Introduction

In beginning any financial discussion, it is necessary to start at a high level. One of the measures that senior executives are interested in tracking is return on assets. Simply stated, return on assets measures the company profits divided by the total asset valuation. This calculation is actually used by many Wall Street executives when examining the financial stability of the company. Higher return-on-asset numbers indicate more profitable, well-managed, and stable companies. However, because we're talking about maintenance and reliability, how do they impact the return on asset calculation?

The relationship of maintenance and reliability to company profitability is highlighted in Figure 8-1. If we focus on increasing profits in the middle of the diagram, we see that there are two paths to this goal. One is by reducing expenditures, and the other is by increasing revenue.

Figure 8.1

Decreasing expenditures is familiar to most maintenance and reliability departments. The key areas of expense controls are the maintenance labor, maintenance materials, and good maintenance contract controls. A related expense control is the company's energy consumption. Because expense dollars not spent become profit dollars, controlling expenditures is an important part of increasing profitability. However, this cannot be the only pathway. Clearly, if company expenditures are reduced to zero, the company...