To be successful, any maintenance

organisation worthy of the name will

function via a number of necessary and
inter-related managerial and control
systems. In his new book, Maintenance
Systems and Documentation, Tony Kelly
identifies those systems (performance
control, work control, documentation,
budgeting, costing etc.) that are key,
showing how each can be mapped
and modelled and its function and
operating principles explained. As with
his other books, the analysis is illustrated
throughout by case studies drawn from
his own wealth of experience, and readers
can test their understanding of the lessons
to be derived by addressing various
review questions.

Some thoughts on

The central importance of budgeting

to the formulation of maintenance
strategy, is stressed and it is explained,
by reference to real case examples,
that the maintenance budget should
be an expression of the forecasted
short term (i.e. annual) and long term
workloads in terms of the cost of
internal labour, contract labour and
the materials needed to deal with
them. It is also emphasised that in
plants requiring major shutdowns
there is also the need for a specific
turnaround budget. Budgeting
procedures appropriate for large
process plants are compared with
those for individual manufacturing
units and, finally, it is explained
that, all too often, maintenance
budgeting is rarely as rational as
described, senior management
seeing maintenance only as a cost
and ignoring the linkage between
maintenance expenditure and
production output.

Maintenance Budgeting
Tony Kelly Consultant, Wilmslow, Cheshire (Recently Visiting Professor at the Universities of Central Queensland,
Stellenbosch and Stavanger)

Annual income 20, annual expenditure

19.95 result happiness:
annual income 20,
annual expenditure 20.05 result misery
(Mr Micawber, in David Copperfield by Charles Dickens)

Key words: budgeting

zero-based budgeting
standard costs
profit centre
capital budget
company revenue budget
cost centre

32 | July/Aug 2007 | ME

t company level the function of control is to monitor outputs,

compare these with what was expected, identify any deviation
and then re-direct the companys effort as necessary.
Budgetary control is one of the key elements of this, the
preparation of a company budget being an integral part of the
company planning process. Management are required to plan for
production volumes to meet forecasted sales demand. This in turn
requires a sales, production and maintenance budget.
The budget can be regarded as the end point of the companys
planning process in as much as it is a statement of the companys
objectives and plans in revenue and/or cost terms It is a baseline
document against which actual financial performance is measured.
In control terms, budgets are based on standard costs which provide
the expected (or planned) yearly expenditure profile. This is compared
to the actual expenditures (cost control) and the variances over or
under budget noted. Management then has information on which to
base corrective action.
Usually, the word budget is taken to refer to a particular financial
year. However, the annual budget is often the first year of a rolling long
term budget. For example, if a company has a strategic five-year plan it
will normally align with a five-year rolling financial budget.

CENTRAL
THEME

MAINTENANCE
OBJECTIVE

Business
Production
objective

(start here)

Saftey
requirements
MAINTENANCE
CONTROL

Longevity
requirements

LIFEPLANS

Production
requirements
(operating pattern,
output etc.)

PREVENTIVE
SCHEDULE
WORKLOAD

MAINTENANCE
ORGANISATION

Budget forecast

Strategic thought process

Influencing factors
Control

Figure 1 Relationship between maintenance strategy and budgeting

MAINTENANCE BUDGETING
The need for a maintenance budget arises from the overall
budgeting need of corporate management and involves
estimation of the cost of the resources (labour, spares etc.) that
will be needed in the next financial year to meet the expected
maintenance workload. This is best explained via Figure 1. The
maintenance life plans and schedule have been laid down to
achieve the maintenance objective (which incorporates the
production needs, e.g. operating pattern and availability) and in
turn generates the maintenance workload.

Typical examples of maintenance workloads are shown

in Figures 2(a) and (b) and a detailed categorisation of the
maintenance workload in Table 1. Essentially, maintenance
budgeting is the expression of this forecasted workload
in terms of the cost of internal labour, contract labour and
materials needed to deal with it.
It will be appreciated from Figure 2(a) that maintenance
budgeting involves both the ongoing workload and also
the major workload (overhauls, equipment replacement and
modifications).
It is important that the maintenance budget is set up to
reflect the nature of the maintenance strategy and workload.
There is a need for a longer term strategic maintenance
budget that covers the Work Categories 7 and 8 as shown in
Table 1. Much of this major work involves capital expenditure
that can subsequently be depreciated by corporate
management in the revenue budgets. In the shorter
term there is a requirement for an annual maintenance
expenditure budget that covers Work Categories 1 to 6 of
Table 1. These costs feed into the company revenue budget
that operates over the financial year.
Continued on page 34

Category
number

Main
Category

Sub-category

FIRST
LINE

Correctiveemergency

(1)

Occurs with random incidence and little

warning and the job times also vary greatly.
In some industries (e.g. power generation)
failures can generate major work, these
are usually infrequent but cause large work
peaks.

