soon as possible. As time is money, this approach is hardly surprising. However, a much more practical option is to prepare yourself for the cost of unplanned downtime.

To do it correctly, you need to address a few crucial factors, including calculating your employees' average hourly pay rate, reassessing your downtime approach, and using the downtime data to your advantage. Let's look at these critical factors that can help you plan for the cost of downtime.

Calculate the Average Hourly Pay Rate of Your Employees

One of the best ways to predict how much money unplanned downtime can cost you is by looking at your employees' wages. This way, you can estimate just how big of a financial loss you will suffer when they cannot do their job.

For example, if your machine operators cannot complete their tasks for four hours due to equipment failures, you can multiply their average hourly wages by four and add them. The result you get will be the estimated cost of ceasing operations for this period.

While it is not the perfect method (e.g., it does not include the costs of repair and revenue loss), it is one of the first steps you should take to get yourself ready for unplanned machine maintenance.

Reassess Your Downtime Approach

Manufacturing companies can choose one of three main approaches to reduce unplanned downtime, quickly resolve issues with their equipment, and resume production. Here is a brief description of each one of them:

Reactive Approach

Most business owners take the reactive approach to downtime. It revolves around responding to issues as soon as they occur. For example, when someone in the organisation identifies equipment failure, dedicated employees will instantly take action to resolve the problem. However, a much more efficient strategy is to go for planned or predictive maintenance.

Planned Approach

Manufacturers who use planned maintenance can significantly reduce downtime by keeping their equipment in top shape all year round. You can start using this approach by designating time every month for regular maintenance of production systems, service of machines, and improving network management. This way, you can prevent the technology you use from breaking down and ensure that machine downtime will occur in your manufacturing company only sporadically.

Predictive Approach

The most significant out of these strategies is a predictive one. Manufacturing companies using this strategy delve into analytics and data, anticipating when costly downtime will occur and preventing it just before it happens. It is a universal approach that organisations from more than one industry are already using.

As someone responsible for choosing the best strategy to deal with downtime, take a step back and determine which of these three strategies your company was using. Next, adjust it accordingly to reduce unplanned downtime and avoid issues like lost revenue and decreased productivity.

Use the Downtime Data to Your Advantage

If you have already experienced unplanned downtime, you can use this knowledge to your advantage. Spend some time to establish what went wrong and how you can improve downtime-related processes in your organisation. This way, you will find valuable information you can later use to estimate the cost of your next downtime more precisely and figure out how to deliver services to customers on time.

For instance, you can create a unique platform to gather data and track how well you handled maintenance processes in the past (e.g., how many production hours were lost, how high was the cost of downtime per hour). Another good solution would be to look at other companies and how they handle similar occurrences. You can look at the technology they use to get production back up and running, as well as what methods they employ to service their machines.

The Bottom Line

Both planned and unplanned downtime can make every life of every business owner miserable. It is a stressful situation whenever it occurs. Nonetheless, by taking a few critical steps, you can mitigate the adverse effects of downtime — unplanned or otherwise.

Remember that you should use the data from previous events to deal with the present issue more swiftly. You can also calculate a considerable part of your downtime costs by adding the hourly pay of your employees. Additionally, you might want to change your current downtime approach to a time-based or predictive one.

Applying these methods can result in more cost savings annually and consistently delivering services to your customers. If you follow our advice and stay focused on your goal, you should find the task of handling downtime-related costs much more manageable.