can some one explain how yearly budget that is defined for a Cost Center is linked to individual orders. How the cost control for each Maintenance order can be managed to make sure that the total cost doesnot exceed the budget?

We use a PMIS report MCIS which is a copy of MCI8 cost analysis with the following changes: Individual orders made available as a key figure, Month costs changed to Preiod costs to match Finance Reports. This is a user defined analysis in SAP.
Once you have that capability its easy to match up the total actual order costs with the Finance view for the month, drill down to the top 10 orders, highest labour cost etc. You need to make sure any cost centre balance is journaled or asscessed back to a maintenance order so total costs in orders =total Maintenance costs in Finance. The controller settles the blanket order after the manual journal. You can set the system up to automatically recalculate the activity rates to zero out the cost centre as well.
We do not use individual order budgets, we budget against the cost centres set up in master data, with the report we can track spend and compare with budget.

Annual budget is under cost centre. each functional location is assigned a cost centre so that everytime the FL is used in work orders, its cost centre is automatically copied into the work order settlement rule.

Now to cost control, we can compare the estimated or planned costs with their actual costs of the work orders if we find the total actual cost for each cost centre is very much higher than the planned budget.

Hello David, Josh

Thanks a lot for your inputs it looks like PMIS has quite a few reports that are useful.

Still I am not getting very clear understanding how the Cost center budget can now be linked to individual function location / equipment hirarchy. Do we have to have Matching hierarchy between technical structure and cost center?

What are the ways you can control the budget for example Boiler of Unit 1 had budget specified for a year and actual utilization is done to manage the turbine that belongs to same cost center. Though the budget values are within limits, activities are same, Cost center is same but the planning was not perfect and we may run the risk of cost overrun. How to measure these differences?

Regards
Bob

Yes, should fully use PMIS before going to BW etc.

How to link cost centre to FL? Enter the cost centre value into its field in the FL screen.

Need to match technical hierarchy with cost centre? No need because the cost centre entered inside the FL. Btw, our cost centre is simply defined for each discipline ie Static, Rotating, Electrical, Instrument, Civil. So each of these cost centres is entered into FL belong to each discipline. Also need to budget for projects using special codes.

How to prevent cost overrun? 3 ways I can think of:

1) Compare actual cost is within +-10% of planned cost for each work order. Each WO has a settlement rule which could be a cost centre or a project code.

To implement this, each WO needs to be given a technical approval after planning. Define the tech approval levels in accordance with your organizational levels eg:
Supervisor below 5K
Engineer above 5K up to 50K
Discipline Manager above 50K up to 200K
Dept manager above 200K
These tech approval levels should be different from financial approval levels for subsequent requisitions after WO being released.
Ideally, any major deviations from the approved tech approval level should be resubmitted but may slow down your work process.

2) Review the budget expenditure for each cost centre with their owners monthly. Any major deviations from planned expenditure should be given justifications.

3) If the budget has been overconsumed, a supplementary budget should be requested with justifications given via a procedure which I think should exist.

In addition, do you have control over the procurement process? No matter what control & monitoring exerted above, I think it is necessary to follow through by participating in the acquisition process to ensure money well spent eg application of lifecycle costing where applicable, economic value for mass volumes of contracts, use of functional specs instead of prescriptive specs etc.

However, having said that, if your maintenance program is NOT based on a sound technical basis in the first place, I expect it would be hard to aim for a budget compliance because for example the plant keeps on tripping, has unplanned shutdowns etc which are most likely not allowed for in your normal annual budget. This brings us to maintenance improvement & reliability engineering to contribute to budget compliance. I believe cost management should be handled at the plant level rather than at departmental level to ensure cooperation & no invisible inter-departmental walls of stumbling blocks. For example, no matter how much maintenance done, the equipment will keep broken if they are not operated properly by operations.

Another important aspect is staff compentency improvement to contribute to compliance with budget/cost, quality/spec, HSE, schedule etc.

So don't be too hard on the guys because it affects morale which cannot be maintained with cash! However, be relentless at system improvement.

What do you think?

This message has been edited. Last edited by: Josh,

Hello Josh,

This is a real good reply, I am not too sure if this forum gives rewards and points, but should receive a big round of applause from every one. You are doing real great help by sharing your views on this forum.

You have made a simple mechanic like me to understand the topic and my finance guy also shook his head..

Thanks..

I've implemented Investment Management(IM) transaction IM22 around the world. We are now using it in some upstream ventures.

Set up IM structure first of fiscal year
After this program/structure is set, budgets may be managed by transaction by PM people rather than Financial People. This is a real problem usually as most pm people never run financial reporting tools

If this is set up as a batch, each time a work order is approved/released, an IM budget matching the Cost Center on the Technical Object which will also be in the settlement rule of the work order is attached to the work order. This can be reassigned any time the work order is still open. Instantly, one can go to the IM reporting tool and see the complete list of work orders that have been generated. These reports typically include planned, committed and acutual cost of budget drawdown per work order. I have some attachments is anyone is interested.

May we see your attachment?

In March 2006 Joel Bankstown created a post on use of Investment Management (IM) for maintenance budgeting. Joel if you are still a forum member can you post the attachments you indicated you had on this topic.

Yes! Joel, that's right!

I've used the IM report for cost center, too. because it actually for the Maintenance cost report. Why we used it? Because some cost are directly issued PR to Cost Center, so the work order does not captured the real of Maintenance cost in monthly basis.

Directly issued PR for maintenance works should be prevented by setting the maintenance profile. All PR should be created via work orders. Even for direct issue PR, their cost can still be back-charged to work order by entering the work order nunmber in the PR.