How to budget and forecast effectively for your maintenance team in a recession

As Covid-19 re-rears itself in a series of new strains and the economy continues to recede, supply chain demand has slowed, and there have been discussions in the maintenance and manufacturing sectors on reducing budgets and forecasting ahead in consideration of an impending recession.

Budgeting and forecasting aren’t just for financial teams, they’re also an integral part of maintenance teams and their quarterly and yearly planning. This article will walk you through the importance of budgeting and forecasting for your maintenance teams, some critical steps to take, and considerations to keep in mind to help you plan effectively with your finance team for any rainy days ahead.

What is budgeting?

Budgeting is a plan to help control income and expenses while achieving financial goals. Understanding your profits, expenses, and savings allows you to adapt to changing circumstances and take advantage of opportunities when they arise. Budgeting is just one aspect of the financial planning process that can help you better understand your maintenance team’s spending, as well as make any necessary adjustments.

How do maintenance teams prepare their budgets?

Annual budgets are prepared based on the previous 12 months’ financial performance. Once created, the budget is passed through the hands of the executive team to ensure it meets the company’s financial reporting requirements and meets the company’s overall financial goals.

Here are three things maintenance teams do to prepare their budget for the upcoming year:

1. Firstly, reviewing the historical data (generally the previous 12-24 months) to predict future results of costs, cash flow, and gross profits.
2. List and review the maintenance budget considerations such as: Operating expenses, planned and capital expenditures, cost of scheduled maintenance, expenditures for unplanned repairs or equipment failures, cost of contractors, and cost of software licenses.
3. Review the “must haves” to keep operations running smoothly. These include assets, parts, operating strategy, and maintenance strategy. From here, determine which attributes are not necessary “must haves” to keep operations running. These things can be cut to save on costs for the upcoming budget.

“Using historical data, knowing the age of your equipment, and understanding the succession planning of your workforce is very important for your budget planning,” says Jason Afara, a former maintenance manager in food manufacturing, now a Manager of Solutions Engineering at Fiix.

The maintenance manager is held accountable to the budget, and for that reason alone, being part of the financial conversations and the planning and forecasting is very important. Maintenance managers are perceived from a leadership perspective from their management of their financial budget.

Some tips to keep in mind when creating a budget

Maintenance teams often face unpredicted financial challenges, such as unexpected equipment failure or downtime, and more recently the threat of slowdowns due to pandemics or a global recession. Sticking to a set budget can help guide maintenance managers to make better business decisions, and keep operations running smoothly.

Below are some tips to follow when you are creating a maintenance budget:

• Start your budget planning early, at least three months before, so you can set your maintenance strategy for the new quarter. The average preparation time for your budget generally takes 3-6 months.
• Keep in mind that the projected timeframe for your budget should be 1-5 years.
• Have a clear understanding of your revenue and work with cross-functional teams to understand the different types of revenue, their value, and when they are expected to occur.
• Know your fixed costs and variable costs really well. Fixed costs include employee salaries, rent, utilities, insurance, property taxes, and more. While variable costs include: supplies, contractors, parts, repairs, travel, services, maintenance, etc.
• Have a clear understanding of your maintenance budget. Use a maintenance budget template to break down all expenses into functional areas and maintenance types by month. A maintenance budget template helps you track your spending on emergency materials, routine maintenance, and capital projects. It also tracks your target versus actual spending, so you know which areas to pay closer attention to.
• Use a maintenance budget checklist to determine that every consideration has been met.
• Always make your financial forecast a part of your budget.

Want more free maintenance templates? Check out our template hub

What is forecasting?

Financial forecasting is the process of making predictions about future events that will impact business results. There are two main types of forecasts: Periodic (which looks at the rest of the current fiscal year) and rolling (which looks at the next 5 quarters or more). Forecasting can help maintenance and finance teams plan out key performance metrics better and update them based on forecasted numbers.

“Most maintenance teams have historically done periodic reviews of their finances, in terms of forecasting the future. Covid-19 changed a lot of forecasting attitudes and now periodic is used alongside rolling,” says Jason Afara.