Correctivedeferred (minor)

(2)

Occurs in the same way as emergency

corrective work but does not require urgent
attention; it can be deferred until time and
maintenance resources are available.

Preventiveroutines

(3)

Work repeated at short intervals, normally

involving inspections and/or lubrication
and/or minor replacements.

Correctivedeferred (major)

(4)

Same characteristics as (2) but of longer

duration and requiring major planning and
scheduling.

Preventiveservices

(5)

Involves minor off-line work carried out at

short or medium length intervals. Scheduled
with time tolerances for slotting and work
smoothing purposes.

Correctivereconditioning
and fabrication

(6)

Similar to deferred work but is carried

out away from the plant (second line
maintenance) and usually by a separate
tradeforce.

Preventive-major
work (overhauls
etc)

(7)

Involves overhauls of plant or plant sections

or major units.

Modifications

(8)

Can be planned and scheduled some time

ahead. The modification workload (often
capital work) tends to rise to a peak at the
end of the company financial year.

First line

Maintenance Resources

Second line
Third line

Shutdown work

100
1st and 2nd line work
1

YEARS

Figure 2 (a) Power station workload

SECOND
LINE

~250
~
Maintenance Resource
Weekend planned maintenance
Summ er
shutdown
maintena nce

Weekday 1st line maintenance

via shift cover
Emergency
maintenance

10 on
each
shift

First line
Second line
Third line

50

WE EKS

Figure 2 (b) Food processing plant workload

THIRD
LINE

Comments

Table 1 Categorisation of maintenance workload by organisational characteristics

ME | July/Aug 2007 | 33

CENTRAL
THEME

In plants requiring major shutdowns there is also

the need for specific turnaround budgets which are an
integral part of the turnaround planning procedure.
The maintenance budgeting procedure is
facilitated by identifying plant cost centres and, where
necessary, continuing the identification down to unit
level. A cost centre in an alumina refinery, for example,
might be coded as follows:
Cost Centre

Unit

Unique Unit
Number

Digestion
Area

Bauxite
Mills

02

Over the designated financial period the actual

maintenance cost (of labour, spares, tools) are collected
against these cost centres to enable cost monitoring
and control (viz. cost control) to be undertaken. Cost
control complements budgeting.

Most large process plants use some form

of strategic maintenance budgeting
which matches their long term preventive
schedule (e.g. see the power station
workload, Figure 2 (a) ). Some food
processing plants, however, do not use
strategic maintenance budgets. This is
because their maintenance strategies are
based on simple routines and inspections
(a wait and see policy) they schedule
neither long term major maintenance nor,
in some cases, the replacement of capital
equipment (which I find surprising).

THE BUDGETING PROCEDURE

The budgeting procedure depends on the type of administration in
operation. In a functional organisation of the kind used in large integrated
plants e.g. in an alumina refinery (see Figure 3), the strategic maintenance
budget is set up by the Chief Engineer with contributions from the
Maintenance Manager, Services Manager and the Plant Manager. A typical
major work schedule for an alumina refinery is shown in Figure 4 (The refinery
never comes off line it is designed to allow the major plant sections to
be maintained while it is still operating at full or reduced load. The major
workload tends to be scheduled in such a way as to avoid the major
work peaks). Such a schedule extends for at least ten years and is used to
identify the large, low-frequency, high-cost, maintenance jobs and the
capital replacement work. This information is used to set up the strategic
maintenance budget.
The major work schedule shown in Figure 4 also includes some of
the higher frequency maintenance work which, in conjunction with
the maintenance routines and services, is also covered in the annual
maintenance expenditure budget. The annual budget is built up from
the budget for each plant and workshop. For example, the mechanical
maintenance for the Digestion Area can be estimated, from the expected
area workload, by the Digestion Mechanical Superintendent, translated into
resources needed, and added to similar estimates from other plant areas and
disciplines (see Figure 5).
Budgeting for the preventive work (Categories 3 and 5) is relatively
straightforward. Corrective work (Categories 1, 2, 4 and 6) presents a more
difficult problem. Nevertheless, if a history record is available it is often possible
to estimate, with acceptable accuracy, the level of corrective work to be
expected for a given level of preventive effort. Without such experience little
confidence can be placed in the estimate and this must be made clear in the
budget statement. The workshops and services areas needed to be tackled
differently, because their workload originates from each of the plant areas.
This approach is sometimes called Zero-based Budgeting (ZBB) because
the maintenance budget is built up from scratch each year in the light of the
maintenance schedule for that year.
The above budgeting procedures need modification for an
administrative structure based on manufacturing units (see Figure 6). Each
manufacturing unit becomes a profit centre, and a combined production/
maintenance budget is required at Operations Manager level. The centralised
maintenance functions become cost centres and budgets for the service
they provide to the manufacturing units. These centralised maintenance
functions are concerned with efficiency of resource usage rather than plant
Continued on page 36

