Introduction

What is maintenance and why is it performed? Past and current maintenance practices
in both the private and government sectors would imply that maintenance is the actions
associated with equipment repair after it is broken. The dictionary denies maintenance as
follows: “the work of keeping something in proper condition; upkeep.” This would imply that
maintenance should be actions taken to prevent a device or component from failing or to
repair normal equipment degradation experienced with the operation of the device to keep it
in proper working order. Unfortunately, data obtained in many studies over the past decade
indicates that most private and government facilities do not expend the necessary resources to
maintain equipment in proper working order. Rather, they wait for equipment failure to
occur and then take whatever actions are necessary to repair or replace the equipment.
Nothing lasts forever and all equipment has associated with it some predefined life
expectancy or operational life. For example, equipment may be designed to operate at full
design load for 5,000 hours and may be designed to go through 15,000 start and stop cycles.

The need for maintenance is predicated on actual or impending failure – ideally,

maintenance is performed to keep equipment and systems running efficiently for at least
design life of the component(s). As such, the practical operation of a component is time-
based function. If one were to graph the failure rate a component population versus time, it is
likely the graph would take the “bathtub” shape from its shape, the curve can be divided into
three distinct: infant mortality, useful life, and wear-out periods.

The initial infant mortality period of bathtub curve is characterized by high failure
rate followed by a period of decreasing failure. Many of the failures associated with this
region are linked to poor design, poor installation, or misapplication. The infant mortality
period is followed by a nearly constant failure rate period known as useful life. There are
many theories on why components fail in this region, most acknowledge that poor O&M
often plays significant role. It is also generally agreed that exceptional maintenance practices
encompassing preventive and predictive elements can extend this period. The wear-out
period is characterized by a rapid increasing failure rate with time. In most cases this period
encompasses the normal distribution of design life failures.
 The design life of most equipment requires periodic maintenance. Belts need
adjustment, alignment needs to be maintained, proper lubrication on rotating equipment is
required, and so on. In some cases, certain components need replacement, (e.g., a wheel
bearing on a motor vehicle) to ensure the main piece of equipment (in this case a car) last for
its design life. Anytime we fail to perform maintenance activities intended by the
equipment’s designer, we shorten the operating life of the equipment. But what options do we
have? Over the last 30 years, different approaches to how maintenance can be performed to
ensure equipment reaches or exceeds its design life have been developed in the United States.
In addition to waiting for a piece of equipment to fail (reactive maintenance), we can utilize
preventive maintenance, predictive maintenance, or reliability centered maintenance.

Question 1: Define Maintenance Strategy

Maintenance Strategy is a long term plan, covering all aspects of maintenance management
which sets the direction for maintenance management, and contains firm actions plans for
achieving a desired future state for the maintenance function. Examples of Maintenance
Strategies are:

I. Preventive maintenance
II. Corrective maintenance
III. Predictive Maintenance
IV. Reliability centered maintenance

 Preventive Maintenance

In preventive maintenance, equipment is repaired and serviced before failures occur. The
frequency of maintenance activities is pre-determined by schedules. Preventive
maintenance aims to eliminate unnecessary inspection and maintenance tasks, to
implement additional maintenance tasks when and where needed and to focus efforts on
the most critical items. The higher the failure consequences, the greater the level of
preventive maintenance that is justified. This ultimately implies a trade-off between the
cost of performing preventive maintenance and the cost to run the equipment to failure.
Inspection assumes a crucial role in preventive maintenance strategies. Components are
essentially inspected for corrosion and other damage at planned intervals, in order to
identify corrective action before failures actually occur. Preventive maintenance
performed at regular intervals will usually results in reduced failure rates. As significant
costs are involved in performing preventive maintenance, especially in terms of scheduled
downtime, good planning is vital.

Advantages

• Cost effective in many capital-intensive processes.

• Flexibility allows for the adjustment of maintenance

periodicity.

• Increased component life cycle.

• Energy savings.

• Reduced equipment or process failure.

• Estimated 12% to 18% cost savings over reactive

maintenance program.

Disadvantages

• Catastrophic failures still likely to occur.

• Labor intensive.

• Includes performance of unneeded maintenance.

• Potential for incidental damage to components in

conducting unneeded maintenance.

