Cost of Unreliability

by H. Paul Barringer

The cost of unreliability is a big picture view of system failure costs, described in annual terms, for a manufacturing plant as if the key elements were reduced to a series block diagram for simplicity.  It looks at the production system and reduces the complexity to a simple series system where failure of a single item/equipment/system/processing-complex causes the loss of productive output along with the total cost incurred for the failure.  If the system IS sold out, then the cost of unreliability must include all appropriate business costs such as lost gross margin plus repair costs, scrap incurred, etc.  If the system is NOT sold out, and make-up time is available in the financial year, then lost gross margin for the failure cannot be counted.  The cost of unreliability is a management concern connected to management’s two favorite metrics: time and money.

Why: In private enterprise, failures must be concerned from a financial view point and not a gear-head approach of simply counting the number of failures; and you must speak the language of the enterprise which describes events by monetary measures over a period of time.  The annual cost for failures is usually not stated in a clear cut manner nor is failure costs summarized by system/sub-system to identify the weak links in a monetary fashion so that appropriate action is taken to reduce the annual cost of unreliability by building a clear Pareto distribution to attack the vital (high cost) areas with an action plan to reduce failures (unreliability) and to reduce the cost of unreliability.

When: For new a new plant, this can be a design criteria to limit costs of unreliability for competitive reasons in the marketplace, i.e., by plan, the hidden costs of failures is made obvious as a portion of the strategic plan.  For an existing plant, this can be an exercise in defining the cost of unreliability and building a long term plan to reduce the cost of failures as a portion of the tactical plan.

Where: This activity is best performed with high level involvement of the management team to provide fundamental understanding of the size of the icebergs about to rip out the underbelly of the plant and to involve the organization in a plan to reduce the costs so that profits are pushed upward because of the improvements.  If the cost of unreliability cannot be reduced, then the costs become extra weight for the saddle bags in the race for survival.

These definitions are written by H. Paul Barringer and are also posted on his web site at