When operating a facility, it is important to take into account the amount of money being spent on maintenance. From building maintenance to operational maintenance costs, these expenses can become quite expensive very quickly. Fortunately, UpKeep has tips that help ensure maintenance costs are kept to a minimum, which will boost profit margins. For now, let’s look how much you should be spending on the maintenance of your facility.
What type of building are you operating your organization out of?
First and foremost, the type of business or organization that you are operating will determine how much you should be spending on maintenance. For example, the amount of money spent on maintenance by a school facility will be different than that spent by a church. According to ECCU, maintenance costs for churches total about 82 percent of their yearly fiscal budget. These costs account for various maintenance expenses, including those related to administration, personnel, and facility maintenance upkeep. Ideally, though, the following will apply to all facilities, regardless of the site’s purpose or function.
“An appropriate budget allocation for routine M&R [maintenance and repair] for a substantial inventory of facilities will typically be in the range of two to four percent of the aggregate current replacement value of those facilities (excluding land and major associated infrastructure). In the absence of specific information upon which to base the M&R budget, this funding level should be used as an absolute minimum value. Where neglect of maintenance has caused a backlog of needed repairs to accumulate, spending must exceed this minimum level until the backlog has been eliminated.”
A Closer Look at How Much You Should Be Spending on the Maintenance of Your Facility
There are a variety of factors that will impact the maintenance cost ratio for your building, including:
- Location of the facility
- Age of building
Probably the single most influencing factor is the building’s location. For example, hiring someone in Bowling Green, KY to perform the job of a tradesman is going to cost much less than hiring the same type of person to perform services in New York City.
Allotment for Special Equipment
For those who need special equipment, about 10 percent of the fiscal budget should be contributed toward service contracts, and yes, a profit can still be earned at this ratio. Still yet, though, this should be the maximum limit for the amount of money that is directed toward the maintenance of special equipment.
Allotment for Construction
To acquire an accurate view of how much money should be spent on construction costs, it is first pertinent to determine how much installation and construction the facility performs. If the functions of the company require there to be lots of changing in regard to office relocations, installing new equipment, etc, then the amount of money spent on these tasks will, of course, be much higher than a company that doesn’t do a lot of relocating and new equipment installation. When allocating money to be spent on equipment installation and construction, it must be taken into consideration how many laborers there are to perform the job. For example, if an 8-man team has to work 12 hours a day, five days a week, then several hours will have to be paid at an overtime rate. On the other hand, if there is a 12-man team, the overtime can be kept to a minimum, therefore, reducing the amount of money that has to be allotted for construction maintenance costs.
Allotment of Materials and Inventory
There is typically an industry standard for labor, inventory, and materials ratios. If you don’t know what these ratios are for your business, a simple Google search can be of the utmost help. After you identify the industry standard, you then need to take a look at your budgets for the past few years and see if you are exceeding these ratios. If you are, then you need to make changes; this will help you improve your bottom line by increasing profit margins and decreasing maintenance costs. Please keep in mind that ratios vary greatly from one industry to the next. For example, the ratio for labor and materials for a high-speed manufacturing plant is about 50:50. For a custodial business, though, this ratio is closer to 85:15, with 85 percent being devoted to labor and 15 percent for materials.
Also important to remember when calculating an allotment for materials and inventory is the fact that not all buildings will require special requirements. Take for example that the building is being used as a school for the educational training of elementary students. If this is the case, then there is no need for inventory to perform a turnover on a regular basis. Instead, inventory will not be relevant because vendors will simply deliver materials as they are needed.
Account for Hiring and Labor Costs
Also essential to creating a maintenance budget is determining how much money will have to be spent on hiring and training your labor force. First, you need to identify how much you will be paying your labor; this is your direct labor rate and it does not include fringes or benefits. Next, you will calculate fringe benefits costs; these tend to be very high with fringes averaging about 30 to 40 percent of the base salary cost. If you are a company that does not offer a lot in terms of fringe benefits, then the percentage will be more along the lines of 22 to 25 percent. Now, calculate your overhead costs; this includes monies that are to be spent on:
- Office supplies
Leave Room for Changes
While creating a budget for maintenance can be calculated very precisely, it is still imperative to take into account that changes will be necessary. And regardless of whether the changes are necessary are not, leaving room in a budget is paramount to ensuring it can scale as needed. Take for example a bank that was built in Europe, with the seed capital starting out around $300 million. There were several governments that contributed to the seed funding, with $100 million being directly devoted to the refurbishing of the bank’s headquarters building. Marble was added to the walls of the building and it turned out both beautiful and perfect. Still yet, the managing director of the bank did not like the marble and had it removed and replaced with new marble. This, of course, cost a ton of money. These are the types of changes that must be anticipated and accounted for when creating a facility maintenance budget.
Lastly, unscheduled events will directly impact how much money you should be spending on facility maintenance. Ideally, you will want to list your assets and account for 10 hours a year to be devoted to any unscheduled events that relate to each asset. In addition, material costs need to be calculated for each asset. Take for example you are operating a restaurant. Your walk-in cooler should have 10 hours worth of maintenance time set aside for it as well as several hundred dollars. If throughout the year there is no need to perform maintenance on it, this is extra money you can devote toward unscheduled events that you didn’t account for.
By following the tips mentioned above, you can be on your way to creating a maintenance budget the improves your bottom line and increases your profit margins.