  Corrective maintenance

Corrective maintenance refers to action only taken when a system or component failure
has occurred. It is thus a retro-active strategy. The task of the maintenance team in this
scenario is usually to effect repairs as soon as possible. Costs associated with corrective
maintenance include repair costs (replacement components, labor, consumables), lost
production and lost sales. To minimize the effects of lost production and speed up repairs,
actions such as increasing the size of maintenance teams, the use of back-up systems and
implementation of emergency procedures can be considered. Unfortunately, such
measures are relatively costly and/or only effective in the short-term. For example, if heat
exchanger tubes have leaked due to pitting corrosion and production must proceed as a
matter

Advantages

• Low cost.

• Less staff.

Disadvantages

• Increased cost due to unplanned downtime of equipment.

• Increased labor cost, especially if overtime is needed.

• Cost involved with repair or replacement of equipment.

• Possible secondary equipment or process damage from equipment failure.

• Inefficient use of staff resources. of urgency, it may be possible to plug the leaking
tubes on a short-term basis
  Predictive Maintenance

Predictive maintenance refers to maintenance based on the actual condition of a

component. Maintenance is not performed according to fixed preventive schedules but
rather when a certain change in characteristics are noted. Corrosion sensors supplying
diagnostic information on the condition of a system or component play an important role
in this maintenance strategy. A useful analogy can be made with automobile oil changes.
Changing the oil every 5000 km to prolong engine life, irrespective of whether the oil
change is really needed or not, is a preventive maintenance strategy.

Predictive maintenance would entail changing the oil based on changes in its properties,
such as the build-up of wear debris. When a car is used exclusively for long distance
highway travel and driven in a very responsible manner, oil analysis may indicate a
longer critical service interval. Some of the resources required to perform predictive
maintenance will be available from the reduction in breakdown maintenance and the
increased utilization that results from pro-active planning and scheduling. Good record
keeping is very important to identify repetitive problems, and the problem areas with the
highest potential impact.

Advantages

• Increased component operational life/availability.

• Allows for pre-emptive corrective actions.

• Decrease in equipment or process downtime.

• Decrease in costs for parts and labor.

• Better product quality.

• Improved worker and environmental safety.

• Improved worker morale.

• Energy savings.
 • Estimated 8% to 12% cost savings over preventive maintenance program.

Disadvantages

• Increased investment in diagnostic equipment.

• Increased investment in staff training.

• Savings potential not readily seen by management.

 Reliability centered maintenance

Reliability centered maintenance (RCM) involves the establishment or improvement of a

maintenance program in the most cost-effective and technically feasible manner. It
utilizes a systematic, structured approach that is based on the consequences of failure. As
such it represents a shift away from time-based maintenance tasks and emphasizes the
functional importance of system components and their failure/maintenance history.

The concept of RCM finds its roots in the early 1960's, with RCM strategies for
commercial aircraft developed in the late 1960s, when wide-body jets were introduced to
commercial airline service. A major concern of airlines was that existing time-based
preventive maintenance programs would threaten the economic viability of larger, more
complex aircraft. The experience of airlines with the RCM approach was that
maintenance costs remained roughly constant but that the availability and reliability of
their planes improved. RCM is now standard practice for most of the world's airlines.

Advantages

• Can be the most efficient maintenance program.

• Lower costs by eliminating unnecessary maintenance or overhauls.

• Minimize frequency of overhauls.

• Reduced probability of sudden equipment failures.

• Able to focus maintenance activities on critical components.

• Increased component reliability.

• Incorporates root cause analysis.

Disadvantages

• Can have significant start-up cost, training, equipment, etc.

• Savings potential not readily seen by management.

Question 2: Explain the concept of the “strategic maintenance management through

process”

The strategic maintenance management (SMM) forms an integral part of the management
process in a power utility industry in a deregulated market. Hence this is one of the most
important and critical management areas in deregulated power market. High value
equipment-intensive utility industries that successfully adopt SMM practice can reduce
maintenance costs and improve productivity through superior planning and may become
more responsive to market demands through improved flexibility and agility. To achieve in
the SMM field, the power utility industry needs visibility into three main areas of
maintenance planning: short term, outage and long term planning. Planned maintenance (PM)
strategies improve mean time between failures (MTBF), reliability, overall productivity,
equipmentpsilas life and ultimately reduce the total cost of equipment ownership. This
opportunity to make these improvements in a utility industry generates significant interest in
planned maintenance strategies for any Indian utility industries that must manage mission
critical equipments.
Question 3: Carry out a brief internet search for literature on zero-based budgeting.

