Almost every facility, building, property, plant, or utility manager submits a capital budget as part of the budgeting process. A capital budget differs from the operational budget because it is a request for big ticket purchases over a specified amount during the course of the fiscal year. Approval of a capital budget comes from the highest echelons of an organization and is based upon need, cash flow, financing options as well as a slew of other parameters set by the financial planners. Perhaps the most critical aspect for facility managers in capital budget planning is making sure that their needs have been accurately assessed. A poor forecast can lead to cash flow issues as well as a slower corporate path to promotion.
Capital Budgeting with an EAM
Poor capital budget planning can cause a myriad of problems. For example, halfway through the year an expensive boiler fails for the final time and can no longer be fixed. The boiler needs to be replaced but if the monies were not set aside during the budget process, the company may or may not have the funds readily available for replacement. Since downtime can be expensive especially in a production environment, someone higher up in the food chain is sure to ask, what caused the failure? If it turns out the boiler was known to have a long and increasing maintenance history, the plant manager is going to look really bad for not having planned for this event.
On the other hand, a good capital budget should provide a realistic expectation of when an asset is going to need replacement or major repair. One of the best ways to project when an asset will need replacement is to examine the asset’s history. Asset history includes at a minimum; the date purchased, cost, expected lifespan, location, description, number of work request and work orders, maintenance results, parts needed, as well as the cost of repairs. All this information and much more such as vendor information, contracts, and other detail can be downloaded from your Enterprise Asset Management (EAM) system.
Management reports from the EAM provide the basis for the identification of assets that are approaching the end of their useful lifecycle. Capital budget recommendations can now be backed up with an analysis demonstrating that the cost to maintain the asset is no longer worth the benefit. It should be noted that this same information will be available to corporate personnel who may decline wish list capital budget suggestions based upon a lack of justification.
The Role of an EAM in Asset Management
Good EAM solutions are customizable to the industry and businesses that are using them. However, no matter how much customization there is, the output is only as good as the input (GIGO). For this reason great care must be taken to set up the asset database to correctly classify, identify and describe assets as well as set up tracking detail for maintenance, costs and so on.
To ascertain the full return of investment with an EAM, it is critical that training and follow-up take place to ensure that maintenance teams are utilizing the tool correctly. For example, after a work order is completed, results are usually transmitted back to management using mobile handheld devices. A result description of “FIXED” is not as useful as a result description of “Stopped leak by replacing pressure seal, time = .5 hours, parts used = XXX, costs = $$, inspect again in 3 months.
Once the EAM is implemented and is being used correctly, facility, building, plant or property managers are now able to manage assets from the planning stages through the assets retirement or replacement. So on top of having great information for capital budgeting, maintenance managers will also now have all the tools they need to make sure maintenance is performed on a more proactive basis. Proactive maintenance will increase the lifespan of an asset making an EAM a Win-Win for maintenance managers and corporate finance who strive to exceed budget expectations.
Tell us how you do your Capital Budgeting and the steps you go through. If you liked this article you may also enjoy reading: