CMA Intermediate · Operations Management and Strategic Management

Economics of Maintenance and Spares Management: formula sheet

Full chapter guide

Key formulas

Total maintenance-related cost: Total cost = Cost of maintenance + Cost of breakdown (downtime, lost output, repair); The aim is to minimise this total, not either part alone. More preventive work raises the first part and lowers the second.
Choice rule: Prefer preventive or predictive maintenance when the cost of failure is high; prefer breakdown maintenance when failure cost is low; A rule of thumb for answers. Always check the figures if the question gives costs.
Cost of breakdown maintenance: Breakdown cost = Number of breakdowns × (Repair cost per breakdown + Loss per breakdown); Loss per breakdown = idle hours × (contribution or idle-time cost per hour), as the question gives.
Cost of preventive maintenance: Preventive cost = Number of services × Cost per service; Add any planned downtime loss if the question gives it.
Total maintenance cost: Total cost = Preventive maintenance cost + Expected breakdown cost; Compute this for each level or policy and choose the minimum.
Expected number of breakdowns: Expected breakdowns = Σ (breakdowns in a case × its probability); Use when the question gives a probability distribution of breakdowns.
Breakeven number of breakdowns: Breakeven breakdowns = Annual preventive cost ÷ Cost per breakdown; Valid when preventive maintenance would eliminate breakdowns and the breakdown policy has only variable per-breakdown cost. Preventive maintenance is better above this number.
Net capital cost after n years: Net capital cost = Purchase price (C) − Resale or scrap value at end of year n (Sn); If the scrap value is the same at every age, this is a fixed amount. If resale value falls each year, it changes with n.
Total cost up to year n: Total cost(n) = (C − Sn) + Σ running and maintenance costs of years 1 to n; Use cumulative running costs. Do not use only the cost of year n.
Average annual cost: Average cost(n) = Total cost(n) ÷ n; The year with the minimum average cost is the economic life, when time value is ignored.
Replacement rule (no time value): Replace at the end of year n if: cost of year n ≤ average cost up to year n−1, and cost of year n+1 > average cost up to year n; The cost of a year means its running cost plus any extra fall in resale value in that year. If resale value does not change, it is just the running cost. Use this as a check on your table.
Annual consumption value: Annual consumption value = Annual usage (units) × Unit price (₹); Used to rank items for ABC analysis. Rank from highest value to lowest, then compute cumulative percentages.
Cumulative % of value: Cumulative % = (Running total of consumption value ÷ Total consumption value) × 100; Typical cut-offs are about 70-80% of value for A, next 15-20% for B and the rest for C. Cut-offs are a guide, not a fixed law.
Reorder level: Reorder level = Maximum usage per period × Maximum lead time; Alternative: Average usage × Lead time + Safety stock. Use the form the question's data supports.
Issue rate for FSN: Consumption rate = Issues during period ÷ Average stock held; Higher ratio means faster moving. Classes are decided by the cut-offs the question gives, or by time since last issue.
ABC, VED, FSN meanings: ABC = value; VED = criticality; FSN = movement; Write the basis of each technique first in any theory answer.

Quick revision

Breakdown maintenance means repair only after failure; it has low planning effort but can cause high downtime.
Preventive maintenance is done on a schedule to reduce the chance of failure.
Predictive maintenance uses condition monitoring to decide when to act.
Compare options on total cost: maintenance cost plus breakdown cost plus lost contribution.
Expected breakdown cost = expected number of breakdowns × cost per breakdown.
Include lost production or contribution, not only repair cost, in the breakdown cost.
Choose the option with the lowest total relevant cost, then write a one-line recommendation.
Average annual cost = (purchase cost - salvage value + total maintenance and running cost over the years) ÷ number of years.
Replace at the end of the year after which the next year's running cost exceeds the minimum average annual cost, i.e. when the average starts to rise.
Spares are classified by value, criticality and usage so that control effort goes where it matters.
A stock-out of a critical spare can stop production, so its holding cost is usually justified.
Spares stocking depends on lead time, usage rate and the cost of holding versus running out.

Common mistakes

Treating preventive and predictive maintenance as the same thing. Fix: Preventive follows a fixed schedule regardless of condition. Predictive follows measured condition. Write this contrast in every comparison.
Saying breakdown maintenance is always bad or always cheapest. Fix: It suits non-critical, low-cost items with standby. It is costly for critical machines because of downtime and safety risk.
Leaving out lost production or contribution from the cost of a breakdown. Fix: Always add idle time loss per breakdown whenever the question gives hours lost or contribution per hour.
Comparing costs for different periods, such as monthly preventive cost against annual breakdown cost. Fix: Convert everything to one year before building the table.
Picking the year with the lowest running cost as the replacement year. Fix: Always decide on the average of total cost, never on the running cost of a single year.
Using the running cost of year n instead of the cumulative running cost. Fix: Add a cumulative column first. Total cost always uses the sum of years 1 to n.
Ranking items by unit price instead of annual consumption value. Fix: Always multiply usage by unit price first. A cheap part used in huge numbers can be A.
Mixing up ABC, VED and FSN bases. Fix: Remember: ABC money, VED vital-essential-desirable criticality, FSN movement speed.

Exam tips

Write the one-line trigger for each type (after failure, on schedule, on condition). Examiners look for it first.
In comparison questions, use the same points for every type and present them as short bullets.
For objectives, mention availability, safety, asset life, quality and minimum total cost.
In MCQs, watch for keywords such as monitoring, vibration or run-to-failure; they point straight to the type.
If a question gives a scenario, always justify the choice with criticality and cost of failure.
Always show a table with preventive cost, breakdown cost and total. Step marks are given for it.
Read the question for idle hours and contribution per hour. They are the hidden part of breakdown cost.
Check that all figures are for the same period before you multiply.