Zero based budgeting (ZBB) is an alternative approach that is sometimes used particularly

in government and not for profit sectors of the economy. Under zero based budgeting
managers are required to justify all budgeted expenditures, not just changes in the budget
from the previous year. The base line is zero rather than last year's budget.

In traditional approach of budgeting, the managers start with last year's budget and add to it
(or subtract from it) according to anticipated needs. This is an incremental approach to
budgeting in which the previous year's budget is taken for granted as a baseline.
This approach is called incremental budgeting.

Zero based budgeting approach requires considerable documentation. In addition to all of

the schedules in the usual master budget, the manager must prepare a series of decision
packages in which all of the activities of the department are ranked according to their relative
importance and the cost of each activity is identified. Higher level managers can then review
the decision packages and cut back in those areas that appear to be less critical or whose costs
do not appear to be justified.

Zero based budgeting is a good idea. The only issue is the frequency with which a ZBB
review is carried out. Under zero based budgeting (ZBB) ,the review is performed every year.
Critics of such type of budgeting charge that properly executed zero based budgeting is too
time consuming and too costly to justify on an annual basis. In addition, it is argued that
annual reviews soon become mathematical and that the whole purpose of zero based
budgeting is then lost. Whether or not a company should use annual reviews is a matter of
judgment. In some situations, annual zero based reviews may be justified; in other situations
they may not becauseof the time and cost involved. However, most managers would at least
agree that on occasion zero based reviews can be very helpful.
HISTORY OF ZERO-BASED BUDETING

Government budgeting was established in Great Britain in the late 17th century. The
enactment of the 1689 Bill of Rights gave taxing authority to Parliament as opposed to the
King. Parliament gradually established spending programs and by the 1820s published
detailed annual financial statements showing revenues and expenditures and a projected
surplus or deficit. The usage of budgets by the United States government did not begin until
1800 when a law was passed for the Secretary of the Treasury to submit an annual financial
report to Congress. This action was not taken by the Treasury department, and instead,
federal government agencies developed their own reports and submitted them to the
Treasury.

Several attempts were made in the early 1900s to implement federal budgeting and
financial management, but each failed, even though 44 individual states had already passed
laws concerning budgets. Congress passed the Budgeting and Accounting Act in 1921 along
with the creation of a centralized Bureau of the Budget. Although created in 1921, it was not
until the mid-1940s that the federal budget included identification of the major goals and
program objectives, a systematic analysis of supplies and needs for both military and civilian
purposes, and a long-range plan of projects. In the 1960s, the Planning-Programming-
Budgeting System (PPBS) was adopted by President Lyndon B. Johnson to be implemented
throughout the federal government.

The PPBS was short-lived, however. In the 1970s, every federal department except
for the Defense Department abandoned the system. The concept of zero-based budgeting
gained notoriety in 1977 when President Jimmy Carter announced he was introducing zero-
based budgeting into the federal budgeting process. The term, "zero-based budgeting," and
the techniques for carrying out these budgeting processes had been previously introduced in
an article written by Peter A. Pyhrr in the Harvard Business Review in 1970, but former
President Carter adopted this method at the federal level, zero-based budgeting began to
spread more rapidly.

President Carter, while still governor of Georgia in 1973, contracted with Pyhrr to
implement the system for the entire executive budget recommendations for the state of
Georgia. However, when the system was applied to governmental budgeting, it failed due to
the great amount of effort and time required development and implementation. With further
refinement, however, zero-based budgeting was largely hailed as a success when introduced
to Congress in 1977.

Early business budgets focused on controlling costs and little emphasis on measuring
effectiveness. In the early 1900s, the use of budgets increased due to the necessity for
industries to implement more careful factory planning. A systematic plan of budgeting arose
from two areas: industrial engineering and cost accounting. Scientific methods were used by
industrial engineers to arrive at production standards, which could then be used to estimate
future operations and performance standards. Cost accountants used budgeting to establish
standard costs and to estimate future expected costs in a budgetary form. Also at this time,
texts on budgeting and managerial accounting began to emerge.

As zero-based budgeting gained traction in the 1970s among public budgeting

constituents, it also gained popularity among private enterprises, and during this time a
number of organizations modified and implemented the system. An example of an
organization successfully implementing this system is the Florida Power and Light Company.
In 1977 zero-based budgeting became required for all Florida Power and Light general office
staff departments. Ben Dady, the company's director of management control, favored the
system because when managers develop the zero-based budget, they begin with nothing in
terms of budgeted dollars, and have to justify or prove why they need to spend money on
each activity or project for all the dollars they expect to spend. New and old problems are
treated equally. Every managerial activity is properly identified and then evaluated by
analyzing more efficient ways and alternative levels of performing the same activity. These
alternatives are then ranked and relative priorities are established.

