Last month’s column covered the basic features that most CMMS packages provide for budgeting and managing maintenance costs. This column builds on those base features with a discussion of how your requirements have driven a few CMMS vendors to add more sophisticated functionality. Take a moment to read about the advanced budgeting and cost management features that you requested to help control costs.
Budget timing
Most CMMS packages can track budgeted versus actual costs for a given period. However, budgets rarely are static, and companies want greater insight into costs committed and accrued. Thus, some CMMS vendors offer more comprehensive budget-tracking features:
Original refers to the first draft budget approved, for example, before the start of the next fiscal year.
Revised accommodates the fact that the budget might be revised monthly based on new information such as current production volumes, previously unanticipated capital requirements and the like. Some companies refer to this as the LE or latest estimate. The revised budget must be approved in the same way that the original budget was, and variances between original, revised and actual spending are tracked to hold people accountable for material deviations.
Committed is a concern for many companies that want to track dollars when they’re not yet spent but a legal obligation exists to do so. Examples include purchase orders issued or contracts in play that commit the company to a given draw on the budget. Even work orders that have been approved and scheduled for sometime in the future are a commitment to spend against a budget. The benefit of tracking committed expenditures is that you have advanced warning of impending budget variances before making decisions about further commitments. In some cases, there’s even a possibility that commitments can be renegotiated or reversed if goods or services haven’t yet been received.
Accrued addresses the fact that once goods or services have been received but not yet invoiced, there’s little chance that the commitment to spend money against a given budget line item can be reversed, unless quality or performance is in question. Because the invoice hasn’t yet been received or payment terms are such that a check hasn’t yet been cut, it won’t show as an actual expense against the budget.
Thus, many companies prefer to track accruals, separate from committed and actual expenses, for a deeper understanding of the level and timing of outstanding obligations relative to budget.
Actual is, of course, the expenses against a budget that have been fully paid and for which there has been full accounting.
Budget categories
Most CMMS software packages allow users to budget based on labor, material and overhead categories. More sophisticated packages also track categories such as contract labor and contract material to retain a detailed history at their true cost. Without separate categories and proper accounting, contract maintenance is tracked using a workaround that might involve a work order system showing a breakdown of labor hours at zero dollars per hour and material used, or through the purchase order system showing only total dollars the contractor invoiced.
Another category that provides additional functionality is the budgeting and costing of resources such as specialized tools. Resources are booked and charged to various departmental cost centers on a pay-per-use basis. Modern CMMS packages can report on resource utilization, as well as budgeted-versus-actual cost allocations. Depending on resource utilization, adjustments might need to be made to hourly charge rates to fully allocate costs for the following year.
Encumbrance accounting
In some cases, companies need to impose tight restrictions on spending. This is especially true of governments that have limited flexibility in exceeding budgetary constraints. Encumbrance accounting provides improved budgetary control by reserving funds when a commitment is made to spend money, such as when a purchase order is issued. This ensures sufficient funds are available in the budget when payment is due. If there’s not enough money available, the CMMS can be configured to block the transaction from occurring, subject to a two-signature approval override or whatever other rules were established.
Regulatory accounting
Depending on your industry, your CMMS package might not be able to accommodate your needs for regulatory accounting and reporting. In most cases, however, reports can be configured to handle regulatory requirements, assuming the prerequisite data is collected in the first place.
A few regulatory bodies are looking for more than just collecting data and reporting on it to ensure tight controls on who can make changes to purchase orders, work orders and other items. For example, pharmaceutical manufacturers governed by the FDA must use electronic signatures to ensure changes to key documents have proper authorization.
Project budgeting
Another area of differentiation for CMMS vendors is how well they support the management of capital project spending. For a few CMMS packages, it starts with engineering design , including an interface between the bill of materials for a given asset within the engineering module, and the equipment and parts master files within the maintenance module. Work orders and purchase orders should be able to reference the appropriate capital project number, contract number, etc., to keep careful track of budgeted-versus-committed-versus actual dollars spent on labor, material and contractors.
A key feature to look for is the ability to develop a hierarchy of work orders having at least three levels, and five or more for companies that deal with large complex capital projects. For example, suppose a plant is building a new office addition. You can generate a hierarchy of work orders as follows:
- Capital project number
- Master work order for each floor
- Work order for each room on a floor
- Sub-work order for each trade in the room
- Task for each job to be performed by each trade
- Steps for each task, describing the procedure for completing a given job
Budget simulation
This is the what-if analysis that you’d use, for example, if your company is having a bad year and senior management is looking for ways to cut back on expenses for next year. What are the chances that the maintenance budget will be affected? Unfortunately, most companies expect fewer dollars to be spent on maintenance, even though they might intellectually understand that delaying important expenditures on things like roof or equipment repairs may increase maintenance costs substantially in the future. It’s a case of “pay me now or pay me even more later.”
It’s therefore important to determine what maintenance work can be dropped or trimmed in light of a budget decrease. To this end, a few CMMS packages have the ability to perform what-if analysis on your budget. Users can manipulate the level of activity of planned work such as the number of times grass will be cut, how often inspections will be made, and the meter reading interval that will trigger an oil change. They also can adjust expenditures on capital projects or even unplanned work. Once users are satisfied with a given budget scenario in what-if mode, they can save it as the proposed budget.
Thus budget simulation allows users to play with various scenarios to determine the one with the lowest impact and risk, or demonstrate to management the consequences of cutting back too much.
E-mail Contributing Editor David Berger, P. Eng., partner, Western Management Consultants, at [email protected].
