Maintenance Budgeting and Cost Control — Opinion — The Guardian Nigeria News – Nigeria and World News

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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, its prevention, and maintenance management.

They control in all this the maximization of the maintenance brought to the profits of the organization.
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, specific jobs related to software (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. Because every organization tracks maintenance differently, there are 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, our information management is still shrouded in secrecy in our environment.

Prevent a budget 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 the 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 the budget could be to:
(a). Mandatory planning is probably the most crucial element of budgeting because planning forces management to look ahead, set goals, anticipate problems, and give the organization a purpose and a time frame.

(b). Communicate your ideas and plans to everyone involved. 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 it is a two-way dialogue and exchange of ideas.

(vs). Coordinate the activities of the various 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 could be set

(I). a minimum waiting budget; and

(ii). a budget “with the desired standards”, which represents a challenge for the 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). the company’s long-range plans, i.e. strategic planning or “long-range” planning.

(b). short-term management control, as exercised daily by the front-line supervisor, i.e. operational control
Budget 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 largely be guesswork.

(b). The number of breakdowns due to an increase in the volume of activity (production sales) cannot be predicted with certainty so that a budget to produce or sell a thousand units of products could be quickly exceeded by events because the sales demand exceeds expectations or perhaps also unforeseen limiting factors arise to limit production below budgeted levels.

(vs). There will be organizational issues and trying to coordinate the plans of different departments into an optimal master budget may be unsuccessful.

(D). There will be motivational issues, 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 cost control assumptions are that cost control is satisfactory unless costs exceed budget standards 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. reduce costs below current budgeted or standard levels – by purchasing new equipment, changing work methods, etc. Budget and standards reflect current costs and conditions and not necessarily cost and condition. to minimize costs.

Cost and standard deviation analysis is an effective means of cost control.

Standards can be set that are generous and incorporate a low level of efficiency.

Budgets may include “contingency” allowances

Terotechnology
Terotechnology 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 favor
(a). The most suitable material
(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.

Bolutife Oluwadele, Ph.D., is a Canadian-based chartered accountant, author, and public policy researcher.

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