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Value-driven maintenance
Value-driven maintenance (VDM) is a maintenance management methodology.
VDM was developed by Mark Haarman and Guy Delahay, both former chairmen of the Dutch Maintenance Association (NVDO) [citation needed] in their book entitled Value Driven Maintenance, New Faith in Maintenance published by Mainnovation in 2004.
In financial literature, value (net present value) is defined as the sum of all free future cash flows, discounted to the present date.
A cash flow is the difference between income and expenditure. It is not the difference between turnover and costs, because this is easy to manipulate through accounting. Some companies may use creative lease, depreciation and reservation techniques to keep book profits artificially high or low; this does not always contribute to shareholder value. Recent stock market scandals are an example of what may happen as a result of this. The second part of the definition concerns the knowledge that the value of a cash flow is time-related, given the term "present value". Future cash flows must be corrected or discounted to today. Managing by value necessitates maximizing future cash flows. Managing by value obliges companies to search for new free cash flows. It's no longer enough for a company to go on doing what it is already doing.
Once the concept of value is understood, this concept can be translated into maintenance. Within VDM, there are four axes along which maintenance can contribute to value creation within a company. The axes are also called the four value drivers.
The first value driver, asset utilization seeks to increase the technical availability of a technical equipment. With higher technical availability, it is possible to produce and sell more products with the same invested capital, generating more income while the fixed costs remain the same. In other words, the free cash flows increase, which automatically means value creation. Maintenance can increase technical availability by preventing unwanted breakdowns, scheduling plant maintenance in a smarter way and performing repairs and inspections faster. A point to note is that higher technical availability produces value not only in growth markets. In markets where demand is stable or declining, greater availability can also create value. By making a plant more efficient, the number of shifts can be reduced or it may even be possible to close down sister plants. At corporate level, this does not generate more turnover, but it does significantly reduce costs, which is another way of creating value.
An increasingly important value driver for maintenance is safety, health, and environment (SHE) in VDM terminology. Compliance with legal directives covering SHE creates value in two ways. Firstly, it avoids the imposition of government penalties for breaches of legislation. Secondly, a good SHE policy has a positive effect on retention of the License to Operate. This is something else that has value, because it increases the likelihood of future cash flows actually materializing. Without a License to Operate, there will be no future cash flows and thus no value. Problem here is that it does not take the other error type into account (related to a lower false safety trip rate, but higher accident rate). It is very controversial to put a value on human life and therefore this VDM theory is just like the ALARP logic dangerous to use and might not be accepted by all legislation world-wide (specially in the US).
The importance of the SHE value driver becomes apparent when looking at the recent incident with the BP Oil Spill in the Gulf of Mexico; the Deepwater Horizon oil spill. Poor maintenance is believed to be the cause of one of the biggest oil spills in history, causing massive damage to the environment. Total accumulated consequence costs (both clean-up costs and loss of company value) are estimated on 12 billion.
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Value-driven maintenance
Value-driven maintenance (VDM) is a maintenance management methodology.
VDM was developed by Mark Haarman and Guy Delahay, both former chairmen of the Dutch Maintenance Association (NVDO) [citation needed] in their book entitled Value Driven Maintenance, New Faith in Maintenance published by Mainnovation in 2004.
In financial literature, value (net present value) is defined as the sum of all free future cash flows, discounted to the present date.
A cash flow is the difference between income and expenditure. It is not the difference between turnover and costs, because this is easy to manipulate through accounting. Some companies may use creative lease, depreciation and reservation techniques to keep book profits artificially high or low; this does not always contribute to shareholder value. Recent stock market scandals are an example of what may happen as a result of this. The second part of the definition concerns the knowledge that the value of a cash flow is time-related, given the term "present value". Future cash flows must be corrected or discounted to today. Managing by value necessitates maximizing future cash flows. Managing by value obliges companies to search for new free cash flows. It's no longer enough for a company to go on doing what it is already doing.
Once the concept of value is understood, this concept can be translated into maintenance. Within VDM, there are four axes along which maintenance can contribute to value creation within a company. The axes are also called the four value drivers.
The first value driver, asset utilization seeks to increase the technical availability of a technical equipment. With higher technical availability, it is possible to produce and sell more products with the same invested capital, generating more income while the fixed costs remain the same. In other words, the free cash flows increase, which automatically means value creation. Maintenance can increase technical availability by preventing unwanted breakdowns, scheduling plant maintenance in a smarter way and performing repairs and inspections faster. A point to note is that higher technical availability produces value not only in growth markets. In markets where demand is stable or declining, greater availability can also create value. By making a plant more efficient, the number of shifts can be reduced or it may even be possible to close down sister plants. At corporate level, this does not generate more turnover, but it does significantly reduce costs, which is another way of creating value.
An increasingly important value driver for maintenance is safety, health, and environment (SHE) in VDM terminology. Compliance with legal directives covering SHE creates value in two ways. Firstly, it avoids the imposition of government penalties for breaches of legislation. Secondly, a good SHE policy has a positive effect on retention of the License to Operate. This is something else that has value, because it increases the likelihood of future cash flows actually materializing. Without a License to Operate, there will be no future cash flows and thus no value. Problem here is that it does not take the other error type into account (related to a lower false safety trip rate, but higher accident rate). It is very controversial to put a value on human life and therefore this VDM theory is just like the ALARP logic dangerous to use and might not be accepted by all legislation world-wide (specially in the US).
The importance of the SHE value driver becomes apparent when looking at the recent incident with the BP Oil Spill in the Gulf of Mexico; the Deepwater Horizon oil spill. Poor maintenance is believed to be the cause of one of the biggest oil spills in history, causing massive damage to the environment. Total accumulated consequence costs (both clean-up costs and loss of company value) are estimated on 12 billion.