Calculating Oil Analysis ROI: It’s Surprisingly Simple!
There are 4 reasons for keeping the measurement of oil analysis ROI simple:
- It’s less time consuming
- It reduces measurement errors
- It utilizes statistics that most companies have on hand
- It’s easier to convey to management.
Albert Einstein’s advice was to “Keep things as simple as possible, but no simpler.” This applies to calculating the ROI of oil analysis. There are some very complex calculations out there that belong in a software program rather than a human head.[1] And for those that do have the extra bandwidth to determine and input all those variables, explaining it all to management will likely result in a vacant stare rather than a congratulatory handshake. Given this, it’s smart to always bear in mind that management will have to approve the initial and ongoing investment in the oil analysis program.
While the return on oil analysis is there whether the calculation is simple or complex, it’s best to keep things as straightforward as possible for management. There is always money available for investments that produce a healthy profit.
There are three main costs to consider in the calculation: labor, parts and downtime. There are, however, other costs such as production time, production quality, energy and lubricants, that a more comprehensive calculation will factor in.
Example: ROI of Oil Analysis on Gearboxes[2]
Note that all of the metrics needed for this equation should either be readily available or easy to estimate.
7 SIMPLE METRICS ARE ALL YOU NEED
- Total number of gearboxes
- Average gearbox failures per year
- Parts cost per failure
- Labor cost per failure
- Loss of production cost per failure
- Cost of production (if equipment had been operating)
- Annual cost of oil analysis for gearboxes
THE CALCULATION
Annual cost of gearbox failures prior to institution of oil analysis program
Number of Gearboxes x Average Failures Per Year x ((Parts + Labor + (Loss of production- Cost of Production)) = Annual Cost of Gearbox Failures
MINUS
Annual cost of gearbox failures after institution of oil analysis program
Number of Gearboxes x Average Failures Per Year x ((Parts + Labor + (Loss of production- Cost of Production)) = Annual Cost of Gearbox Failures
MINUS
Annual Cost of Gearbox Oil Analysis
EQUALS
Annual Savings Using Oil Analysis on Gearboxes
ROI = (Annual Savings-Annual Cost)/Annual Cost
This is a very simple, concise calculation that can easily be conveyed to management. While the cost of purchasing a piece of equipment is fixed, the total cost of ownership (TOC) is highly variable. One of the main drivers of variability is how well the equipment is maintained. The fact remains that, for most applications, oil analysis is one of the most cost-effective maintenance tools.
At Eurofins TestOil, we always encourage the measurement of ROI at regular intervals and are happy to provide help!
For more information on working with Eurofins TestOil for oil analysis and training visit www.testoil.com. Contact: 216-251-2510; sales@testoil.com.
About Eurofins TestOil
With more than 30 years of experience in the oil analysis industry, Eurofins TestOil focuses exclusively on assisting industrial facilities with reducing maintenance costs and avoiding unexpected downtime through oil and fuel analysis program implementation. As industry experts in diagnosing oil-related issues in equipment such as turbines, hydraulics, gearboxes, pumps, compressors and diesel generators, Eurofins TestOil provides customers with same-day turnaround on routine oil analysis testing. For more information on partnering with Eurofins TestOil on oil analysis programs or training opportunities visit https://testoil.com. Contact: Michael Barrett 216-251-2510; sales@testoil.com.
About Eurofins – the global leader in bio-analysis
Eurofins is Testing for Life. Eurofins is the global leader in food, environment, pharmaceutical and cosmetic product testing, and in discovery pharmacology, forensics, advanced material sciences and agroscience Contract Research services. Eurofins is also a market leader in certain testing and laboratory services for genomics, and in the support of clinical studies, as well as in BioPharma Contract Development and Manufacturing. The Group also has a rapidly developing presence in highly specialised and molecular clinical diagnostic testing and in-vitro diagnostic products.
With over 61,000 staff across a network of 940 laboratories in 59 countries, Eurofins’ companies offer a portfolio of over 200,000 analytical methods. Eurofins Shares are listed on Euronext Paris Stock Exchange.
[1] Software programs for calculating the ROI of oil analysis do exist.
[2] There any many extrinsic costs associated with equipment failure not listed here.
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