Is maintenance an expense or an investment, or perhaps both?

One may say “what kind of question is that, everyone knows maintenance is an expense”. Is it? Does that mean it is always so?

Let’s consider a situation. Someone has come up with the design of new process to produce seamless tube in a steel making plant . They will keep the tube round reheat furnace and the piercing mill of the “conventional way” but, they will combine the mandrill mill and stretch reducing mill (that competition is using) and still be able to produce semi-finished tubes (as they come out of the hot mill and before going through the finishing process); in this manner they are able to eliminate perhaps several mill stands along with the same or greater number of two thousand plus horse power motor/reducer combinations (as well all the other associated equipment).

But, as attractive as it appears, and for whatever reason, they were unable to find buyerswhile only at the concept stages. They were forced to find investors to take their concept and build a plant of their own. After some start up issues, it is now successfully producing the tubes exactly as envisioned.

However, their business plan did not, and still does not, rely entirely in running a seamless tube mill; they want to sell the concept and maybe even the components. Their concept is new, but the competition is able to produce seamless pipe with “proven methods”. Thus they cannot stop yet. They need to find ways of showing they are better in other ways as well.

To be able to promote theirmethod and the reliability of the equipment, they need to invite potential clients to actually observe and study the plant in operation. The timing and arrival of the clients may mostly be by mutual agreement, butwho can predict breakdowns? They do want to show the plant operating and not shut down because of an unforeseen breakdown.

So, how can they ensure that the mill operates on the days it is scheduled to operate and thus also on the day when the prospective visitors are at their site? Besides, the visitors may want to spend several days analyzing the operation.

To increase the probability of having an operating plant at all scheduled times, not only have they thought of the new concept for the process but, they have come up with a “new way” of maintaining it. They invest in several additional spare units/assemblies. Instead of waiting until there is an unexpected breakdown or a chance for one, they revise a plan where they interchange a unit in operation, during the scheduled repair shifts, before it shows any signs of failure. Since there are no or very few “break downs’ the on-site maintenance people have an opportunity now to inspect/repair the removed unit under “ideal” lab like, shop conditions while the plant is operating. If the removed unit required any repair, it would potentially have been very minor as the unit was removed before any potential wear was discovered and before it could contribute to any more major damage.

Under this plan, not only was maintenance done under ideal conditions, but the operation was also producing at the design level, maximizing the potential for highest returns.

Sure, whenever a perfectly operating unit is taken out of service and worked on, there is a risk of introducing a problem that did not exist before. In case of a crew doing the work under more “ideal’ conditions, it may well outweigh the results of it doing the repairs under pressures of stopped production.

Accounting methods usually look at maintenance costs as an expense within a “short” time period and seldom provide an easy comparison to support the total effect on the bottom lineand especially over a “longer” period of time/life of the equipment/plant.  Would an investment in a few additional spares and a change in how and when the equipment is repaired constitute as an investment in maintenance and thus make maintenance to be an investment; most likely not as it is still an ongoing expense but one should consider how the plant should be maintained, be it visited by potential clients/customers or not.

Perhaps an underlying consideration in each case should be “what is the consequence and/or the net effect on how and when the maintenance is done”.

If, for example, there is a stand-by unit that either automatically or by choice is switched on immediately upon the failure of the operating unit and cost of repair/replacement is the same whether done prematurely or after failure, there may be little need to replace it prematurely (unless the broken pieces end up affecting other parts of the plant or sytem).

Thus, and for every plant/case, it is advisable to consider what method of maintenance is most advisable, not just for the onetime cost and for the cost as expensed against the annual maintenance budget, but also how it may affect the long term profitability of the plant/investment.

As for the whether the cost is shown as an investment or an expense, the people getting their credentials in accounting will have their views on it (unless over ruled by the tax people).There is only one right answer?

Companies such as Wabi Iron & Steel Corp. have the capabilities to re-engineer obsolete industrial plant replacement components, either as a casting, or a fabrication, or as a combination of both.

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