Budgeting and Maintenance

If I were to walk into a room full of maintenance folks and utter the "B" word, nine out of 10 people would role their eyes and emit sounds of protest. (Not sure who the one person would be but he or she must be around somewhere.) Actually my scenario is somewhat unfair because if I walked into a room of people from any department in an organization, the reaction would be the same. The primary reason for this reaction is that folks view the budgeting process as a painful, difficult, and meaningless exercise that does not seem to produce benefits. But if that were the case, then why do organizations go through the arduous process on a regular basis? If you're like me you eventually become curious as to why we perform certain tasks in our jobs and why they're important. Let's use this opportunity to learn more about the budgeting process by first determining why an organization goes through it, second, determining the importance of the maintenance organization in that process, and finally offering a few suggestions on how to make the maintenance budget easier to complete and more meaningful.Why budget? Every organization, whether it's small or large, governmental, for-profit, or corporate faces one basic issue. Stated simply each organization has a limited amount of resources to accomplish its stated goals and objectives. For example, if ABC Corp.'s stated objective is to become the largest airline in the world, then it must realize that it only has a limited amount of funding available. Funding in this case might include income from operations, funding from owners, or funding from loans and other forms of debt. Management has the obligation to plan, organize, control, and direct the use of the limited resources in an efficient manner. And this is where budgeting comes in. Budgeting is a useful tool for planning, controlling, and directing one of the most important and vital resources of an organization: cash. Cash management is critical to every organization and without the proper attention can quickly make a healthy organization unhealthy. Why is cash management important? It's the lifeblood of an organization. If an organization doesn't pay its bills, then other organizations will no longer deal with it and the end for the organization arrives quickly. A budget is an estimate of or a view into an uncertain future showing the peaks and valleys of cash flow. As a benchmark for evaluating actual or historical performance, a budget can show when an organization might want to consider obtaining cash from sources other than the normal operations. It serves as a warning as to when a plan is failing and changes are required. It can show who is responsible for generating cash and who consumes cash. A budget can show when cash may be available to make the purchases of assets. If done properly a budget can become one of the most important tools for management. Every organization must budget whether through a formal or an informal process. Now that we know a little more about the importance of a budget, let's shift our attention to the maintenance organization.How does maintenance fit in? Let's answer this question by asking another question. Are maintenance expenditures for a given period of time, such as a year, significant when compared to the overall budget for aviation operations? One industry source, the Helicopter Association International's annual Survey of Operating Performance indicates that its operators expend around 40 to 45 percent of the total expenditures on maintenance related items. While the percentages may vary, similar sources of information for other types of operations such as airlines and corporate flight departments indicate that maintenance expenditures are also significant. Since maintenance expenditures are significant, then do they receive a lot of attention during the budgeting process from those that put the budget together? Certainly. An oversight or miscalculation in an area that consumes as much of the total budget as does maintenance could have a devastating effect on an organization. If the spotlight, so to speak, is focused on the maintenance budget, then how well prepared are you to provide an accurate budget?Items to consider Unfortunately, I do not have enough space to cover the entire process of preparing a budget. If you want more information I would suggest visiting your local bookstore or getting on the Internet to find resource material that can make your task easier and so that you can provide more accurate estimates for your organization. However I do have the space to cover a few items that are often overlooked or not communicated clearly during the budgeting process. These are items that could help you submit a more meaningful budget for your organization.Ask for key information - When you are in the budgeting process the exchange of information should be both ways. Ideally, executive management should convey key assumptions upon which they want you to base your budget. For example, will the organization change the fleet size, will they be opening a new location, or will the maintenance role change? In practice, though, the announcement is made that budgets are due and that's the extent of the flow of information in your direction. If that's the case and you know that you will be held responsible for the budget that you submit, then go to key members of the executive team and learn what you can that may help you prepare your budget.Document your assumptions - A budget is an attempt to predict or estimate the uncertain future. An excellent example occurred during 2001. How many budgets prepared for 2001 were still relevant by year end? Therefore what you submit as a budget represents your best estimate as to what you think will occur. When you predict or estimate you make assumptions. What level of activity (flight hours) is the budget based upon? Did you include an estimated parts price increase? How about a labor rate or benefit increase? These are just a few of the many assumptions that you would probably make during the building of the budget. And if you're like me, remembering something for more than a month is a real challenge. Record your assumptions somewhere, on paper or in the computer. You may be required to submit some of the more significant ones but take the time to also record the less significant ones for your own files. Documenting your assumptions is important. They can help you answer questions at a later time that refer to the basis of the budget numbers. If conditions change and you are forced to revisit your budget, you will have a resource that will refresh your memory about the original budget. Assumptions should not hurt you. Remember they represent your best estimate about an uncertain future.Explain the nature of maintenance costs - Maintenance costs can occur in significant amounts (engine overhauls) and at unpredictable times (unscheduled removals). Both are difficult traits for the person in executive management that has to manage the organization's cash flow. Normally this person is in accounting or finance and is typically conservative. This means the person doesn't like big surprises, which is understandable. Which would you rather manage, a cash flow that is unpredictable and has peaks and valleys or one that is constant and predictable? Of course it would be the latter. (Explains somewhat why guaranteed maintenance programs have become more popular.) You can help that person who is unfamiliar with the behavior of maintenance costs by taking the time to explain. Remember, often their point of reference is auto maintenance. You may not be able to change the behavior or the amount of the maintenance costs but a better understanding may help the person manage the cash flow more efficiently.Sell your budget - Frequently I've observed maintenance folks that go to great lengths to build their budgets. They've taken all of the right steps, put together the package of information, and then submitted it. And that's it. And in many cases that's the only chance the maintenance department has to convince others of the legitimacy of the submitted budget. However if you have the opportunity, visit with the person that you have submitted the budget to. Try to learn if that person is the type who automatically cuts everything by a certain percentage. Remember, if the person changes the budget it's better to know that fact ahead of time rather than be caught by surprise later. Let them know about you and the process that you went through to build the budget. Learn more about how the budget is used so you can create a more useful budget in the future. Hopefully you have a better understanding about budgeting's importance and how important maintenance is to the process. Although frequently viewed as a meaningless exercise, budgeting's true purpose is vital to your organization's long-term health.

Brandon Battles is a partner with Conklin & de Decker. He has spent more than 15 years in aviation working with maintenance organizations in areas of cost collection and analysis, systems review, inventory analysis, and management training.