A plant manager is considering implementing a preventative maintenance plan for

Question

A plant manager is considering implementing a preventative maintenance plan for all of her large motors. Based on comparable programs at other facilities, she expects that this will reduce the number of motor failures and increase the energy efficiency of her motors. She anticipates her annual motor repair costs will be reduced from $12,889 to $1,206, and that the motor energy costs will decrease from $15,064 to $14,329 per year.

To implement the program, she plans on buying a high quality vibrometer for $2,288, and paying for an employee to attend a training session costing $2,954. After the employee is trained, the manager has budgeted 9 hours a month to test each motor and make minor repairs. The internal maintenance labor rate for the plant is $33 per hour.

What is the Simple Payback Period for this project (in years)?

Explanation / Answer

Initial Cash outflow:

Vibrometer      =          $2,288

Training Session=        $2,954            

                                    $5,242

Annual Saving:

Annual Motor Repair Costs    =          $11,683 ($12,889 - $1,206)

Annual Motor Energy Costs   =          $735 ($15,064 - $14,329)

Annual Saving                       =          $12,418

Less: Annual Cost                   =          $3,564 ($33*9*12)

Total Annual Inflow               =          $8,854

Outflow                                  =          5242

Annual Inflow                                                8854

0.6 Years = 7.2 Months

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