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Maintenance Budgeting vs Financial Budgeting - What's the Difference?

Written by: Dave Cole

Maintenance practitioners have a universal and fundamental objective of ensuring that the organization’s productive assets are kept in a fit-for-purpose and reliable condition for productive purposes. To achieve this, it is imperative for maintenance budgeting managers to ensure that sufficient funds, spares, replacements, consumables, and appropriate resources are available as required.

For most asset-intensive industries, maintenance budgeting often constitute a substantial proportion of an organization’s overall operating budget. Planning for large high-value capital replacement items is not only imperative from an operational continuity perspective, but it also becomes significant from a financial planning perspective too.

Effectively planning total asset maintenance budgeting that spans multiple years is a challenging process that often creates friction between maintenance planners and finance departments. It’s fair to say that maintenance-related capital requirements are often overlooked when compared to other capital project types, revenue-generating activities or strategic ESG investments. How then can long-term maintenance budgeting be more effectively compiled in such a way as to better align with traditional financial budget preparation?

Maintenance Budgeting – OPEX Planning

Most enterprise asset maintenance solutions provide a strong capability for planning CAPEX and OPEX related maintenance expenditure through effective planning and scheduling of routine maintenance activities and related spare parts and consumables, allocations for unplanned or reactive maintenance activities and even major maintenance programs such as planned shutdowns.

The impact of usage and schedule changes on maintenance budgeting can be modelled and extrapolated to compile realistic budgets.

Maintenance Budgeting  – CAPEX Planning

Long-term planning for major Capex-related maintenance requirements such as asset replacements is often carried out manually in stand-alone spreadsheets. In industries where such asset replacement costs are a substantial part of the overall Capex budget, it’s imperative to be able to assess maintenance Capex requirements in combination with other Capex initiatives and more effectively balance or optimize overall investment of scarce capital resources to maximize return on investment.

Getting the Balance Wrong

Insufficient maintenance budgeting will usually have a negative impact on the reliability and performance of the organization’s assets – which in turn can ultimately lead to productive inefficiencies, overall productivity, or poor customer experience.

Excessive allocation of scarce capital resources to long term maintenance budgeting methods can be wasteful and don’t appreciably increase plant effectiveness or reliability. More importantly, it leaves a smaller share of available capital to fund other initiatives.

Finance and Maintenance Budgeting Drivers

Let’s consider the different challenges and drivers maintenance managers and finance managers face with respect to budgeting.

Finance Key Drivers:

  • Finance practitioners are looking for ways to optimize the return on capital investment.
  • Organization-wide planning is necessary to ensure sufficient provision of funding to sustain all business operations.
  • Ensuring a positive cashflow is maintained.
  • Ensure effective distribution of limited resources to fund appropriate initiatives.

Maintenance Key Drivers:

  • For maintenance practitioners, the primary objective is to ensure that all necessary maintenance activities are performed in a timely manner to optimize plant uptime.
  • To effectively optimize the amount, extent and frequency of maintenance activities and replacement components necessary.
  • Cost consideration is not a primary objective.

Strategic Alignment

Maintenance expenditure planning should ideally be categorized as follows:

1. Operating Maintenance Costs

  • Unplanned costs such as breakdown repairs.
  • Planned or preventative costs such as routine services, shutdowns etc Capital Maintenance Cost.

2. Major Asset Replacements

Long term capital planning for maintenance can better align with financial capital expenditure (CAPEX) planning by adopting a few key practices:

  • Integrating maintenance budgeting into overall CAPEX planning: Long-term Maintenance budgeting should be considered as a part of the overall CAPEX budget to ensure that adequate funds are allocated for both growth and maintenance.
  • Incorporating lifecycle cost analysis: A lifecycle cost analysis approach considers all costs associated with an asset over its useful life, including acquisition costs, maintenance costs and replacement costs, to make informed investment decisions regarding useful life predictions and economic replacement timing.
  • Regular review and update: Regularly review and update the maintenance plan in line with the overall CAPEX plan to ensure that the maintenance budget is aligned with the organization’s priorities and needs.
  • Communication and collaboration: Ensure effective communication and collaboration between maintenance and financial teams to align their goals and objectives.

By incorporating these practices, long term capital planning for maintenance and financial CAPEX planning can be better aligned, leading to more effective investment decisions and improved asset management.