- OEE is a vital metric to most manufacturers, but it is
**even more beneficial**when you view OEE as a financial KPI. - When converted to a dollar amount, OEE is
*more widely understood by everyone*in the factory. - Learn how to calculate the cost of OEE using downtime, performance, and quality. (See below for formulas.)
- The cost of OEE helps
*identify the financial impact*of running faster, reducing downtime, and reducing scrap.

## The Cost of OEE: Without Context, A Number is Meaningless

*forgotten*. Without context, any number, including OEE, doesn’t mean much. A percentage is basically meaningless. To understand if 80% or 90% is good or not, you have to understand the numbers that form the percentage. Are those numbers good? (Again, we’re referring back to context, here.) OEE follows the same concept. If you don’t understand quality, availability, or performance first, OEE is otherwise a flawed metric that can give skewed results. If the underlying metrics are understood, then, those and OEE can provide an immense amount of value to a manufacturer.

**When OEE is converted to a financial KPI, it provides even more.**

## OEE as a Financial KPI

**$12,000 is a big oops**, and one that needs to be fixed sooner rather than later because if 2 parts are scrapped every day for the next year, the manufacturer is looking at a

*very costly problem*. Seeing that number in a dollar amount versus a percentage offers a different perspective.

## OEE Can Provide Other Financial Benefits, Too

## “How do I Calculate the Financial Impact of OEE?”

*All 3 can be converted from a number on the floor to a monetary amount.*Once each number is converted into a dollar amount, the sum can then be used to

**convert OEE from a performance metric to a financial KPI**. Sound confusing? It’s not. We’ll explain step by step how to calculate each metric and in turn, calculate financial OEE.

**Downtime**

### Example of Calculating Downtime

- Total Downtime = 90 minutes
- Hourly Cost with Labor and Overhead = $80

**Cost of Downtime in Hours Formula:**

Downtime in Minutes / 60 = Cost of Downtime in Hours

**Cost of Downtime in Hours Calculation:**

90 / 60 = 1.5

**Cost of Downtime Formula:**

Downtime in Hours * Hourly Cost = Cost of Downtime

**Cost of Downtime Calculation:**

1.5 * $80 = $120.00

**Performance**

### Example of Calculating Performance

- Ideal cycle time = 30 seconds per part or 2 parts per minutes
- Operating time = 390 minutes
- Actual quantity produced = 730

**Total Target Quantity Formula:**

Operating Time * Ideal Cycle Time in Parts per Minute = Total Target Quantity

**Total Target Quantity Calculation:**

390 * 2 = 780

**Production Deficit Formula:**

Total Target Quantity – Actual Quantity Produced = Production Deficit

**Production Deficit Calculation:**

780-730 = 50

**Minutes to Make Up Part Deficit Formula:**

Production Deficit / Ideal Cycle Time in Parts per Minute = Minutes to Make Up Part Deficit

**Minutes to Make Up Part Deficit Calculation:**

25 / 60 = 0.4167

**Cost of Performance Formula:**

Hours to Make Up Part Deficit * Hourly Cost = Cost of Performance

**Cost of Performance Calculation:**

0.4167 * $80 = $33.34

*For clarity, the target total quantity is based on the standard. For example, if you can produce 60 parts an hour and you’ve been running for 1 hour, you should have produced 60 parts. In reality, you’ve only produced 41 which means your 19 parts short of your target.*

**Quality**

### Example of Calculating Quality

- Part Cost = $121
- Total Scrap = 980

**Cost of Quality Formula:**

Total Scrap * Part Cost = Cost of Quality

**Cost of Quality Calculation:**

9 x $121 = $1,089.00