The publicity in the 1970s surrounding zero-based budgeting gave the impression that
the system was a relatively new technique, although the system was not new at all. Zero-
based budgeting is quite similar to the Planning-Programming-Budgeting system,
implemented in the 1960s. Both systems involve evaluating the inputs and outputs for
specific activities, as opposed to the traditional line-item format.
IMPLEMENTATION OF ZERO-BASED BUDGETING

The zero-based budgeting system puts the burden of proof on the manager, and
demands that each manager justify the entire budget in detail and prove why he or she should
spend the organization's money in the manner proposed. A "decision package" must be
developed by each manager for every project or activity, which includes an analysis of cost,
purpose, alternative courses of action, measures of performance, consequences of not
performing the activity, and the benefits.

This approach is different than traditional budgeting techniques due to the analysis of
alternatives. Managers must identify alternative methods of performing each activity first,
such as evaluating the costs and benefits of making a project or outsourcing it, or centralizing
versus decentralizing operations. In addition, managers must identify different levels for
performing each alternative method of the proposed activity. This means establishing a
minimum level of spending, often 75 percent of the current operating level, and then
developing separate decision packages that include the costs and benefits of additional levels
of spending for that particular activity. The different levels allow managers to consider and
evaluate a level of spending lower than the current operating level, giving decision-makers
the choice of eliminating an activity or the ability to choose from a selection of levels of
effort including tradeoffs and shifts in expenditure levels among organizational units.

The decision packages must be ranked in order of importance once they have been
created. This allows each manager to identify priorities, combine decision packages for old
and new projects into one ranking, and allows top management to evaluate and compare the
needs of individual units or divisions to make funding allocations. In this respect, zero-based
budgeting is quite different than traditional rolling budgets. Rolling budgets often appeal to
people who prepare budgets because they make budget development much easier. Managers
can add an inflation factor to the previous year's budget and then include any adjustments for
major changes. Rolling budgets also give management a concrete number to help make
comparisons from year to year. However, traditional rolling budgets have a tendency to
create conflict; they can create an incentive to spend money carelessly in order to justify the
next year's budget. They can also create inefficient operations due to the fact that individual
departments or units do not have to justify expenditures based on operations, but only on the
prior year's expenditures.
 Zero-based budgeting addresses such problems that can occur with traditional rolling
budgets. In zero-based budgeting, each dollar spent by management must be justified with a
detailed account of what will be purchased, how many labor hours are needed, what problems
will be faced, and so forth. This allows management an opportunity to review operations in
depth and make recommendations for changes to if necessary. The zero-based budgeting
process helps managers identify redundancies and duplications among different departments,
concentrating on the dollars needed for proposed programs as opposed to percentage
increases or decreases form the previous year. Specific priorities of departments and divisions
are identified more easily in zero-based budgeting. The process also allows for the
comparability of different departments as to the respective priorities funded. Zero-base
budgeting enables a performance audit to determine whether each project or activity has been
performed as efficiently as planned.

ADVANTAGES | BENEFITS OF ZERO BASED BUDGETING PROCESS:

1. Efficient allocation of resources, as it is based on needs and benefits.

2. Drives managers to find cost effective ways to improve operations.

3. Detects inflated budgets.

4. Municipal planning departments are exempt from this budgeting practice.

5. Useful for service departments where the output is difficult to identify.

6. Increases staff motivation by providing greater initiative and responsibility in decision-

making.

7. Increases communication and coordination within the organization.

8. Identifies and eliminates wasteful and obsolete operations.

9. Identifies opportunities for outsourcing.

10. Forces cost centers to identify their mission and their relationship to overall goals.
DISADVANTAGES | LIMITATIONS OF ZERO BASED BUDGETING METHOD

1. Difficult to define decision units and decision packages, as it is time-consuming and

exhaustive.
2. Forced to justify every detail related to expenditure. The research and development
(R&D) department is threatened whereas the production department benefits.

3. Necessary to train managers. Zero based budgeting (ZBB) must be clearly understood by
managers at various levels to be successfully implemented. Difficult to administer and
communicate the budgeting because more managers are involved in the process.

