July 14, 2020, 3:22 pm

Selling the Value of Reliability Improvement to Senior Management

Article Index

We, as Maintenance Reliability professionals, are convinced of the benefits that improved Maintenance and Reliability practices can bring to an organisation.  Often, we are passionate about our cause.  But Senior Managers at many organisations are yet to share our passion and our faith in the value of Reliability Improvement.  Why are they waiting?  Why do they not share our enthusiasm and actively support us in our improvement efforts?  To answer this question, we must look at how we are communicating our passion, and how we “package” our pitch for support.

Clearly, our proposal must resonate with key decision makers.  There are two elements to making it resonate.  It must resonate both:

  • Rationally – it must appeal to their brains, and
  • Emotionally – it must appeal to their hearts (and yes, Senior Managers do have hearts!)

Why do we need to appeal to both heads and hearts?  There is an increasing body of evidence being generated by neuroscientists and psychologists that suggests that, in many cases, we make initial decisions very quickly, guided by our emotions, and then subsequently evaluate that decision using rational decision making criteria. But one of the pitfalls of our emotional brain is that it requires pretty powerful rational proof to overcome the initial, emotional decision that we made. So clearly your proposal must have strong elements of rational and emotional arguments in order to have any sort of impact on decision makers.

Let’s take a closer look at the two approaches and how you can apply these to selling your reliability improvement program to senior management.

Making your Proposition Resonate Rationally

Business Value

In order for your proposition to resonate rationally, there are a few critical elements to consider.

First, there must be a sound business case.  The proposition must demonstrate real business value.  This means that we need to be able to estimate and articulate the costs, benefits and risks associated with your proposition. This, in turn, means that we need to be able to talk in a language that senior managers understand – money.

So some of the things that we need to ask ourselves are questions such as:

  • How much is 1% extra production output worth to my organisation?
  • How much will reducing maintenance costs by 1% save (and will there be any increase in risks as a result)?
  • What is the $ value to my organisation of improving product or service quality?

Unless we know the answers to these questions, then we will struggle to develop the required business case.

Second, we must be able to communicate our business case clearly and concisely.  Senior managers don’t have a lot of time to wade through lots of technical detail – even if they understand it).  One very useful tool for both communicating and visualising the value of improved reliability is the Economic Value Add (EVA) driver diagram.  Describing how this works is beyond the scope of this blog post, but if you are interested, then you can read more on Wikipedia, or at the Obermatt website.  Essentially EVA is the value created in excess of the required return of the company's investors (i.e. their shareholders and those to whom they owe debt).

A sample driver tree is illustrated below:

Driver Diagram

From this, we can see that improved reliability can generate increased EVA in a number of different ways, such as by:

  • Increasing equipment uptime and therefore company sales
  • Reducing the direct costs of production (both operating and maintenance costs)
  • Reducing the value of fixed assets that are required in order to produce a given (fixed) amount of production
  • Reducing the amount of working capital that is tied up in spare parts
  • Reducing overall business risks (and therefore reducing the Weighted Average Cost of Capital – WACC)

Furthermore, if we have the numbers at hand, we can quantify the impact of these improvements on overall EVA.

Bear in mind, however, that we will probably also need to demonstrate that our proposal meets the minimum hurdle values associated with whatever investment decision criteria are used within our organisation (e.g. Net Present Value, Internal Rate of Return, Payback Period etc.) – so we had better find out what those decision criteria are, and the associated hurdle values that need to be met for approval.