John Q. Todd
Sr. Business Consultant/Product Researcher
Total Resource Management (TRM), Inc.
President & CEO, IDCON, Inc. Reliability and Maintenance Consultant
an Independent Subsidiary of TRM, Inc.
The intent of this article is to explore the drivers of the variation percentage of a typical maintenance budget. It is the surprising variations (expenditures) against a budget that cause the most concern. We are not trying to establish all the elements of a maintenance budget in this discussion, rather, we are seeking to identify those elements which are potentially the most variable. These baddies push our expenditures over the budgeted amounts.
There will always be variation in the expenditures against any budget. The key is to identify those variables and mitigate them to the extent that is reasonable. It is possible that after a period of reducing the variability of the expenditures that the overall budget could be reduced in the next period. This can be a good thing but is not necessarily the goal of this discussion. Variation is our enemy at this point.
An example of a fixed cost in a maintenance budget would be the salaries for the core maintenance team. Yes, this dollar amount can change over the budget period, but generally not by much. These kinds of expenses can be placed into the “fixed,” bucket.
For the sake of the argument, let’s assume that 60% of the typical maintenance budget is fixed. Our focus is going to be on the 40% that varies. We want to get down to the drivers of this variation.
Given there is always a +/- allowable variation in the budget about the goal, what drivers can cause you to go outside of the tolerances?
What are some potential drivers?
Random equipment failure… significant failures… can be a variation driver. Of course, equipment does not fail spectacularly during business hours! No, those fun events occur in the middle of the night on holiday weekends. The unanticipated costs for events like these grow dramatically. If the failure is preventing production from pumping out widgets, the loss of opportunity may drive the maintenance team to spend whatever is necessary to get production back in operation. A steady diet of this can easily blow out the maintenance budget.
Maybe Operations crashes out equipment without regard for the impact to maintenance and even their own production. This causes costly repairs that were not anticipated in the original budget.
“Sure, you have to pay $900 to expedite a replacement part delivery, but that is a drop in the bucket compared to the hourly lost production cost.”
To add to the variation nemesis is the practical fact that you might not be made aware of the excursion for a significant period. It may take a contractor 30-45 days to provide an invoice for their work, and then a few weeks of internal processing. You can easily be surprised (along with your budget) at the huge expense landing in the books. “It cost THAT much for the repair 2 months ago?”
Variation is inevitable and you certainly cannot anticipate every nuance with a mitigation plan.
Another truth is that a maintenance budget may be a small part of a much larger budget where variation or even exceeding budget is not a problem. This is good for the budget manager to be aware of. Not that they can use this as an excuse when they blow the budget, but rather putting variations and overages in perspective.
If the $10 million Maintenance budget is part of the $150 million Operations budget, then going over by $500,000 might not be a big concern. While the situation may look grim locally, looking at the bigger picture may provide some relief. But, of course, the layers of management above need to agree!
Following are some drivers of variation to consider based upon our experience:
- Unanticipated training/qualification requirements
- Attrition/replacement rates
- Other departments/disciplines needed for unanticipated repairs
- Audit/regulatory findings/failures recovery/improvement efforts
- Unanticipated software licensing
- Unanticipated union/CBA changes/issues
- Unexpected spares to purchase (or replacements)
- Priority shipping and handling
- Surprising new costs of previously purchased items/consumables
- Surprising new costs of replacing no longer available spares or consumables
- Out of contract scope
- Renewal cost increases
- Delay in services delivery, causing Plan B efforts/costs
- Unanticipated outside repair costs
- Warranty expirations mid-budget period
- Unanticipated fuel or other consumable costs
- Lease adjustments and renewals
- Unexpected specialty tools and related required training
Many of the above sources of variation can be related to corrective maintenance and equipment reliability. This brings into the mix the relative reliability of the equipment that is being maintained. It could be argued that increasingly unreliable equipment will cause increasing variations in the already battered maintenance budget. Yet, the unpredictability of random failures may have low impact on the budget.