4. In a large organization, the volume of forms may be so large that no one person could
read it all. Compressing the information down to a usable size might remove critically
important details.

5. Honesty of the managers must be reliable and uniform. Any manager that exaggerates
skews the results.

BEHAVIORAL IMPACTS OF ZERO-BASED BUDGETING

The impact of budgeting on organizations was probably first studied by Argyris in the
1950s. These studies show some of the behavioral effects resulting from the way budgets
are used in organizations. The results of his research showed that the particular process
used could cause dysfunctional behavior in subordinates, regardless of the degree of
technical refinement of the budgetary system. In the 1970s, Hopwood's studies inquired
into the effects of budgets on human behavior. These studies showed that the use by a
superior of a budget-constrained style of evaluation gave rise to significant levels of job-
related tension; had adverse effects on peer and subordinate-superior relationships, and
was implicated in manipulative behavior on subordinates. A long line of studies have
been performed since then to uncover an array of variables that govern the effects of
reliance on budgets on behavioral outcomes, including managerial performance.
 Examples of these variables include budgetary participation, task uncertainty,
environmental uncertainty, strategy, and culture.

Zero-based budgeting may require an extensive amount of time, money, and paper
work; but it does provide a systematic method of addressing an organization's financial
concerns, in turn enabling an organization to better allocate its resources. A combination
of zero-based budgets with rolling budgets or some other form of budgeting that spreads
the work of justifying new budgets each cycle is one way to incorporate zero-based
budgeting without undo stress at the same time for all managers with budgetary
responsibility.

Question 4: Explain briefly the principles of maintenance management control

Controlled maintenance management is an organized, systematic and controlled approach to

maintenance and its management through effective application of the following basic
principles:

 Organization
 Inventory
 Continuous Inspection
 Planning
 Scheduling
 Management Analysis

The system consists of organizing, planning, supervision, coordination and control of

functions necessary to ensure that a plant can continually perform its designed function in an
economical manner within budgeted limits. The system ensures that the plant will obtain the
most efficient utilization of labor, equipment and materials in achieving this goal. The
continuing objective of the control effort is to increase productivity, achieve savings and
ensure that the designated level or standard of maintenance is achieved.
 Significance of Controlled Maintenance Management

Purposes:

To fully understand the significance of the controlled maintenance management system and
the benefits to be derived from its implementation and successful administration, it is
essential that the basic purposes be clearly established. They are:

a) To ensure that the maintenance level or standard of building, grounds, facilities,

systems, utilities and equipment is maintained to meet their designed functions and
requirements.
b) To perform scheduled routine maintenance thereby reducing, extending or eliminating
the requirement for major repairs and or costly replacement of facilities and
equipment
c) To provide positive control of maintenance labor force through competent supervision
d) To improve shop efficiency by balancing the shop work load with the work force by
means of proper work scheduling
e) To provide a stable work force through projected shop loading techniques basedon
known work backlogs
f) To control maintenance costs by the continuous evaluation of actual versus estimated
expenditures and work performance through the use of management analysis reports
g) To provide a centralized facility and equipment records and costing system

Benefits:

Successful and complete implementation and administration of the system results in

increased economy and greater reliability in maintenance operations, improved morale of
maintenance personnel, increased productivity and the provision of data to support budget
request, In addition, it manifests the development and application of improved technical data
and maintenance methods.
References

1. NASA. 2000. Reliability Centered Maintenance Guide for Facilities and Collateral
Equipment. National Aeronautics and Space Administration, Washington, D.C.

2. Piotrowski, J. April 2, 2001. Pro-Active Maintenance for Pumps, Archives, February

2001, Pump-Zone.com [Report online]. Available URL: http://www.pump-zone.com.
Reprinted with permission of Pump-Zone.com.

3. P. Dale Johnson (2002). Principles of controlled maintenance management. The

Fairmont Press, Inc.

4. Albert H.C. Tsang, (2002) "Strategic dimensions of maintenance management",

Journal of Quality in Maintenance Engineering, Vol. 8 Iss: 1, pp.7 – 39

5. Aimin Yan and Barbara Gray The Academy of Management JournalVol. 37, No. 6
(Dec., 1994), pp. 1478-1517

6. Hilton, R.W. Managerial Accounting: Creating Value in a Dynamic Business

Environment. McGraw-Hill, 2005.

7. Warren, C.S., J.M. Reeve, and P.E. Fess. Accounting. 21st ed. Thomson South-
Western, 2005.