Glossary
Power-By-the-Hour (PBH)
Tags: Glossary
Under PBH, an hourly rate is negotiated, and the contractor is paid in advance based on the forecasted operational hours for the system. Actual hours are reconciled with projected hours, and overages and shortfalls are either added to or credited from the next period's forecasted amounts. Since the contractor receives funding independent of failures, he is then incentivized to overhaul the asset the first time it fails so it stays in operation as long as possible. Bottom line, under the PBH concept, the fewer times the contractor touches a unit, the more money he makes.
What is Power-By-the-Hour (PBH)?
Power-By-the-Hour (PBH) is a concept commonly used in the field of logistics to manage the maintenance and operation of assets. It is a contractual agreement between a customer and a contractor, where the contractor is responsible for ensuring the availability and reliability of a system or asset for a specified period of time.
Under PBH, the customer and contractor negotiate an hourly rate, which is then paid in advance based on the projected operational hours for the system. This means that the contractor receives funding independent of any failures or issues that may occur during the agreed period. This arrangement provides financial stability to the contractor and allows them to plan and allocate resources effectively.
The actual operational hours are then reconciled with the projected hours at regular intervals. If there are overages, meaning the system has been operated for more hours than initially forecasted, the additional costs are added to the next period's forecasted amounts. On the other hand, if there are shortfalls, where the system has been operated for fewer hours than projected, the contractor may receive a credit for the next period.
The key incentive behind PBH is that the contractor is motivated to minimize the number of times they need to intervene or touch the asset. This is because the fewer times the contractor needs to perform maintenance or repairs, the more money they can make. By incentivizing the contractor to keep the asset in operation for as long as possible without failures, PBH promotes proactive maintenance and efficient asset management.
The PBH concept encourages the contractor to take a preventive approach to maintenance. Instead of waiting for a failure to occur and then fixing it, the contractor is motivated to perform regular inspections, identify potential issues, and address them before they become major problems. This proactive approach helps to reduce downtime, increase asset availability, and improve overall operational efficiency.
PBH is commonly used in industries where downtime and asset reliability are critical, such as aviation, transportation, and manufacturing. It allows organizations to focus on their core operations while outsourcing the responsibility of asset maintenance to specialized contractors. By shifting the risk and responsibility to the contractor, PBH provides a predictable cost structure and ensures that the assets are maintained and operated optimally.
In conclusion, Power-By-the-Hour (PBH) is a contractual agreement where a contractor is paid based on the forecasted operational hours for a system. The contractor is incentivized to minimize interventions and keep the asset in operation as long as possible. PBH promotes proactive maintenance, reduces downtime, and ensures optimal asset management. This concept is widely used in industries where asset reliability is crucial for smooth operations.