Refinery
Manager

Commercial
Manager

Manager
Purchasing
and Stores

Technical
Manager
Staff

Chief
Engineer

Plant
Maintenance
Manager

Production
Manager

Maintenance
Services
Manager

Staff

other area
production
supts

Digestion Digestion other area Support Electrical

Production
Mech
mech suptsEngineers Instrument
Maintenance
Supt.
Supt.
Supt.
Digestion Digestion
Mech
Production
Supvs
Supvs
Digestion Digestion
Mech
Production
trades
Operators

OTHER PLANT
AREAS

34 | July/Aug 2007 | ME

DIGESTION
AREA

Digestion other
E/I
area E/I
Supvs
Supvs

Workshop
Supt.

Plant
Services
Maintenance
Supt.

E/I
Supv. Supv. Supv.
Workshop
Supv.
services
trades

Supv. Supv. Supv.

E/I trades

Figure 3 Alumina refinery functional administration

mechanical
workshop trades.

ID

Name

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36

Boilerhouse

2000

2001

Nov Dec Jan Feb Mar Apr May Jun

Boilers
Boiler - 4
Boiler - 7
Boiler - 2

1/5

Turbo-Alternators
Turbo-Alternators - 1

Jul Aug Sep Oct Nov Dec Jan Feb

26/5
12/7

27/7
1/9

5/3

Digestion
Unit Shutdowns
Unit 1
Unit 1 B/O Tank Conversion
Unit 2
Unit 2 B/O Tank Conversion
Unit 3
Unit 3 B/O Tank Conversion

20/7
23/3

23/4

Digesters
Unit 1
Digester 1
Digester 1
Digester 2
Digester 3

1/4

Unit 2
Digester 4
Digester 5
Digester 5
Digeaster 6
Digester 6

31/5
1/6

1/4

1/1

Unit 3
Digester 7

This article was published

in Maintenance & Asset
Management journal, Volume
21 No 4. It first appeared in
Volume 3 - Maintenance
Systems and Documentation
- of the 3 part Plant Maintenance
Management Set written
by Tony Kelly and published
by Butterworth Heinemann.
The other titles in the series
are Strategic Maintenance
Planning and Managing
Maintenance Resources - see
previous page (p.35) for further
details, including cost and
method of ordering.

1/10

1/8

30/11

30/9

31/7

31/5

1/12

2/3

30/1

15/1

Figure 4 Extract from major work schedule

Refinery budget
(Refinery Manager)

availability they act like internal contractors

and the costing system is designed to reflect this
situation.
In practice, maintenance budgeting is rarely
as rational as described. Senior management see
maintenance only as a cost. The linkage between
maintenance expenditure and production output
indicated in Figure 1 is often ignored. Maintenance
budgeting then becomes an exercise based on
last years costs plus an allowance for inflation (at
best low frequency major work may be included).
This is a poor form of budgeting, it is an attempt to
forecast what is likely to be spent in the absence of
any management intention to deviate from what
has gone before.

Stores budget

Other budget inputs

Production budget
Maintenance budget
(Plant Maintenance
Manager)

Mechanical
maintenance budget
(Plant Maintenance
Manager)

Workshop and
services budget
(Services Manager)

E/I budget
(Services Manager)

From other
areas

Digestion area
mechanical budget
(Digestion Mech. Supt )

Clarification area
mechanical budget
(Clarification Mech.
Supt )

Electrical
maintenance budget
(E/I Supt )

Instrument
maintenance budget
(E/I supt )

Plant services
budget
(Services Supt )

Mechanical
workshop budget
(Workshop Supt )

Figure 5 Build-up of refinery expenditure budget

Refinery
Manager
Shift Managers (Mon to Fri cover)

CommercialTechnical
Manager Manager

Staff

Staff

Plant
Engineer

Staff

Clarification Preciptation Clacination Utilities

Operations Operations Operations Operations
Manager
Manager
Manager Manager

Digestion Operations
Manager

Maintenance
Manager

Similar in principle to digestion

Digest
Process
Support
Eng.

Maintenance Plant Service Workshop Contracts

Supt.
Supt.
Supt.
Support
Engineer

Plant Plant Plant MaintenanceDigestion Digestion

Officer Officer Officer Resource Planner Support
A
B
C
Officer
Engineer
Product
Shift
Supv(s)
Shift
teams

Staff
Mech
Supv.
A

Mech Mech
Supv. Supv.
B
C

Second line mech.

resouce. area
specialisation with
flexibility

E/I
Supv

Staff

T/A planning E and I

CBM
supervision engineersengineer(s)

Teams Teams

Centralised
shift team
MEI
first line
maintenance

DIGESTION MANUFACTURING UNIT

Figure 6 Administrative structure based on manufacturing units

36 | July/Aug 2007 | ME