4 FM quick reads on Budgeting
1. Benefits of Zero-Based Budgeting and EMPs
Managers can use an equipment maintenance plan (EMP) when developing the tasks required to properly maintain a facility, plant or piece of equipment. The EMP captures all of the maintenance tasks that are required consistently for all equipment.
For each asset, managers can develop an EMP that includes one or more tasks designed to ensure the continued operation and maintenance of the equipment, process or system. These tasks include preventive maintenance (PM) and predictive maintenance (PdM) work, annual and biannual inspection activities, and capital improvements or projects.
There are numerous benefits from this process for managers and their departments. First, the EMP captures all of the tasks required to maintain the equipment. As a result of using an EMP, top management cannot ignore the fact that this work is required to operate equipment properly.
If management decides to reduce the level of maintenance for the piece of equipment in question, the EMP helps managers make the case that the risk of failure increases, and therefore, the equipment will become even more expensive to maintain. The EMP also captures the required time and resources for maintaining the equipment, which are two fundamental aspects of budgeting. It also captures capital projects related to maintaining the equipment, for which managers need to budget.
If managers take the sum of EMPs for all assets in their facilities, they can calculate the annual dollars for maintaining these assets. They also can calculate the labor for both mechanical and electrical systems and components. Managers can customize this plan to include other resources, such as materials used for PM, PdM, and capital projects.
Second, and perhaps most importantly, managers who have historical data collected on EMPs can use this information as a helpful tool to go beyond building budgets. I have used historical data to mine for emergency work. How many hours did we expend on emergency work last year, and what were the costs associated with it? Keep in mind that world-class maintenance standards accept a 10 percent allocation for emergency work.
2. With HVAC Upgrades, Reduce Loads First to Maximize Energy Savings
Today's topic is the importance of trying to reduce loads before replacing HVAC systems..
HVAC equipment is expensive and long-lived. What's more, these systems are sometimes so large that it is difficult to get new units into place without significant construction costs. So it's no surprise that decades may elapse between the time a boiler, chiller or air handler is installed and the day it is replaced.
The demands on an HVAC system depend to a considerable extent on the performance of other building systems. A one-story building in Texas, for example, will cost considerably more to cool if it has a conventional black roof than if it has a reflective roof. The same building in Minnesota will cost more to heat in the winter if it doesn't have adequate roof insulation.
The roof isn't the only part of the building that has an effect on HVAC loads. Solar gain through windows, air infiltration, heat load from lighting systems – all have some effect on HVAC loads. So does equipment from computers to coffee makers. And improvements can be made in all areas.
The time to consider building system improvements and other load reduction measures is before a major capital investment in new HVAC equipment. If the load on a system can be trimmed, it may be possible to reduce the size of the HVAC unit as well. Optimizing the performance of the air distribution system may provide an opportunity for further reductions in chiller or boiler size. And the savings provided by the smaller units can be used to help pay for the load-reducing measures, or for more efficient HVAC equipment.
More widespread use of energy modeling software makes it possible to evaluate what-if scenarios more easily than in the past. Although energy modeling adds cost, that cost may be justified by the savings available from load reduction and HVAC savings. What's more, if energy savings are great enough, the project may qualify for federal tax deductions under IRS Section 179 (D), widely known as EPAct tax deductions.
By looking at load-reduction measures in conjunction with HVAC system replacements, facility executives may find cost effective ways to lock in lower energy consumption for several decades.
3. Find Allies to Win Funding for Facility Projects
Today's tip has to do with winning top management approval for facility projects.
Gaining funding for a project is a challenge all managers face. Top management has to weigh projects from across the organization, then allocate financial support to the ones that will ultimately provide the most benefit to the entire organization.
One way to improve the case for a facility project is to show that it will provide direct benefits to other departments or business units. For example, if the facility manager wants to upgrade aging parking lot lights, energy savings may only be one benefit. By talking to other managers or the human resources department, the facility manager may be able to show that the dim, yellow light from old fixtures makes employees who work late nervous as they walk out to their cars.
Similarly, it may seem obvious to the facility manager that an unreliable generator in a hospital or a Tier 1 data center needs to be replaced. But if the proposal to replace the generator has the support of the head of medicine or of IT, it stands a much better chance of being approved.
There are plenty of other examples, ranging from new HVAC equipment that will save energy and reduce maintenance costs while addressing employee complaints about comfort to a new access control system that may reduce liability while making employees feel safer. The key is to think broadly about the benefits of a facility project.
Taking that approach provides the facility manager with an ally in the battle for funds. It also shows top executives that the facility manager is taking a company-wide perspective, rather than simply looking at the needs of the facility department.
4. Sharpen Your Pencil Before Requesting Funding
I’m Ed Sullivan, editor of Building Operating Management magazine. Today’s topic is the need for facility executives to sharpen their pencils before requesting funding for a project.
To develop credibility with top management, facility executives need more than financial savvy. The most successful facility executives balance the costs and benefits of facility investments. In other words, put yourself in the president’s chair and try to make decisions as the CEO would.
Doing that requires facility executives to sharpen their pencils before requesting money for any project. Management should know that the facility executive has minimized costs before coming forward with any ideas for investments.
That attitude should permeate the entire facility department. The facility staff should should be as rigorous in analyzing proposals presented to the top facility executive as they would be if that facility executive were the CFO.
That doesn’t mean facility executives or their staffs need to be CPAs. The accounting department is a resource that the facility executive can use to crunch the numbers. But it’s essential for the facility executive to take a hard look at the financial implications of any facility decision.
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