This week on the blog we are returning to a piece that Tom Arnold delivered at our Maintainers II conference. Tom is the CEO and co-founder of Gridium. Buildings use Gridium software to fine-tune operations, including energy management and maintenance operations. In his talk, Tom taught us something we have never been able to forget: according to Gridium's analysis of hundreds of thousands of building work orders, only about 2% of effort went into preventive maintenance. That is, nearly ALL action was reactive. Tom also offers thoughts about some incentives that encourage this reactive mindset and behavior. We walked away from Tom's talk feeling that, in many organizations, what's needed is a whole new way of looking at things, a cultural shift—a tough task that requires real leadership.
2% of the day is for preventive maintenance
Fixing is an essential part in the art of maintenance, but the true goal is to preserve an asset from failure and decline. Drifting off of spec is a nearly gravitational force in mechanical systems, and operators are faced with two choices to get back on track. Bail water and be done quickly, or take some time and improve top-line capacity.
Professor John Sterman at the MIT Sloan School of Management calls this the capability trap, where a building operator needs to constantly balance better-before-worse or worse-before-better tradeoffs. Faced with a diverse collection of mechanical systems slowly drifting off of spec, and needing repair, building operators often find themselves stuck in a trapped cycle. Consumed by running around fixing things, there is little to no time left to invest in capacity improvement, in preventive maintenance.
We see this in the data.
Buildings use Gridium software to fine-tune operations. Two ownership groups–with a combined portfolio spanning 200 buildings–asked us to review their operations data from 208 thousand historical work orders. For every 98 corrective maintenance tickets, a rare two preventive maintenance tickets were completed!
Deferred maintenance compounds at 7% a year
Keeping a building in tip-top shape has a positive effect on profitability. Research shows that preventive maintenance is worth $0.33 a square foot with a return on investment of 545%.
Larry Summers, formerly the United States Treasury Secretary and President of Harvard University, finds that deferred maintenance backlogs compound at 7% a year, and that the U.S. should spend $1 trillion over the next ten years on maintaining current infrastructure assets.
In buildings, where chillers cost about $350,000 to replace, the math is just as stark. Across 200 thousand work orders, the average completion time is 17 days with an average direct cost of $350.
Most building budgets are wrong
Building operations budgets are getting squeezed: teams are forced to downsize, work harder, and for longer. How much will the building cost? It’s an important question, with an even more important answer.
Stanford University benchmarked its portfolio to develop guidelines for an accurate life cycle cost analysis of its buildings. The guidelines include a review of energy, mechanical, electrical, and structural systems and building envelope and siting/massing factors. Over a 30 year period, we can expect a building to cost nearly as much in maintenance, service, system replacements, and utilities as its initial project cost. In fact, utilities will end up representing about 30% of the total cost of ownership.
These budget variances are particularly conspicuous in our cities’ financial statements. Despite cities in the U.S. spending, on average, $173 per capita–$0.09 per dollar of revenue–on maintaining their public works and physical assets, deferred maintenance budgets are ballooning. The Federal government is carrying a deferred maintenance liability on its property, plant, and equipment of nearly $200 billion, and estimates pin total deferred maintenance in the U.S. at over a trillion dollars.
At the intersection of time and data
The main bait in the capability trap, of needing to choose between better-before-worse or worse-before-better operational paths, is limited time. Research at Texas A&M University shows that facilities managers with easy access to the right data about their buildings systems can reduce work order completion time by 8.7%.
When building operators ask their teams “How can we be more productive, more efficient?” they’ve started on the right path. It’s up to technology firms to have some of the answers for them, and up to all of us to recognize the importance of these questions and understand the costs and paybacks.
Davis, M., and R. Coony, S. Gould, and A. Daly (2005). Guidelines for Life Cycle Cost Analysis. Stanford University Land and Buildings.
Day, J. (1979). World Class Maintenance. Alumax.
Gridium Inc. analysis and research on preventive maintenance software.
Koo, W. L., and T. Van Hoy (2000). Determining the Economic Value of Preventive Maintenance. Jones Lang LaSalle.
Jawadekar, S. (2012). A Case Study of the Use of BIM and Construction Operations Building Information Exchange (COBie) for Facility Management. Texas A&M University.
Sterman, J. (2013). Stumbling towards Sustainability: Why organizational learning and radical innovation are necessary to build a more sustainable world—but not sufficient. Leading Sustainable Change.
Summers, L. (2017). The case for a proper programme of infrastructure spending. The Financial Times.