Mastering maintenance budgeting

Budgeting is a fundamental requirement in business. While never a perfect exercise, it

allows business departments to identify their annual goals, allocate expenditure to
achieve those goals, and keep evaluating performance against the plan. The maintenance
department is not an exception.
We understand that all equipment and assets deteriorate, wear, and fail. Knowing that
failure is inevitable, we can select from a range of maintenance strategies for each asset,
depending on its criticality to the business. 
For example, if an asset is super-critical, with high impact and cost implications, we
might invest into predictive maintenance to avert failure. When the impact of the failure
is negligible, or the item is cheap, we might replace it only when it stops.
If we get our budget decisions wrong, we may end up under-maintaining our assets. This
increases failure rates, reduces equipment availability, lowers revenue, shortens asset
lifespan, increases emergency maintenance costs, and increases capital expenditure. 
When we over-maintain an asset, we spend more than necessary on maintenance,
basically wasting money. We artificially inflate our maintenance budget, reduce business
profit, and our frequent maintenance interventions can even reduce equipment
availability.

An iterative process
The delicate balance requires maintenance budgeting to be an iterative process.
Beginning with a budget estimate, you regularly refine your budgeting allocations based
on in-service experience, changes in operating cycles, or the addition of new equipment. 
The goal is to maximize the useful life of an asset, as well as equipment uptime, while
minimizing maintenance expenditure as a percentage of operating costs.
Your maintenance budget becomes the baseline from which you can make incremental
changes, capturing and analyzing operational performance and measuring the return on
your investment. 
When used effectively, your maintenance budget is the lever you can use to fine-tune
your plant’s profitability. You reduce costs and add a further margin to operating profit.
The scope of a standard maintenance budget
The scope of a maintenance budget differs by business model. 
Managing a warehouse means you may outsource much of your maintenance to
contractors and tradespeople. In this case, your maintenance budgeting is simpler as it is
predominantly contract-based. When you have a production plant running 24-hours a
day, the scope of your budget is considerably larger and more complex, requiring
maintenance software to manage things efficiently.
Because of those differences, we can’t give you an exact template. However, we can
outline considerations that are a part of most maintenance budgets.
Your maintenance budget should cover all operating expenses needed to operate your
maintenance department and deliver the required equipment or asset availability to
support the business plan. It should capture the planned capital expenditure for replacing
assets and tooling, making equipment modifications, and for special projects. 
You will need to capture all planned maintenance tasks and their costs. These costs will
include labor costs, spares, tooling, consumables, and any contractors used. On top of
that, you should have some contingency for emergency rectifications and after-hours
responses.
Last but not least, there might be additional costs from management software licenses,
spares repair, oil analysis, or trend analysis – these should all be captured while planning
your annual maintenance budget.
A common mistake is to focus solely on the cost of maintenance tasks. However, as you
can clearly see, the maintenance budget encompasses much more than that.
When creating a maintenance budget for the first time, there are five inputs you need to
take into account:
1. Asset status
2. Original equipment manufacturers’ data
3. Historical performance
4. Operating strategy
5. Maintenance strategy
These inputs will provide data to estimate technician numbers, resource allocation,
tooling requirements, spare strategies, and financial expenditure. Here are some
considerations for each.

1) Asset status
At what stage in their lifecycle are each of your assets? If new, you’ll have warranties
and guarantees crucial for reducing your maintenance costs in the first few years. Make
sure you understand what is covered and what isn’t, and plan only for the events that are
your responsibility.
If the asset is nearing the end of its useful life, you’ll need to consider the potential for
increased maintenance costs, emergency callouts, catastrophic failure, and extended
downtime. 
Similarly, the business might have plans to replace old equipment. In this scenario, you
will have to account for the costs of installing and commissioning the new machine, as
well as any training and new tooling costs.

2) Original equipment manufacturers’ (OEM) data

Information provided by the OEM forms the core of your budgeting process. They will
recommend servicing intervals, tasks you should complete at each interval, and the
necessary consumables and tools. They can also advise on the in-service experience of
other operators, mean time between failures (MTBF) for critical components, and
recommended spare parts holdings.
If the equipment and your budget are brand new, you have little option but to follow
OEM recommendations, if only for warranty purposes. However, if the equipment is old,
the value of the OEM advice will diminish. At that point, your in-house maintenance
knowledge will better apply to your operation. 
Take a pump as an example. If you have a high-pressure pump, the OEM may suggest
quarterly inspections. If the inspection takes one technician two hours and requires new
seals, gaskets, and grease, those four annual inspections are easy to cost and put into your
maintenance budget. You can schedule planned shutdowns and make sure you have the
necessary tools and parts on hand.
However, if the pump is critical to the operation and experiences infrequent use followed
by intensive periods of high-pressure cycling, you may choose to increase inspection
frequencies from once every quarter to once every month. You might also keep a
complete pump assembly in stock should failure occur during production runs. 
The budget implications of the two scenarios are very different. You should decide on a
logical strategy for your operation. Capture the costs and record the reasons for your
decision to support future audit and analysis.

