The Maintenance Budget

Introduction
The instrument for controlling the
financial resources.
An effective planning tool for coming
year activities.
Every department within the
organization should have a budget to
determine the overall cost of doing
business.
collections of line item accounts that show
planned expense and capital spending.
the maintenance budget should be tied to the
overall organizational objectives of the
business.
integrating maintenance with overall budget
planning is to avoid maintenance shortfalls
that might impact production or service costs
in other areas of the business.
THE CHART OF ACCOUNTS
The costs of goods and services are
listed in the budget under a number of
categories called the chart of accounts.
Each category is called a line account, a
line item, or simply an account.
Each account defines an individual type
of expense, such as labor, salaries,
THE EXPENSE BUDGET
Alternative names: operating budget,
running expenses budget.
a detailed financial plan that shows
expected costs for the goods and
services that will be needed each month
or accounting period.
It also projects the department's share
of the cost of each unit produced
contains mostly historic, fixed costs for
operating the maintenance function
year to year.
however, the budget is also influenced
by such variable costs as increased or
decreased production or service
demands, growth, and seasonal and
regulatory situations.
Exhibit 2-1 is a sample budget of
maintenance department.
In this exhibit there are nine major
account groupings, indicated by
numbers at the right of the
descriptions.
Distributive Expenses, credit: a
redistribution or transfer of
maintenance costs to other appropriate
departments (such as production).
When the budget has been completed,
approved, and placed in operation, each
maintenance expense is charged
against one of the line accounts.
Mutual Understanding
Since the maintenance function will report
work and materials used, and the accounting
function will charge the dollars to the budget,
it is necessary that both departments
understand the definitions of the line
accounts.
The first thing to do when preparing a budget
is to check the definition of each item in the
chart of accounts and make sure estimates
are based on mutual understanding.
The Operating Expense
Statement
A report, generally produced each month or
accounting period.
For each line item it shows the annual Year to
Date and Current Period budgets, and the
expenditures against those budgets.
Useful as a tool to monitor and control costs
of selected line items, or groupings of line
items.
Value of the Expense Budget
the best way to estimate funds required
each month (or period) to carry on
planned maintenance activities.
Plans for production (or services) and
other operating departments served by
maintenance must be reviewed before a
credible operating plan for maintenance
can be produced.
Factors Affecting Maintenance
Budget
Expected levels of production.
New products or services
Introduction of new equipment anywhere in
the facility.
Special maintenance plans, such as new
management programs, major overhaul.
Remodeling projects, expected overtime
requirements.
Expected cost reduction programs
Staffing Forecast
Expense budgets usually include a
staffing forecast, by skill or category.
Could be a simple headcount number
by month.
Or it could be much more sophisticated.
several line items that specify regular
salaries, hourly wages, premium pay for
shift time or overtime.
THE CAPITAL BUDGET
Usually compiled and administered by a senior
management office. provides funds for non-
recurring projects such as:
Major renovations
Construction
Additional space
Installations of major equipment
Technology implementation
Other special projects that add to the
corporate financial investment (capital).
The capital budget consists mainly of
defined projects, their priority and
estimated cost, and expected start and
completion dates.
The capital budget provides an
overview of approved requests and is
included in corporate financial planning.
Overstaffing
If some maintenance personnel are
scheduled for capital work, it is
important to guard against overstaffing
resulting from deferment of capital
work.
Conversely, understaffing of critical
maintenance activities can result from
diversion of labor to capital projects.
Fixed and Variable costs
DEFERRED MAINTENANCE
includes capital projects and regular
maintenance work that is needed but
has not been done for a number of
reasons.
It may include repairs, preventive
maintenance, and routine tasks in
addition to capital work.
For instance, when capital work is
performed by workers who are
"budgeted" to perform regular
maintenance, this is considered
deferred maintenance.
How to avoid
A good way to avoid deferred
maintenance is to plan for capital work
by outside contractors, thus preserving
existing staff for regular maintenance
work.
ASSIGNING ACCOUNTABILITY
FOR THEBUDGET

Two general systems are used, each

with a different department held
accountable.
In the first system, the production
department (or major services in non-
production organizations) is accountable
for the budget.
In the second system, the
maintenance department prepares
the budget and is accountable for
the maintenance costs of the entire
facility.
Both systems require close
consultation between the
maintenance department and its
customer departments while the
budget is being developed.
PREPARATION OF THE BUDGET

Should begin when the operating plan

for the total organization (including the
maintenance function) begins to take
shape.
Existing and planned budget line items
should be reviewed to assure they are
clearly defined and understood.
Questions should be resolved quickly.
For example, a typical question might
be whether a special fuel used only in a
certain manufacturing process should
be charged to maintenance or to
production.
When line items are settled, dollar
amounts should be assigned for each
accounting period (usually one month,
or four weeks) in the coming budget
year.
Adjustments for seasonal or event-
driven considerations such as snow-
removal in the cold months.
Considerations for estimation
Variances from the year-to-date and
monthly budget amounts in the current
budget should be reviewed.
Compare average period charges in the
line account with individual charges to
determine possible trends.
The effect of variables (such as special
projects mentioned earlier) on each line
item must be considered when
reviewing and preparing each account.
Overall price changes caused by
fluctuations in the economy can have a
significant effect on the accuracy of the
maintenance budget.
Overlooked costs
Capital projects sometimes contain an
"expense" component that is easily
overlooked.
demolition of the old walls might be judged to
be an expense item properly chargeable to an
ongoing maintenance work expense line item.
If a major capital project is contemplated
where this sort of judgment call might be
involved, it should be reviewed and budgeted
with care between the expense and capital
budgets