Application and implementation issues of a framework for costing planned maintenance

Mirghani, Mohamed Ali

doi:10.1108/13552510310503268

Cited by 11 publications

(6 citation statements)

References 3 publications

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“…Salonen and Deleryd (2011) have categorized the direct maintenance costs into costs of labour, spare parts, and other direct maintenance costs, whereas the indirect costs include, for example, production losses and inadequate quality of maintenance. Mirghani (2001Mirghani ( , 2003 on the other hand, has developed a framework for the costing of planned maintenance. He has categorized the maintenance costs into direct materials, direct labour, and support services.…”

Section: Maintenance Costingmentioning

confidence: 99%

“…Both the cost categories of maintenance (El-Haram and Horner, 2002;Mirghani, 2001Mirghani, , 2003Salonen and Deleryd, 2011), and the risks of maintenance and outsourcing (Al-Turki, 2011;Campbell, 1995;Hui and Tsang, 2006;Leavy, 2001;Murthy et al, 2002), have been studied before, whereas the costs, benefits, and risks of maintenance have not been quantitatively integrated in the academic literature. Previous studies include numerous cost models for maintenance (Alsyouf, 2006;Hui and Tsang, 2006;Dekker, 1996;Garg and Deshmukh, 2006;Komonen, 2002;Oke, 2005;Sharma et al, 2011;Salonen and Deleryd, 2011;Tam and Price, 2008).…”

Section: Introductionmentioning

confidence: 99%

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Modelling costs in maintenance networks

Sinkkonen

Marttonen

Tynninen

et al. 2013

J of Qual in Maintenance Eng

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If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to create a cost model at the general equipment level for industrial maintenance services. Design/methodology/approach -The study is divided into two main sections. In the first phase the idea is to create a framework for a cost model with a literature review. The second, empirical part of the study is based on costing information from interviews and information given by network companies: a pulp mill, a maintenance company and an equipment provider. The maintenance of three different equipment processes is examined in the network through a case study, to get more specific information from real world situations to develop the model. Findings -The findings concern the cost items that should be considered in the model, the structure of the model, and how the general cost model is constructed. During the research the model has been extended, and new cost categories included. Practical implications -The cost model can be used in various performance measurement and decision-making situations, such as maintenance service pricing, contract negotiations, outsourcing decisions, and life cycle cost management. Originality/value -The cost model differs from traditional cost models. Earlier models have focused on the perspective of either the service provider or the customer, but not on both perspectives at the same time. However, in order to achieve a win-win situation in a business network, open books practice is expected from each member of the network.

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Section: Maintenance Costingmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Modelling costs in maintenance networks

Sinkkonen

Marttonen

Tynninen

et al. 2013

J of Qual in Maintenance Eng

View full text Add to dashboard Cite

show abstract

“…The concept of maintenance profitability is perhaps at its infancy in the maintenance literature (Komonen, 2002;Mirghani, 2003). Although not many sources could be referenced to support an extensive exploration of the concept, some literature has demonstrated the importance of measuring maintenance profitability.…”

Section: Literature Reviewmentioning

confidence: 99%

An analytical model for the optimisation of maintenance profitability

Oke

2005

International Journal of Productivity and Performance Management

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Purpose -The paper presents a mathematical model that measures the profitability of the maintenance system based on the traditional accounting definition of profitability. There is currently a dire need for an article presenting a scientific-based framework for practitioners in maintenance to make optimal instead of sub-optimal decisions on profitability. Design/methodology/approach -A case study is presented to reflect the actual application of the proposed model. Different situations were considered in modelling to obtain optimal results. Simulation experiments were conducted to demonstrate that maintenance profitability is a reality through the use of differential calculus. Findings -It was observed that the approach presented is a holistic viewpoint of maintenance profitability measurement. Research limitations/implications -An adequate understanding of the maintenance system is needed to properly implement the model. Practical implications -The practical application of the model is that the maintenance system will now be viewed as a value-adding activity instead of "a necessary evil" or "a bottomless pit for expenses". Originality/value -This paper fulfils an identified need and offers practical help to managers in taking guided decisions that are optimal.