3) Historical performance
While OEM data is invaluable, it aggregates all operator experiences making it a generic
guide. Your business will have operating characteristics that create specific challenges for
your equipment. You might be operating with no equipment redundancy, making the item
critical; you could also operate with several layers of redundancy, allowing ample time
for repair.
When using historical performance to inform your allocation of funds, don’t blindly
accept that this is the way it must be don every year. If you regularly see lower than
expected MTBF of critical parts and machines, you would be remiss not to cost your next
12-months inspections and additional spares. You may also wish to spend additional
resources to understand the root cause of premature failure and trial some strategies for
improvement.
However, you must also be alert to changes. Continuing our pump example, if production
rates increase by 20%, the maintenance requirements will also change. Blindly using last
year’s costs or factoring them by a percentage leaves you unable to defend your budget –
if challenged. 
Based on the changes, assume you will need more frequent inspections and higher stock
holdings. Document these costs and the assumptions behind them. 

4) Operating strategy
Maintenance exists to help the business achieve its production goals.
Therefore, maintenance involvement in the production planning process is essential for
ensuring adequate downtime for planned maintenance. If the operating strategy increases
production by 25%, it would be unwise to assume that maintenance costs will not change
relative to the increased stress on the equipment. 
Similarly, if production plans only allow weekend or night maintenance, your resource
costs may increase due to penalty rates. An intensive and ongoing production run may
require increased spare holdings and larger standby crews to allow rapid intervention and
rectification, preventing extended downtime. Staffing may need to increase to ensure the
increase in corrective maintenance does not detract from important preventative tasks.
Don’t forget to capture savings where possible. If production is forecasting greater
downtime between product changes, changing out our pump for the spare during
downtime allows a more leisurely benchtop inspection and overhaul. You can expect a
reduction in emergency and penalty rates.
  5) Maintenance strategy
Each asset has the potential to fail in several ways. When you consider the number of
assets in an organization, the possibility for failure on any one day is significant. 
When devising a maintenance strategy, you need to understand the effects of failure in
each piece of equipment. Only then can you devise methods to prevent identified failure
modes – or have a plan in place to quickly address failure when it happens.
Your selection of appropriate tactics will depend on equipment criticality and the failure
effects. Until you have a comprehensive understanding of the strategies and interventions
applicable to each asset, it’s impossible to accurately calculate the cost of your
maintenance actions.

Pulling it all together

The data you have collected from the five inputs can seem complex and bewildering. A
few decades ago, the next step would have been to open a spreadsheet, capture every item
of maintained equipment, create 365 columns, and begin entering “to do” tasks for each
asset, noting the spares, resources, and time required. 
Today, technology makes life easy by automating the process within a computerized
maintenance management system (CMMS). By creating asset cards within the system,
you can apply multiple preventative maintenance tasks to each asset, including task
frequencies, the time they take, and all the resources required to complete them
effectively.
All workforce requirements, tooling, spares, consumables, and task times are loaded,
connecting to other business systems to calculate costs for each task. The CMMS
also links to your inventory system to allow tracking and optimization of spare parts
usage and easy forecasting. Once a CMMS is fully loaded, a large part of your
maintenance budget is done for you, providing a projection of costs for the coming year. 
To provide a rounded budget, you must take those known costs and include an
allowance for the unknowns. Unexpected failures are the perfect example. They are
unpredictable (by definition) and often attract penalty rates and emergency costs. Keep
these contingency costs in mind when finalizing your maintenance budget.

You need accurate data to prepare precise

maintenance budgets
A strong maintenance budget documents assumptions that clearly articulate the link
between maintenance strategies, costs, and the resulting equipment reliability and
availability. Some of the strategies will be wrong in hindsight, but if the budget is based
on informed assumptions, it becomes harder to challenge. 
CMMS software helps you automate a large part of your maintenance planning and
tracking. However, what often goes under the radar is its ability to generate, store, and
report a huge volume of maintenance data – data you can use to make informed
decisions, budgeting or otherwise.
If you are interested in learning more about Limble CMMS and its ability to estimate,
track, and control your maintenance expenditures, do not hesitate to reach out or request
a personal walkthrough.