Budgeting for a
Competitive Advantage!
Schalk van Wyk
SACEA Technical Symposium 2007
Topics of Discussion
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Introduction
Objective of this presentation
Investigating different approaches
Integrating these approaches into a model
Applying the integrated model
Linking competitive advantage with
maintenance budgeting
Conclusion
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SACEA Technical Symposium 2007
Introduction
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Adapting to change fast!
Globalisation of SA economy
Mechanisation – 2/3 of budget!
Never cancel – optimise maintenance costs!
Budgeting process is tedious!
“Gaming”, company politics, “horse-trading”
“Fat cutting”, “gut feeling”, “thumb sucking”
Severe oversights and “surprises”
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Objective of this presentation
“What can be done to change the perceived status of
the maintenance budget from something based on a
“thumb suck” to something more scientific, and which
is aligned with market reality giving the business a
competitive advantage?”
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Providing a theoretical model
Compiling a realistic maintenance budget
Aligned with current market reality
Competitive advantage
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SACEA Technical Symposium 2007
Investigating different approaches
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Traditional budgeting
Activity-based budgeting
Zero-base budgeting
Quality function deployment
Target budgeting
Life-cycle costing
Rolling budgeting
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SACEA Technical Symposium 2007
Integrating these approaches into
a model
Software
interface
Software
interface
Software
interface
Software
interface
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SACEA Technical Symposium 2007
Applying the integrated model
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STEP 1:
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STEP 2:
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Develop a maintenance strategy
STEP 3:
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Set goals and objectives
Prepare a cost breakdown structure
STEP 4:
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Develop expected component lives
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Applying the integrated model (continued)
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STEP 5:
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STEP 6:
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Schedule future repairs/replacements
STEP 7:
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Establish the starting point for the scheduler
Have maintenance budget approved
STEP 8:
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Continuous updating of maintenance budget
SACEA Technical Symposium 2007
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Linking competitive advantage with
maintenance budgeting
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Engineering decisions are cost benefit or ROI
decisions
Decisions normally based on component life
cycles – long-term impacts
Skillfully smooth-out peaks and valleys
Asset management – lowest combined cost
Market changes to consider:
Exchange rate
u Inflation rates
u Steel pricing, etc.
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Real-time budgeting/forecasting
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Conclusion
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Maintenance budgets to be aligned with
maintenance strategies
Manage evolution of budgeting systems
Real-time budget updating remains a
challenge
Embrace technology to quickly capture and
disseminate raw data
Change management principles to be
incorporated
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Component failures
Failure frequency (Qty)
Consistent Mean
Standard deviation
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SACEA Technical Symposium 2007
Expected component life improvement
Mean B
Failure frequency (Qty)
Mean A
Opportunity
15%
70%
Life achieved (Tons)
SACEA Technical Symposium 2007
15%
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Optimal component replacement point
Detection
Inspection
interval
Performance
interval
JIT!
FAILURE!!
Source: Adapted from Moubray (1997:60)
Time
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SACEA Technical Symposium 2007
Expected component lives
Description
(A)
Cylinders
Steer Cylinder L/H
Steer Cylinder R/H
Hoist Cylinder L/H
Hoist Cylinder R/H
Steering Ball Stud L/H
Steering Ball Stud R/H
Steering Line Boring
Hoist Cyl Bearing Set
Hoist Cyl Line Boring
Expected
Life (Hours)
(B)
15,000
15,000
15,000
15,000
7,500
7,500
5,000
7,500
7,500
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SACEA Technical Symposium 2007
Expected component price improvement
Mean C
Failure frequency (Qty)
Mean A
Opportunity
15%
70%
Component repair cost
SACEA Technical Symposium 2007
15%
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Cost breakdown structure
Description
(A)
Cylinders
Steer Cylinder L/H
Steer Cylinder R/H
Hoist Cylinder L/H
Hoist Cylinder R/H
Steering Ball Stud L/H
Steering Ball Stud R/H
Steering Line Boring
Hoist Cyl Bearing Set
Hoist Cyl Line Boring
Current
Cost (Rand)
(D)
14,270
14,270
26,850
26,850
7,115
7,115
3,500
9,200
3,500
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SACEA Technical Symposium 2007
Failure frequency (Qty)
Expected total improvement
Mean
Mean
Mean
Future Cost
Current Situation
Future Life
Opportunity GAP
Component life/repair cost
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SACEA Technical Symposium 2007
Establish starting point for scheduler
Machine Number:
Machine Type:
Current Exch Rate (R/$):
Remain Budget Hours
Description
(A)
Cylinders
Steer Cylinder L/H
Steer Cylinder R/H
Hoist Cylinder L/H
Hoist Cylinder R/H
Steering Ball Stud L/H
Steering Ball Stud R/H
Steering Line Boring
Hoist Cyl Bearing Set
Hoist Cyl Line Boring
BF 002
CAT 789
6.30
1,354
Expected
Current
Life (Hours) Life (Hours)
(B)
(C )
15,000
15,000
15,000
15,000
7,500
7,500
5,000
7,500
7,500
10,575
1,020
8,759
12,228
541
541
541
541
541
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SACEA Technical Symposium 2007
Budget for the first period
Machine Number:
Machine Type:
Current Exch Rate (R/$):
Rem ain Budget Hours
Description
(A)
Responsible Code:
Cylinders
Steer Cylinder L/H
Steer Cylinder R/H
Hoist Cylinder L/H
Hoist Cy linder R/H
Steering Ball Stud L/H
Steering Ball Stud R/H
Steering Line Boring
Hoist Cyl Bearing Set
Hoist Cy l Line Boring
Sub-total
BF 002
CAT 789
6.30
1,354
Expected
Current
Current
Life (Hours) Life (Hours) Cost (Rand)
(B)
(C )
(D)
470512
15,000
15,000
15,000
15,000
7,500
7,500
5,000
7,500
7,500
10,575
1,020
8,759
12,228
541
541
541
541
541
14,270
14,270
26,850
26,850
7,115
7,115
3,500
9,200
3,500
112,671
R/Hr
Rate
(E)
0.95
0.95
1.79
1.79
0.95
0.95
0.70
1.23
0.47
Period 1
Budget Hours:
Exch Rate:
6.30
PPI:
Import
Start
Exp. Repair
Budget
Factor
Life
Cost (Rand)
Cost
(F)
(G)
(H)
(I)
0.75
0.75
0.75
0.75
1
1
0
1
0
11929
2374
10113
13582
1895
1895
1895
1895
1895
14,466
14,466
27,219
27,219
7,115
7,115
3,693
9,200
3,693
14,466
0
0
27,219
0
0
3,693
0
0
45,378
3836
0.055
R/Hr
(J)
3.77
0.00
0.00
7.10
0.00
0.00
0.96
0.00
0.00
11.83
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Cost smoothing
L if e C yc le C o s t in g
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PEAKS
12
10
(R and million)
Maintenance Costs
U n -S m o oth ed
C o st C u rve
8
6
S m oo the d
C o st C u rve
4
2
V A L L E YS
0
1
2
3
4
5
6
7
8
9
10
P e rio d s (Ye a r s )
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Lowest combined cost
Source: Wireman (1998:5)
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Thank you!
Any questions??
SACEA Technical Symposium 2007