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“…The cost of an object or a service is the accumulation of the direct traceable consumed resources (materials and labor) and allocation of the support services costs (Mirghani, 2001).…”

Section: Introductionmentioning

confidence: 99%

“…Nevertheless, few studies initiated modest steps in analyzing the activities involved in maintenance management. Mirghani (2001) proposed a framework, based on ABC, to allocate support services (overhead) costs to planned maintenance. He tries to enable management to manage maintenance function in a way that it turns the organizations into successful profit centers.…”

Section: Introductionmentioning

confidence: 99%

Maintenance cost estimation: application of activity-based costing as a fair estimate method

Haroun

2015

Journal of Quality in Maintenance Engineering

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Purpose – The purpose of this paper is to present the use of activity-based costing (ABC) approach as an alternative option to the traditional cost accounting system. The contribution of this study is to demonstrate, through a simple example, the application of that costing system in a service (maintenance) industry, i.e. the paper intended to develop a procedure for a cost model that help in calculating any maintenance job cost, to a reasonable degree of accuracy, based on the actual activities performed. Design/methodology/approach – This research uses a simple example whereby hypothetical activities and cost data of maintaining an injector and a pump, of an internal combustion engine, are used, presented and analyzed based on the use of the developed procedure. Findings – ABC system provides more accurate cost estimates rather than the traditional “order costing” methods that uses unit-level costs which are variable in relation to change in service volume. Traditional cost methods distort the costs by applying overhead uniformly over different jobs of varied complexities and activities scope. On the other hand, ABC is a useful means to distribute the overhead costs in proportion (fairly) to the actual activities performed in a specific job and, hence, enhance the rationality of decision making, i.e. will not distort the accounting information used for cost reduction, pricing, and evaluation matters. The results obtained from the analysis showed that allocating costs to the maintained injector decreased from $83.55 to $71.95 and, finally, to $67.57 when using the workshop-wide, two-stage and ABC overhead allocation methods, respectively; while that of the pump increased from $298.90 to $340.34 and, finally, to $359.48 when using the same three methods, in the same order, respectively. The result is quite fair when considering the complexity of the fuel pump, in terms of design and maintenance, when compared with the injector. Notice that using volume to allocate overhead costs results in over costing high-volume products, e.g. injectors (simple in terms of design and operation) and under costing low-volume products, e.g. pumps (more complex in terms of design and operation). The paper recommends to use ABC as a more accurate and fair method when charging maintenance job orders based on the analysis of costing two maintained items in the same premise while consuming different overhead resources. Practical implications – This study attempts to analyze different methods to calculate a specific corrective maintenance job order. It strives to remedy the drawbacks of the traditional overhead costing of a job order when using principles related to the size of service, such as the direct labor cost/hours, as an allocation base. Consequently, the study proposed a new costing method, i.e. application of ABC. The traditional costing approach is considered by many firms as the best costing method. Nevertheless, it allocates overhead cost over job performed uniformly (equally) not differentiating between the complexity of the job and variety of the activities performed, e.g. using the same allocation base for “oil change” and “fuel pump adjustment” activities. So, ABC prevents cost distortions (unfairness) that could not be prevented by traditional cost accounting system. The author believes that the method presented in this paper will provide a useful management tool for costing maintenance jobs based on the appropriate selected activity drivers in maintenance workshops. The method could be applied for costing maintenance activities in maintenance of all industrial sectors. Originality/value – The use of traditional costing method has proven to be distorted by applying overhead uniformly over different jobs of varied complexities and activities scope. In this paper the authors strive to present an effective costing alternative that outperforms the traditional ones with regard to overhead allocation. The paper aims to find reliable and fair maintenance costing method, i.e. to find out the relationships between maintenance activities and cost drivers. Although, ABC is widely used in manufacturing industry, no application or current research has presented an applicable thorough worked-out example, with the exception, to the author’s knowledge, of one in the aeronautical industry, to implement ABC method in maintenance industry. The importance of using this method comes from the fact that it provides, relatively, accurate and fair maintenance bills that provide customer satisfaction and firm good image. Hence, the paper is relevant in this respect and intended to contribute to the practice of maintenance management.

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Application and implementation issues of a framework for costing planned maintenance

Cited by 11 publications

References 3 publications

Modelling costs in maintenance networks

Modelling costs in maintenance networks

An analytical model for the optimisation of maintenance profitability

Maintenance cost estimation: application of activity-based costing as a fair estimate method

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