Chaos Theory, the Butterfly

Effect and your Maintenance

Budget

Robert S. Hill, II CMRP - PepsiCo

• Robert spent 9 years in the U.S. Navy’s Nuclear Power program,

serving on the USS Enterprise and ultimately returning to teach at

one of the Nuclear Power Training Units.

• He left the Navy as a Machinist Mate Chief Petty Officer and went

to work for Lockheed Martin-Marietta at the Advanced Test Reactor

at the Idaho National Engineering Laboratory (INEL).

• He has worked in the Nuclear Power industry, Grain Milling, Cereal

Manufacturing, Automotive Fluid Manufacturing and Beverage

industries.

• For the past 12 years, he has worked for PepsiCo as a Senior

Reliability Engineer, Maintenance Manager and with PepsiCo Global

Operations. Robert’s current role with PepsiCo is in North America

beverages where he is responsible for developing and implementing

the PM Pillar initiatives within the TPM framework.

• Robert certified as a Maintenance and Reliability Professional in

2003 and has presented at the 2005 SMRP Annual Conference.

• He has also served the SMRP as the Chair of the SMRPCO Advisory

Council and as the Treasurer and Vice-Chair of SMRPCO.

Robert S. Hill, II CMRP

Chaos in the Maintenance Budget

•Who here has had to build a budget for

the Maintenance department before?

•Who loves doing it as much as I do?

•In the next hour, I’ll tell you why!

Objectives

•Discuss why Budgets don’t usually work

the way we intend them to

•Discuss Budget development

methodologies

•Discuss how to build a Budget that can be

successful

•Discuss how to manage the budget after

approval

Why Don’t Budgets Work?

The Butterfly Effect

• Coined by Edward Norton Lorenz regarding his

attempt to build a complex weather prediction

model

• Theoretical example of a hurricane’s formation

being contingent on whether or not a distant

butterfly had flapped its wings several weeks earlier

• At times the Maintenance Budget can feel this way;

an unexpected expense in February causes

enormous impact on planned expenses in November

The Butterfly Effect

Why the Budget doesn’t work

•It doesn’t reflect reality

•It doesn’t connect from one month to the

next

•It doesn’t track surplus money

Why the Budget doesn’t work

•It doesn’t reflect reality – Budgeting is an exercise in being wrong

– Trying to determine what you will spend each month

will always be wrong

– This becomes discouraging

•It doesn’t connect from one month to the

next

•It doesn’t track surplus money

Why the Budget doesn’t work

•It doesn’t reflect reality

•It doesn’t connect from one month to the

next – Expenses aren’t static from month to month

– Unexpected things come up

– Over or under spending needs to be carried forward

•It doesn’t track surplus money

Why the Budget doesn’t work

•It doesn’t reflect reality

•It doesn’t connect from one month to the

next

•It doesn’t track surplus money – Must account for ALL expenses

– Spend your entire budget on paper

– Begin with the end in mind (Covey)

Two Budget

Development

Methods

Incremental Budget

This Year’s Budget = Last Year’s Spend + Inflation – Target Reduction

12 Months

•Disadvantages to Incremental budgeting – Perpetuates the problems from last year

– Accounts for what was done instead of what should

have been done

– No variation from month to month

•Also referred to as historical budgeting

Zero-Based Budget

Income – Expense = 0

•Advantages of Zero-Based Budget – This is a “white sheet” exercise

– Based on need and benefit

– Will drive budget ownership

– Can identify waste in the budget

– Aids identification of alternatives

•Also referred to as historical budgeting

Building the Budget

What’s the Approach?

•Assemble the right Stakeholders to be

involved in the process – Maintenance Supervisors

– Maintenance Planners

– Stockroom personnel

– Operations partners

•Include anyone who may have impact on

or be impacted by the Maintenance

Budget

What is the approach?

•Assemble the right information and

categorize

•Non-Discretionary Expenses

•Discretionary Expenses

What is the approach?

•Assemble the right information and

categorize

•Non-Discretionary Expenses – Legally required expenses

– External Service contracts

– Annual Preventive/Predictive Maintenance (PPM)

expenses

– Emergency Repair expenses

•Discretionary Expenses

•Assemble the right information and

categorize

•Non-Discretionary Expenses

•Discretionary Expenses – Rebuilds, Restorations, Modifications

– Items that are new to the Budget

– Operating Supplies and Consumables

Populate the “White Sheet”

Straight Labor is probably

fixed each month Premium Labor

from history

Discretionary &

Non-Discretionary

Items

Forecast Tool

A Section for the Approved Budget

A Section for the Monthly Actuals

A Section for the

Non-Discretionary Items

A Section for the

Discretionary Items A Section Used to Forecast

Changes

This section is an expanded view

that cumulates into the above

Discretionary Spend section

Using the Forecast Tool

Notice that the Labor Forecast for

February is $19M

Unplanned Labor Expense

An unexpected fouling of a Heat

Exchanger will cause an addition

of $1276 to the forecast Labor

spend. When added to the

forecasting section, we see that

the expense still falls within the

available budget.

Overspent Material Account

After adding the Actual spend to

close the month of February, we

see that the Material Account has

been overspent by $1317. The

forecast tool allows us to see the

impact it will have on the

remainder of the year.

Corrected Material Account

Talking to the Maintenance

Planners, we decide that a portion

of the tasks associated with

Machine #3’s restoration can be

deferred thus allowing the

Material account to get back on

track by May.

Alternate Correction

However, another option to offset

the overspent account is to

leverage some of the contingency

line item for March and April to

offset the overage, allowing the

account to get back on track a

month sooner.

Summary

•Build your budget and account for every

expense of which you are aware

•Build a tracking mechanism to understand

if you actually spent on the tasks that you

planned

•Use this tracking to be the basis of the

budget for next year and it will be simple

to put the new budget together

Conclusions

•A Zero-Based budget will allow you to: – Control the flow of work and its cost

– Identify where streamlining opportunities exist

•The Team that helped develop the budget

will: – Have faith that the tasks they need to accomplish are funded

– Know the time period for which the tasks are funded

Q&A