3-1 the Maintenance Budget

8/13/2019 3-1 the Maintenance Budget

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The Maintenance Budget


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Introduction

The instrument for controlling thefinancial resources.

An effective planning tool for comingyear activities.

Every department within theorganization should have a budget todetermine the overall cost of doingbusiness.


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collections of line item accounts that showplanned expense and capital spending.

the maintenance budget should be tied to theoverall organizational objectives of thebusiness.

integrating maintenance with overall budget

planning is to avoid maintenance shortfallsthat might impact production or service costsin other areas of the business.


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THE CHART OF ACCOUNTS

The costs of goods and services arelisted in the budget under a number of

categories called the chart of accounts.Each category is called a line account, aline item, or simply an account.

Each account defines an individual typeof expense, such as labor, salaries,


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contains mostly historic, fixed costs foroperating the maintenance function

year to year.however, the budget is also influencedby such variable costs as increased or

decreased production or servicedemands, growth, and seasonal andregulatory situations.


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Exhibit 2-1 is a sample budget ofmaintenance department.

In this exhibit there are nine majoraccount groupings, indicated bynumbers at the right of the

descriptions.


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Distributive Expenses, credit: aredistribution or transfer of

maintenance costs to other appropriatedepartments (such as production).

When the budget has been completed,

approved, and placed in operation, eachmaintenance expense is chargedagainst one of the line accounts.


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Mutual Understanding

Since the maintenance function will reportwork and materials used, and the accountingfunction will charge the dollars to the budget,

it is necessary that both departmentsunderstand the definitions of the lineaccounts.

The first thing to do when preparing a budget

is to check the definition of each item in thechart of accounts and make sure estimatesare based on mutual understanding.


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The Operating ExpenseStatement

A report, generally produced each month oraccounting period.

For each line item it shows the annual Year toDate and Current Period budgets, and theexpenditures against those budgets.

Useful as a tool to monitor and control costs

of selected line items, or groupings of lineitems.


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Value of the Expense Budget

the best way to estimate funds requiredeach month (or period) to carry on

planned maintenance activities.Plans for production (or services) andother operating departments served by

maintenance must be reviewed before acredible operating plan for maintenancecan be produced.


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Factors Affecting MaintenanceBudget

Expected levels of production.

New products or services

Introduction of new equipment anywhere inthe facility.

Special maintenance plans, such as newmanagement programs, major overhaul.

Remodeling projects, expected overtimerequirements.

Expected cost reduction programs


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Staffing Forecast

Expense budgets usually include astaffing forecast, by skill or category.

Could be a simple headcount numberby month.

Or it could be much more sophisticated.

several line items that specify regularsalaries, hourly wages, premium pay forshift time or overtime.


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THE CAPITAL BUDGET

Usually compiled and administered by a seniormanagement office. provides funds for non-recurring projects such as:

Major renovationsConstruction

Additional spaceInstallations of major equipment

Technology implementationOther special projects that add to thecorporate financial investment (capital).


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The capital budget consists mainly ofdefined projects, their priority and

estimated cost, and expected start andcompletion dates.

The capital budget provides an

overview of approved requests and isincluded in corporate financial planning.


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Overstaffing

If some maintenance personnel arescheduled for capital work, it is

important to guard against overstaffingresulting from deferment of capitalwork.

Conversely, understaffing of criticalmaintenance activities can result fromdiversion of labor to capital projects.


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Fixed and Variable costs


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DEFERRED MAINTENANCE

includes capital projects and regularmaintenance work that is needed but

has not been done for a number ofreasons.

It may include repairs, preventive

maintenance, and routine tasks inaddition to capital work.


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For instance, when capital work isperformed by workers who are

"budgeted" to perform regularmaintenance, this is considereddeferred maintenance.


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How to avoid

A good way to avoid deferredmaintenance is to plan for capital work

by outside contractors, thus preservingexisting staff for regular maintenancework.


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ASSIGNING ACCOUNTABILITYFOR THEBUDGET

Two general systems are used, eachwith a different department held

accountable.In the first system, the productiondepartment (or major services in non-

production organizations) is accountablefor the budget.


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In the second system, themaintenance department preparesthe budget and is accountable forthe maintenance costs of the entirefacility.

Both systems require closeconsultation between the

maintenance department and itscustomer departments while thebudget is being developed.


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PREPARATION OF THE BUDGET

Should begin when the operating planfor the total organization (including the

maintenance function) begins to takeshape.

Existing and planned budget line items

should be reviewed to assure they areclearly defined and understood.


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Questions should be resolved quickly.

For example, a typical question might

be whether a special fuel used only in acertain manufacturing process shouldbe charged to maintenance or to

production.


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When line items are settled, dollaramounts should be assigned for each

accounting period (usually one month,or four weeks) in the coming budgetyear.

Adjustments for seasonal or event-driven considerations such as snow-removal in the cold months.


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Considerations for estimation

Variances from the year-to-date andmonthly budget amounts in the current

budget should be reviewed.Compare average period charges in theline account with individual charges to

determine possible trends.


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The effect of variables (such as specialprojects mentioned earlier) on each line

item must be considered whenreviewing and preparing each account.

Overall price changes caused by

fluctuations in the economy can have asignificant effect on the accuracy of themaintenance budget.


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Overlooked costs

Capital projects sometimes contain an"expense" component that is easilyoverlooked.

demolition of the old walls might be judged tobe an expense item properly chargeable to anongoing maintenance work expense line item.If a major capital project is contemplatedwhere this sort of judgment call might beinvolved, it should be reviewed and budgetedwith care between the expense and capitalbudgets

3-1 the Maintenance Budget

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