THE BUILDING ADVICE BLOG

What If You Could Prove Your PM Generated a 545% Return On Investment?

Posted by Jim Crowder on Apr 9, 2019, 7:16:00 AM

 

 

 AdobeStock_169541358

JLL Study Uses Empirical Data to Prove the Financial Impact of Preventative Maintenance

While building owners understand that Preventative Maintenance protects their assets and  it’s something that needs to be done, there is, unfortunately, little empirical evidence that supports this. Perhaps that is why it has proven to be more popular in principal than in actual practice. It may also underscore why PM budgets are often the first ones targeted when it’s time to make cuts. We’ve all been through it.

While anecdotal evidence can help, owners are always looking for yield and they aren’t necessarily looking to increase their expenses without proof of return. The problem is the lack of quantifiable evidence which is a major contributor to underinvestment.

I ran across this JLL Study that addresses the need for empirical evidence that justifies owner investment in Preventative Maintenance. They were approached by corporate real estate managers that suspected they were significantly underinvesting in PM. To get the funds they needed, they knew they’d need to build a financial case documenting the return on their proposed investment.

JLL ROI

The JLL team developed a financial model based on a proxy of their entire portfolio and skewed their analysis to the conservative (e.g. no lost productivity from downtime, etc.). Elements of the model included Cost of PM, Repair, Replacement, Expected Useful Life (EUL), Impact of PM on EUL, Frequency of repair w/o PM, etc. The financial analysis contrasted industry benchmark PM vs no PM.

One consistent message was that PM would extend the life of equipment but few sources could provide estimates of the amount of life.

The conclusions of the study were pretty compelling:

  • Investments in PM not only paid for themselves, but generated huge returns on investment
  • The bulk of the return comes from increasing the Useful Life of Equipment (ULE)
  • In this study, energy accounted for approximately 7% of the return 

The study underscores the value of Preventative Maintenance and the financial impact it can have on real estate investments. It also supports our contention that your HVAC Value Proposition begins with delivering measurable value through your Preventative Maintenance Program.

I think as an industry we need to work on quantifying the financial impact our programs have on Useful Life of Equipment. What are your thoughts? 

Topics: operating costs, energy efficiency, building data measurement, HVAC, Mechanical Equipment Upgrades, preventive maintenance, Preventative Maintenance, Building Budgets, CRE, Asset Values

Subscribe Here!