Most industrial departments use three major buckets of expenditures to manage each year. The first bucket is used to operate and manage the current business and is often referred to as the operating budget. For the maintenance department, this bucket includes costs for labor, material such as spare parts and contracted services to conduct day-to-day maintenance operations. Your CMMS is a valuable resource to better manage these costs.[pullquote]
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The operate-and-manage bucket of expenditures would be sufficient to run the business year after year if it were not for such factors as competitors vying for market share, profit-motivated shareholders, regulatory changes, technology improvements, market and demographic shifts, economic transformation and environmental pressures. Thus, to simply survive, let alone grow, a business requires two additional buckets, namely large capital/maintenance projects and non-capital/maintenance projects. In general, project expenditures are required to address the gap between where the business is now and where it needs to be in the future to exploit opportunities and face threats associated with the factors listed above.
The difference between large capital/maintenance projects and non-capital/maintenance projects is, at least in part, due to differences in the purpose of the project and how to account for the expenditures. Capital projects are primarily capitalized - that is, capital expenditures such as adding a new piece of production equipment are depreciated over a number of years corresponding roughly to the asset’s useful life. By contrast, non-capital projects, such as buying consulting services to implement a lean improvement program can be expensed, or written off in the year they are paid. Of course, tax rules vary by country, regional/local governments, year of purchase and a host of other factors.
Some large maintenance projects might involve adding value to the asset or appreciating it at a given point in time — for example, adding a sleeve to a corroding pipe or refurbishing production equipment. Relevant costs are, therefore, capitalized. However, there are large maintenance projects that are expected repairs and replacement that simply protect the asset’s lifetime value and prevent premature depreciation.
A modern CMMS is an excellent tool for maintenance management to budget for projects and better control costs. Examples are as follows for the two relevant project types:
Large maintenance projects: Sometimes companies wish to track the costs associated with a large maintenance project, such as major repairs to or replacement of an existing, expensive asset. This category would therefore include a major overhaul of equipment, plant shutdowns, turnarounds and major outages.
Large capital expansion projects: A CMMS can also be used to manage costs associated with assets that are not new. Examples of capital expansion projects are building a new factory wing, expanding a roadway or pipeline network or adding a new production line.
CMMS functionality for managing projects
When CMMS packages were first introduced decades ago, they were focused on using work orders to estimate and track actual costs for labor and parts used in maintaining a given asset. Under pressure from maintenance and finance departments, CMMS vendors later added rather primitive budgeting capability. This allowed maintenance managers to set up an annual budget and track actual vs. estimated expenditures each month.
Over the years, CMMS vendors have greatly improved their offerings to include integration of work order management with detailed budgeting for general ledger account codes. This allows comparison of estimated vs. actual costs for a given work order, for any grouping of work orders such as a project or for any budget account code. Described below are features and functions available on some of the more sophisticated CMMS packages for better tracking of large capital and maintenance projects.
Engineering design — A few CMMS packages have the ability to manage engineering changes to a given asset throughout its lifecycle, including the asset’s transition from engineering design to maintenance. For asset-intensive industries, this functionality can save a company millions of dollars, mostly from cost avoidance - for example:
- Tracking major and minor revisions to an asset from the “as designed” to “as installed” and to “as modified” throughout its life
- Tracking temporary and permanent changes
- Tracking changes to the configuration of assets
- Identifying affected parent/child equipment, documents and objects such as active work orders that the change affects
- Managing the change process from start to finish, including synchronization of affected activities for data integrity
Estimating — Few CMMS packages provide design estimation capability for managing the smooth transition of capital projects and new construction through to the maintenance phase, including:
- Development of initial estimates for all materials, resources, permits, contracts and other costs
- Integration from the design estimate to the work order, for tracking and analyzing the “as designed” vs. the “as planned” vs. the “as built” variances
- Integration with graphic design and engineering tools
- Integration with materials catalogue and e-procurement module for estimating material costs
- Integration with asset life cycle accounting
- Preparation of a simple job estimate such as one for adding a stretch of highway or a new hydro pole, including building and costing of compatible units from parts/equipment/labor and assemblies from compatible units, through to integration with the work order system and inventory control modules.
Capital asset planning — Although most CMMS packages allow users to prepare an annual plan and view a calendar of scheduled work based on user-definable or forecasted intervals, there are surprisingly few CMMS packages that have much sophistication in preparing a long-term capital plan. Some CMMS vendors have partnered with vendors that specialize in this area. Features to look for include the ability to:
- Build a multi-year long-term capital asset plan and budget
- Perform an asset portfolio condition assessment
- Do multi-year capital project planning
- Develop asset renewal cost forecasting models
- Conduct what-if analysis for restoring and maintaining a targeted level of asset condition.
Project management, budgeting and tracking — Most CMMS packages allow users to establish a project code and then track work orders, tasks and purchase orders that reference it. CMMS software typically carries a hierarchy of three or more levels, where the project is the highest parent level and a task is the lowest child level. This gives planners flexibility in organizing project work into work packages that can be more easily scheduled and managed by location, craft and precedent relationship. However, a CMMS doesn’t have the functionality found in specialized project management software, such as determining a critical path. Other advanced features that might be useful in your environment are:
- Two-way integration with project management software, such as PERT, available directly through the CMMS to schedule and manage projects outside or inside the CMMS
- Budgeting module integrated directly with the planned hours and planned material usage on the work orders
- What-if analysis capability on the budget — generating work orders or preparing a work plan in simulation mode and allowing users to accept or reject results of the simulation
- Tracking and summarizing work order and project costs broken down by labor, material or contract, and comparing each for the original estimate, revised estimate, amount committed (i.e., scheduled but no time charged yet or no material yet received), amount accrued (i.e., goods/service received but not yet invoiced) and amount actually spent (i.e., after invoice paid).
E-mail Contributing Editor David Berger, P.Eng., partner, Western Management Consultants, at [email protected].