Maintenance management work is typically reactive work, and forecasting and budgeting is a proactive approach and behavior. This is a little new for maintenance managers but necessary to learn and be ahead in their planning in a changing market.

How can maintenance teams prepare their forecasts?

Firstly the maintenance team needs to work closely with their financial team to ensure that their budgets are periodically updated. This way the team has a clear understanding of business performance vs budget. A tip to keep in mind is that periodic forecasts only project to the end of the fiscal year while rolling goes beyond that timeline.

Here are some key steps to prepare your forecast with your finance team:

1. Prepare a report on your actuals and input them into a forecasting template.
2. Plan a timeline for your forecast (periodic or rolling).
3. Determine the historic trends based on your financial data (in other words, your actuals).
4. Take these historic trends and apply them to your current numbers to determine your forecasted results. This last step is crucial for financial predictions, if you can determine potential variables that could change your forecasted predictions (like an acquisition or merger, potentially a catastrophic disaster… or even a recession). You need to try and account for these types of scenarios as closely as possible in your numbers if they are determined to be a risk.

Discover how to save time and costs with fewer breakdowns. Download our free guide to maintenance metrics

Some tips to keep in mind when creating a forecast

Although maintenance managers don’t necessarily need to be leading the financial predictions of a business, they do have an involvement in setting the maintenance budget and being active in the predictions of changes to the business.

“Supply chain challenges for maintenance teams in the last three years is something no one would have forecasted prior to Covid-19,” says Jason Afara.

But based on the information you have available you need to try and make your forecast predictions, and spend down to the cent if you’re going to spend under your budget. I would predict that about 80% of maintenance teams today are spending over their budgets and 20% are spending under.

To help keep you on track, here are some key tips to keep in mind when you are creating a forecast for your maintenance team:

• Keep it simple. Stick to the steps outlined above, and don’t go beyond that. Work with your finance team to determine the best maintenance budget for your team.
• Don’t get caught up in the details. It’s easy to start reviewing historical financial data and get lost in the nitty-gritty of expenditures. The best solution is to stick to your actuals, and clearly map out your “must haves” from your “nice to haves” when you create your budget and forecast.
• Try to predict the future-but don’t let it consume you. With the added stress of predicting what may or may not come, sometimes teams find themselves overcutting or undercutting their maintenance budgets. Predict and forecast with your finance team, but try to give yourself some buffer room. Although the indicators for a recession are there, give yourself to map out the worst and best-case scenarios in your forecasts to present to the executive team.

Other considerations for your maintenance budgeting and forecasting

• Establish a budgeting process. Once your budget is established your need to work with the finance team on a process for updating it. Determine how frequently you would like to update the budget, as well as what factors or metrics should be factored into it.
• Set up a calendar for updating your forecast and budgets. There are many different ways of tracking when you are making updates to your forecasts and budgets: You could set up milestones on an Excel spreadsheet, create recurring appointments in Google Calendar or iCalendar (which syncs across all devices), use an app such as Gantt Chart Maker, or even set it up on your CMMS.
• Build reports. Work with your finance team and provide reports on a regular basis so that they can be shared with the broader team.
• Create a checklist of metrics you’ll use while tracking progress against previous forecasts. If necessary, modify this checklist based on any changes that have been made since last year’s updated forecast was created (i.e., if there has been any significant change in demand for various types of services).
• Have a good relationship with your vendors. Continue to develop a great relationship with your vendors, and good reporting on your expenses.

Budgeting and forecasting can help maintenance managers stay ahead of changing markets

Budgeting and forecasting are two important aspects of financial planning that can help you better understand your current financial situation as well as make any necessary adjustments to meet your financial goals in the future. It’s never too early to start preparing maintenance budgets for the year, so think about setting aside a portion of the cash or revenue from each sale each month toward emergency funds. This will help ensure that if something unexpected occurs (like a recession), there will be enough money available without worrying about cost cuts.

Learn more about the benefits of maintenance management software and how it can be used to help maintenance managers plan their budgets ahead of changing markets:

• How to convince your boss (and their boss) that you need a CMMS
• How to save time (and on costs) with better maintenance reporting
• How a CMMS can help with costs and team budgeting
• Five ways to stretch your maintenance budget further