Chaos Theory, the Butterfly
Effect and your Maintenance
Budget
Robert S. Hill, II CMRP - PepsiCo
Robert S. Hill, II
CMRP
• Robert spent 9 years in the U.S. Navy’s Nuclear Power program,
serving on the USS Enterprise and ultimately returning to teach at
one of the Nuclear Power Training Units.
• He left the Navy as a Machinist Mate Chief Petty Officer and went
to work for Lockheed Martin-Marietta at the Advanced Test Reactor
at the Idaho National Engineering Laboratory (INEL).
• He has worked in the Nuclear Power industry, Grain Milling, Cereal
Manufacturing, Automotive Fluid Manufacturing and Beverage
industries.
• For the past 12 years, he has worked for PepsiCo as a Senior
Reliability Engineer, Maintenance Manager and with PepsiCo Global
Operations. Robert’s current role with PepsiCo is in North America
beverages where he is responsible for developing and implementing
the PM Pillar initiatives within the TPM framework.
• Robert certified as a Maintenance and Reliability Professional in
2003 and has presented at the 2005 SMRP Annual Conference.
• He has also served the SMRP as the Chair of the SMRPCO Advisory
Council and as the Treasurer and Vice-Chair of SMRPCO.
Chaos in the Maintenance Budget
•Who here has had to build a budget for
the Maintenance department before?
•Who loves doing it as much as I do?
•In the next hour, I’ll tell you why!
Objectives
•Discuss why Budgets don’t usually work
the way we intend them to
•Discuss Budget development
methodologies
•Discuss how to build a Budget that can be
successful
•Discuss how to manage the budget after
approval
Why Don’t Budgets Work?
The Butterfly Effect
• Coined by Edward Norton Lorenz regarding his
attempt to build a complex weather prediction
model
• Theoretical example of a hurricane’s formation
being contingent on whether or not a distant
butterfly had flapped its wings several weeks earlier
• At times the Maintenance Budget can feel this way;
an unexpected expense in February causes
enormous impact on planned expenses in November
The Butterfly Effect
Why the Budget doesn’t work
•It doesn’t reflect reality
•It doesn’t connect from one month to the
next
•It doesn’t track surplus money
Why the Budget doesn’t work
•It doesn’t reflect reality
– Budgeting is an exercise in being wrong
– Trying to determine what you will spend each month
will always be wrong
– This becomes discouraging
•It doesn’t connect from one month to the
next
•It doesn’t track surplus money
Why the Budget doesn’t work
•It doesn’t reflect reality
•It doesn’t connect from one month to the
next
– Expenses aren’t static from month to month
– Unexpected things come up
– Over or under spending needs to be carried forward
•It doesn’t track surplus money
Why the Budget doesn’t work
•It doesn’t reflect reality
•It doesn’t connect from one month to the
next
•It doesn’t track surplus money
– Must account for ALL expenses
– Spend your entire budget on paper
– Begin with the end in mind (Covey)
Two Budget
Development
Methods
Incremental Budget
•Also referred to as historical budgeting
This Year’s Budget = Last Year’s Spend + Inflation – Target Reduction
12 Months
•Disadvantages to Incremental budgeting
– Perpetuates the problems from last year
– Accounts for what was done instead of what should
have been done
– No variation from month to month
Zero-Based Budget
•Also referred to as historical budgeting
Income – Expense = 0
•Advantages of Zero-Based Budget
– This is a “white sheet” exercise
– Based on need and benefit
– Will drive budget ownership
– Can identify waste in the budget
– Aids identification of alternatives
Building the Budget
What’s the Approach?
•Assemble the right Stakeholders to be
involved in the process
– Maintenance Supervisors
– Maintenance Planners
– Stockroom personnel
– Operations partners
•Include anyone who may have impact on
or be impacted by the Maintenance
Budget
What is the approach?
•Assemble the right information and
categorize
•Non-Discretionary Expenses
•Discretionary Expenses
What is the approach?
•Assemble the right information and
categorize
•Non-Discretionary Expenses
– Legally required expenses
– External Service contracts
– Annual Preventive/Predictive Maintenance (PPM)
expenses
– Emergency Repair expenses
•Discretionary Expenses
•Assemble the right information and
categorize
•Non-Discretionary Expenses
•Discretionary Expenses
– Rebuilds, Restorations, Modifications
– Items that are new to the Budget
– Operating Supplies and Consumables
Populate the “White Sheet”
Straight Labor is probably
fixed each month
Premium Labor
from history
Discretionary &
Non-Discretionary
Items
Forecast Tool
A Section for the Approved Budget
A Section for the Monthly Actuals
A Section for the
Non-Discretionary Items
A Section for the
Discretionary Items
A Section Used to Forecast
Changes
This section is an expanded view
that cumulates into the above
Discretionary Spend section
Using the Forecast Tool
Notice that the Labor Forecast for
February is $19M
Unplanned Labor Expense
An unexpected fouling of a Heat
Exchanger will cause an addition
of $1276 to the forecast Labor
spend. When added to the
forecasting section, we see that
the expense still falls within the
available budget.
Overspent Material Account
After adding the Actual spend to
close the month of February, we
see that the Material Account has
been overspent by $1317. The
forecast tool allows us to see the
impact it will have on the
remainder of the year.
Corrected Material Account
Talking to the Maintenance
Planners, we decide that a portion
of the tasks associated with
Machine #3’s restoration can be
deferred thus allowing the
Material account to get back on
track by May.
Alternate Correction
However, another option to offset
the overspent account is to
leverage some of the contingency
line item for March and April to
offset the overage, allowing the
account to get back on track a
month sooner.
Summary
•Build your budget and account for every
expense of which you are aware
•Build a tracking mechanism to understand
if you actually spent on the tasks that you
planned
•Use this tracking to be the basis of the
budget for next year and it will be simple
to put the new budget together
Conclusions
•A Zero-Based budget will allow you to:
– Control the flow of work and its cost
– Identify where streamlining opportunities exist
•The Team that helped develop the budget
will:
– Have faith that the tasks they need to accomplish are funded
– Know the time period for which the tasks are funded
Q&A