The Annual Maintenance Budget Setting Game: A Recipe for Risk

The annual maintenance budgeting process within most organizations often resembles a game of strategic negotiation. It starts with the maintenance team submitting a budget required to maintain their assets, based on historical values, inflation, current resources, and team sizes. Plus, they know leadership will challenge it, so a nominal amount is added to allow for this cut. Leadership however, viewing this budget through the lens of past allocations, always challenges it, cutting the requested amount, as expected by the team but probably by more.

This initial reduction stems from the subjective nature of historical budget levels and of course the fact we played this game last year. The leadership's counter-proposal typically slashes the initial budget, prompting the maintenance team to argue that the reduced funds are insufficient to maintain the assets effectively. This back-and-forth negotiation continues, with both sides making concessions until they reach a compromise, usually somewhere between the initial submission and the leadership's first challenge.

However, the reality often plays out differently. Despite the agreed-upon budget, the maintenance team frequently ends up spending more than the final allocated amount. They justify this overspending by pointing out that their initial request was higher because they anticipated these needs. Conversely, leadership counters by highlighting that the expenditures were still less than the original request, reinforcing their decision to reduce the budget.

This iterative process occurs annually, driven by human nature and the desire to make the most of available resources. The maintenance team strives to maintain the assets within the constraints given, but this budgeting game has its obvious drawbacks. Over time, the diminishing returns of this approach become evident. Continual budget cuts and the resulting pressure on the maintenance team expose the organization to increasing risk. It also creates a division between the team and leadership in terms of the management of their assets and the performance of the operations.

At some point, this balancing act can lead to a catastrophic failure, significantly impacting the organization. The key to avoiding such outcomes lies in open communication, realistic budget assessments, and a collaborative qualitative approach to resource allocation. Only then can organizations ensure the longevity and reliability of their assets, safeguarding against the pitfalls of the annual maintenance budgeting game.

This qualitative, data driven approach to annual maintenance budget setting is the key where it up to Asset Management leaders to communicate the subtleties in maintenance spending and impacts of cuts or adjustments – this can be confusing in part because of the complexities and dependencies of the different types of maintenance. See my article on “Why the c-Suite are Confused about Asset Management” for more.

Jason Apps

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Jason Apps is an Executive Level Asset Management Consultant, providing support to organisations in pursuit of high-reliability world-class asset management practices. He is the Author of ASMx: Asset Strategy Management - A Leaders Guide to Reliability Transformation in the Digital Age, a regular presenter, workshop facilitator and trainer.

Jason has delivered significant performance improvement, cost reduction, and risk management to global, blue-chip clients, for the last 20+ years. With a proven, unique, pragmatic approach to identifying improvement initiatives, implementing and structuring for enduring success.

Email Jason at Jason.apps@exar-am.com or visit exar-am.com