Gaining a handle on the unpredictable world of equipment failures can seem daunting at first, but there is hope. You and your field teams know the equipment best. If you could root out the top 5 pieces of equipment that cause the most unexpected trouble, you may find your budget to be more manageable. Will this require some capital expense on the part of the company? Perhaps. But, with some attention to preventive measures on the offending equipment you may find simple solutions with dramatic impact.
Pressures on the budget can also be exacerbated by these common sources of variation as well:
- Reactive efforts to reduce the maintenance budget
- Deferred maintenance
- Unexpected new equipment commissioning
- Unexpected production rate/volume increases
All variables appear to group into these types:
- Random equipment failures
- Unexpected expenditures due to market forces or external factors
- Unexpected internal activities
Capturing data that impacts your budget
We have all filled in timecards. 8 hours. 8 hours. 8 hours. 8 hours. 8 hours. You remember.
But what did you do during those 8 hours? Can someone tell where you spent our time and what you used to get our job done? Unless you break up your day into the hours to perform assigned tasks, that “8 hours,” is not very useful to anyone. Added to actual work time would be factors like materials and other costs that were incurred because of us doing our job.
A huge roadblock to preparing a proper budget for the next cycle is the potential of inaccurate data. The list of reasons why your data is inaccurate can be quite long. Unreported labor and other costs when compared to actual costs coming from accounting is the biggest source. What the field reports over time should be only a few percentage points off from what accounting and the financial arm of the organization says. They will never be exact, but they should be close.
Put away the Big Brother theories and aluminum foil hats for a moment. Yes, the business does need to know how you are spending your time and their money out in the field. What you do is important and has value to the company, but it also costs money against an expected budget. That said, the company does need to provide you with efficient ways to enter this detailed time and materials data.
Two big factors to consider here: 1) Providing to the field teams applications (perhaps mobile) that provide them the information they need to do their work and be able to enter their “actuals” in an efficient manner. 2) Have established policies and procedures (and training!) that support the entry of these important actual time and materials entries.
This near-real time data capture and its application against your budget all in one place is invaluable. Look for application suites that provide this end-to-end budget management functionality. Of course, Maximo (and MAS Manage) has all of this already built in.
Tools to help you
The use of budget establishment and monitoring software tools, and the ability to capture real costs as you go via work orders to avoid budget surprises… or see them coming sooner.
Given a baseline budget is established, you have these overriding concerns as you manage it:
- Collection of actual costs in near-real time
- Evaluation of budget current-state/burn rate
- Insights into variations with significant impact
- Growing differences between what the field reports and what the financial side is collecting
It is to your benefit to have all these concerns addressed in a single, or a very short list of software tools. While it is not always possible, your goal should be a single “database” where all the planning, execution, and analysis of your maintenance budget(s) can be performed. Gone are the days where you need to draw upon 5-6 different sources of data and spend the bulk of your weekends preparing budget analysis for the boss. Time to grow up!
Following are a few of the built-in features/functions of MAS Manage (or Maximo) that can assist you in managing and forming budgets:
- Budget Monitoring
- GL Accounts
- Work Order Plans and Actuals
- Preventive Maintenance Forecasting
- Graphical scheduling applications
- Technical interfacing with financial, accounting, and purchasing systems
Planning for next year?
Now that you have a reliable set of expenditure data you can look to the future. Preparing for and rationalizing next years’ budget is always an arduous process. Many times, you are in a position where you must draw upon a variety of data sources, each with their own format and focus to form a proposed budget. If the bulk (if not all) of the information was in one place, the task of drafting next years’ budget is much less of a hassle.
Also, now that you have a handle on the drivers of variation, your draft budget is more reflective of the potential reality of how your equipment is expected to perform and how outside forces might impact you in the future.
TRM and IDCON are uniquely positioned to help you find these sources of maintenance budget variation and be able to track their impact over time. We have assisted many clients across industries to improve their People, Processes, and Programs.
Reach out to us at AskTRM@trmnet.com if you have any questions or would like to discuss deploying MAS 8, Maximo AAM, or Asset Care Essentials (ACE) for condition-based maintenance/monitoring.