Maintenance Budgeting and Cost Control, By Bolutife Oluwadele


Cost containment action should lead to a reduction in overspending. However, a cost reduction program can reduce expected costs, i.e. bring them below current budgeted or standard levels – by purchasing new equipment or changing working methods, etc. Budget and standards reflect current costs and conditions and not necessarily costs and condition to minimize costs.

The profitability of industrial companies is highly dependent on the quality of plant and equipment maintenance. Maintenance engineering will always perform an essential function in any industry. However, effective maintenance is a function of a maintenance engineer understanding the failure mechanism and its prevention, and maintenance management.

The control in all of this is maximizing maintenance’s contribution to an organization’s profits.

Effective maintenance management reduces downtime, lowers costs, improves customer satisfaction and improves the profit picture for the organization.

The rapid technological changes of a few years bring a costly technological revolution. The rapid evolution of technology and the increasing dependence of society further reinforce the need for planning and budgeting. Any budgeting or cost control effort requires an organization to identify maintenance expenses. Unfortunately, this is easier said than done. Only a few organizations can provide a reliable figure for their total maintenance spend.

Identify maintenance costs

The truth here is that most managers have surprisingly little information on total annual maintenance expenses. It becomes even more worrisome if it extends even to IT spending.

First, the organization must determine what to include in such a number. Should they include salaries for technical support staff, telephone network, software related to specific jobs (in a computerized environment)? This becomes more worrying when each department buys its hardware or even maintains its network.

Even after identifying maintenance costs, the organization needs a benchmark against which to compare its costs. Since every organization tracks maintenance differently, there are a few reliable maintenance expense standards. Identifying industry standards may require numerous surveys of a significant number of organizations. In doing so, it is necessary to define what is included in the maintenance. Then survey the maintenance expenditures of each organization. The availability of these standards will have provided a basis for comparing maintenance costs, especially in similar industries. However, information management is still shrouded in secrecy in our environment.

Prevent a budgeting rush

The essence of budgeting is to identify costs and associate a funding stream with them. Unfortunately, technological revolutions bring unforeseen maintenance expenses that put an organization in a budget rush.

The combination of insufficient information and little planning causes the perception of uncontrollable maintenance costs and technology shock. Of course, we know organizations are doing more with technology and doing it better. Nonetheless, growing demand and expectations for resources and services create a constant catch-up environment in many organizations.

Purpose of budgets

Budgets serve several different purposes. “Budgets are designed to serve a variety of functions; plan, evaluate performance, coordinate activities, implement plans, communicate, motivate and authorize actions.

The purpose of a budget can be to:

(a.) Require planning, which is probably the most crucial budget feature, because planning forces management to look ahead, set goals, anticipate problems, and give an organization purpose and purpose. duration ;

(b.) Communicate ideas and plans to all concerned. A formal system is needed to ensure that each person is aware of what they are supposed to do. Communication can be one-way, that is, managers passing on instructions to their subordinates or a two-way dialogue and exchange of ideas;

(c.) Coordinate the activities of different departments or sub-units of the organization. This notion of coordination implies, for example, that the purchasing department bases its budget on production requirements. The production budget is a combination of material usage and maintenance costs, based on sales expectations;

(d.) Establish a monitoring system by having a plan against which actual results can be progressively compared;

(e.) Motivate employees to improve their performance. The level of success usually built into the budget is a realistic number for the budget;

Two levels of success can be set:

(i.) a minimum standby budget; and

(ii.) a “desired standard” budget, which is a challenge for employees.

Short term budgeting and long term planning


Budgeting is a planning exercise, usually done once a year, setting goals and plans for a year. This year is then broken down into monitoring periods of one month or four weeks. It may be obvious that budgets don’t care;

(a.) a company’s long-term plans, i.e. strategic planning or “long-range” planning;

(b.) short-term managerial control, as exercised daily by the front-line supervisor, ie operational control.

Budgeting issues

Even in the relatively short term, planning for the future of an organization is bound to create many challenges. For example:

(a.) The rate of inflation can be difficult to predict, so budgeting for price levels will be largely guesswork;

(b.) The number of outages due to increased business volume (production sales) cannot be predicted with certainty, so that a budget to produce or sell a thousand units of product could be quickly exceeded by events as sales demand either exceeds expectations or perhaps when unforeseen limiting factors arise to limit production below budgeted levels;

(c.) There will be organizational problems and the attempt to coordinate the plans of different departments into an optimal master budget may be unsuccessful;

(d.) There will be motivational problems, and where they exist, budgeted expense requests by cost center managers are likely to be excessive.

Cost control

Cost control is the regulation of the cost of operating a business and aims to keep expenses within acceptable limits. The prevailing assumptions are that cost control is satisfactory, unless costs exceed the budget norm by an excessive amount.

Cost containment action should lead to a reduction in overspending. However, a cost reduction program can reduce expected costs, i.e. bring them below current budgeted or standard levels – by purchasing new equipment or changing working methods, etc. Budget and standards reflect current costs and conditions and not necessarily costs and condition to minimize costs.

  1. The analysis of costs and standard deviations is an effective means of cost control;
  2. Standards can be set that are generous and incorporate a low level of efficiency;
  3. Budgets may include “contingency” allowances


It is the name given to a method of controlling and evaluating the overall cost of capital plus the cost of maintaining equipment.

It is claimed that equipment is often purchased (or built) without considering the maintenance and operating costs incurred during its lifetime. Terotechnology is an attempt to assess and control the cost of equipment by considering the following factors:

(a.) design and specifications

(b.) purchases

(c.) setting up

(d.) operation

(e.) maintenance.

By considering the technology of a piece of equipment and comparing it to the operations for which it is required, the investment decision must give priority to:

(a.) The most appropriate equipment

(b.) Lowest life cycle costs.

Terotechnology is a “life cycle” cost. Its practical application is likely to be most effective at the project appraisal stage, that is, when deciding to invest in capital equipment.

Bolutif Oluwadele, a chartered accountant and specialist in public policy and administration, writing from Canada. He is the author of Thoughts of a village boy and reachable via: [email protected]

Support the integrity and credibility journalism of PREMIUM TIMES

Good journalism costs a lot of money. Yet only good journalism can guarantee the possibility of a good society, an accountable democracy and a transparent government.

For free and continued access to the best investigative journalism in the country, we ask that you consider providing modest support to this noble endeavour.

By contributing to PREMIUM TIMES, you help sustain relevant journalism and keep it free and accessible to everyone.

Make a donation

ANNOUNCEMENT TEXT: To advertise here . Call Willie on +2347088095401…

Announcement of the PT Mag campaign


Comments are closed.