How to Budget for Facility Maintenance
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 rack up very quickly.
Fortunately, we have tips that help you ensure maintenance costs are kept to a minimum, which boosts profit margins and keeps everyone happy. Each aspect of a general facility budget will be broken down, explored, and explained in order to equip you with all the information that you need to start creating your custom budget for your facility.
Let’s start with what should be included in all facility maintenance budgets and how much you should be spending in general, or as a rule of thumb.
What should a facility maintenance budget include?
A facility maintenance budget should include:
- The type of building and the nature of the work being done there
- Routine maintenance and repair for the facility in question
The specific costs under these two heads should 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.
Here’s a breakdown of the main bullet points and why these items must be included in a successful budget.
The type of building and the nature of the work
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.
On the other hand, the budget for a facility that specializes in creating parts for specialized medical equipment should not be this amount.
Routine facility maintenance and repair
According to the Natural Academics Press, “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.”
In other words, make sure that this aspect of your budget only covers routine maintenance and repairs for the facility in question. Try to budget the other costs under separate, more specific names and limit the additions to your facility budget.
How much should you spend on facility management?
This is an incredibly difficult question to answer in a general fashion. Almost every facility is going to have a different budget even if the exact same work is being done at both places. The management, employees, and practices are going to differ, no matter what. These differences trickle down into every aspect of facility management, including the budget.
Elements to consider when budgeting for facility management
We do have a short answer: it depends. Some of the major factors influencing what you should spend specifically on your facility maintenance budget include:
- The age and location of the building
- Special equipment needed at the facility in question
- Any construction costs that may come up
- An allotment for materials and inventory
- An allotment for hiring and labor costs
- Unexpected changes
- And unscheduled events.
Here’s a breakdown of how you can factor these important data points into your budget for facility maintenance and get a comprehensive budget faster.
Location of the 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.
Churches and not-for-profit facilities have very different needs than a manufacturing plant. Supply and demand look wildly different for each case. Know where your facility is and what the average wages are for the type of work you need to be completed.
For those who need special equipment, about ten percent of the fiscal budget should be contributed toward service contracts. Yes, a profit can still be earned at this ratio.
That being said, this should be the maximum limit for the amount of money that is directed toward the maintenance of special equipment, unless there is a very good reason to extend the budget in this area.
To acquire an accurate view of how much money should be spent on construction costs, it is first important 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 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 really helpful!
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, this ratio is closer to 85:15, with 85 percent being devoted to labor and 15 percent for materials.
Don’t forget when you are calculating an allotment for materials and inventory is the fact that not all buildings will require special requirements. Take for example if the building is used as an elementary school. 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
Now, let’s address how to determine the amount of money that 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 spend 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. Leaving additional room in a budget is paramount to making sure you can scale it 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.
However, the managing director of the bank did not like the marble and had it removed and replaced with new marble. This, of course, costed 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 in question.
Take a restaurant scenario. Your walk-in cooler should have about ten 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.
It’s always better to have the extra money in your budget, as opposed to not enough!
How should a facility maintenance budget be built?
What to include in a facility maintenance budget
First of all, make sure that you include actual numbers, targets to hit, and other quantifiable goals for your budget. This is the whole purpose of having a budget. If you do not have targets to hit, however small, large, or in between, the budget won’t work! They depend on you being able to estimate what you’re going to spend, track it, and calculate the results before and after.
As you are developing your initial budget, make sure that you develop a few backup plans in case things go careening off your target numbers. While we don’t like to think about it, disasters can occur and it is better to be prepared for them.
Finally, be sure to take into account the fact that you will be doing a lot of data collection. Depending on your needs, a system such as a computerized maintenance management software system may be extremely helpful as you create your facility management budget. Consider various software solutions to streamline the process of not only your facility maintenance budget, but also other maintenance tasks and issues within the larger scope of your facility.
What not to include in a facility maintenance budget
The answer to this is simple: don’t include things that are not part of the scope of a facility maintenance budget! This is probably the most important thing not to include, as you create your budgets. Because it’s hard to narrow down your focus when you are looking at the entire picture, budgets sometimes include irrelevant information that are part of the larger scope of the facility.
Some easy ways to avoid this include:
- Create a clear scope for the budget before moving ahead into the details.
- Collaborate with your employees, managers, and other involved people before finalizing the budget.
- Make sure that you have emergency plans in place in case something goes wrong.
Tips to achieve the right budget for your facility
Throughout this article so far, we’ve outlined and covered a general how-to budget strategy for facility maintenance. With that groundwork laid, what are some more specific tips to achieve the right budget for your needs?
- Look at your financial records for the facility in question
- Track your current operations over a set period of time and compare them to historical data
- Discuss the budget with the professionals in your company who know your facility best
- Shift your mindset from simple operations to an overall strategy positions
- Start leveraging tactical organization across both your short-term and long-term plans for your facility budget
What’s the right facility budgeting strategy for your team?
At the end of the day, only you know your facility’s needs and your overall company budget capacity. There are guidelines that can help you guide your focus and direction; however, the exact numbers, data, and final budgets are firmly in your hands.
You may not be able to see or pull that data at this point in time. You may need to collect it over a period of time. Like most strategies, it will take some time to create. Then it will need to be tested. This process may need to be repeated and infrastructure may need to be added in the form of a CMMS system or other software program.
However, when your systems are set in place, it will provide opportunities for years to come.
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.
This article was updated with additional information in June, 2020