Predictive maintenance is a common value proposition cited for IoT analytics. We will walk through an example as a way to highlight how to think financially about when it makes sense and when it does not.
The economics of predictive maintenance may not be entirely obvious. Believe it or not, it does not always make sense, even if you can predict early failures accurately. It many cases, you will actually lose money by doing it. Even when it can save you money, there is an optimal point for when it should be used. The optimal point depends on the costs and the accuracy of the predictive model.
A formula to guide decision making compares the cost of allowing a failure to occur versus the cost to proactively repair the component while considering the probability of predicting the failure:
Net Savings = (Cost of Failure * (Expected Number of Failures - Expected True Positive Predictions)) - (Proactive Repair Cost * (Expected...