The danger of ignoring hidden costs


Some costs in Maintenance are easy to measure, but some of the most important results of changes, such as the impact on “maintenance effectiveness” or productivity are notoriously difficult to quantify. When making maintenance changes it is essential that not only the measurable costs, but also the hidden costs are fully considered. Here are some examples:


  1. Elimination of a tool room attendant. By the nature of the work, a tool room attendant may often seem to be not busy, which attracts the attention of management and sometimes this position is among the first to be eliminated if “cost saving” measures are being taken. The saving by reducing this one position is obvious and measurable. However, the hidden cost may greatly exceed any saving.

The resulting hidden cost from the poor tool control that may result from eliminating the tool room attendant comes from wasted mechanics’ time in searching for tools, tool loss and damage and using the wrong tool for the job which will waste time, cause damage and impact reliability and may even cause accidents.  And additional costs may also come from the reduced productivity and work quality that result because tradespeople know and understand the critical importance of being able to quickly find the right tool, and see this change as one more example that demonstrates that “management doesn’t think this job’s important”.

  1. Purchasing inferior small parts and supplies. The cost saving is easily measured, but there may be hidden costs in wasted time and a belief that low quality is acceptable. In one case, a small frequently-used electrical cover plate was replaced in the Stores with a cheaper one which did not have the captive screws or the gasket that the original one had. As one electrician correctly pointed out, the time it would take for him to find the required screws and make a gasket would cost the company much more than the cost saving from buying the cheaper cover plate, but that his wasted time would be completely hidden in any reports.
  2. Replacing parts or making repairs that do not meet the original equipment manufacturer’s standards.  OEM parts may be expensive, but it may be very difficult to match the material specifications or machining tolerances that the manufacturer may have spent years perfecting. Makeshift repairs and “pirate” parts may be significantly less expensive (and the cost saving easily measured) but the result may be reduced reliability and a shorter equipment life, which may not be apparent for some time after the repair or replacement. And a “root cause analysis”, if one is carried out, may not identify that the substitute part was the cause of failures. In one example, purchasing non-OEM gears and shafts for a critical gear reducer for a saving of $2,000 resulted in over $1.5 million in production losses over a 2-year period before the cause was identified.
  3. Examples of actions which increase hidden costs are not hard to find, and a maintenance manager should always be prepared to challenge questionable cost saving measures.

Be especially cautious of using Key Performance Indicators (KPI’s) that focus on results that are easy to measure, such as the value of the stock in Stores. Any KPI must be “balanced”, and using this example, the balancing KPI’s for Store’s stock value are those factors that will be affected by changes in stock value. For example, decreasing the amount of spares kept on hand will reduce maintenance effectiveness. “Maintenance effectiveness” is so hard to measure that it is usually a very well-hidden cost.

Other significant hidden costs may result from wasteful administrative practices (such as excessive and unnecessary approvals for maintenance transactions and the use of cumbersome computer systems), inefficient and illogical materials management procedures, restrictive trades practices and, of course, “going cheap” on capital projects.

See also:

– Measuring Maintenance Performance – the hazards in KPI’s

– Maintenance business processes and position descriptions

– The high cost of restrictive work practices





© Veleda Services Ltd

Don Armstrong, President
250-655-8267 Pacific Time