Buying Into The Budget
Transcript of Buying Into The Budget
Buying into the BudgetBuying into the Budget
How to get Internal Stakeholders to Turn Budgets from Fantasy into
Reality
SHUTDOWN SHUTDOWN SUPERCONFERENCESUPERCONFERENCE
20042004
DefinitionDefinition
Budget
– “ an itemized list of probable expenditures and income for a given period”.
3. “ The sum of money allocated for a particular purpose or time period”.
Management PerspectiveManagement Perspective
• Fit to the business plan and annual budgets
• Total cost to the organization
• Business interruption
• Cash flow
Strategic Plan
BusinessPlan
Shutdown Plan
DepartmentPlans
Business GoalsBusiness Goals
Estimate / Budgeting CycleEstimate / Budgeting Cycle
ShutdownSeptember 2005
Business PlanShutdown Estimate
+/- 25%June 2004
Frozen WorklistDecember 2004
Business PlanApproval
September 2004
Final A/R+/- 10%
January 2005
Shutdown Coordinator PerspectiveShutdown Coordinator Perspective
• Need to have the costs identified and tracked into areas that make sense for future reference.
• Work Breakdown Structure • Benchmarking
Realistic EstimatingRealistic Estimating
• Costs broken into areas that make the most sense.– Direct– Indirect– Routine Maintenance– Non Routine– Opportunity Work– Operational Costs
Direct Vs IndirectDirect Vs Indirect
• Direct costs include all activities, routine and non-routine, that are directly related to the task and can only be completed when the facility is shut down.– Man-hours, Materials, Equipment,
Rentals
• Indirect costs include all activities, routine and non-routine, that are not directly related to the task. – Supervision, Scheduling, Time Sheets,
Payroll
Routine Vs Non- Routine Routine Vs Non- Routine
• Routine– Maintenance jobs that are executed on a
consistent cycle (e.g. pressure equipment inspections, equipment service plans etc…)
• Non Routine– Maintenance work that are typically 1 of’s that
present themselves in the period between scheduled shutdowns (e.g. equipment failures)
Opportunity WorkOpportunity Work
• Work that makes business sense to execute during the shutdown.– Catalyst change outs that can be done on line,
scheduled for the same year, but require significant costs to prepare (e.g. purging, equipment isolation costs).
Operational CostsOperational Costs
• All operational costs associated with Shutting Down and Starting Up the plant.– Utilities
• Nitrogen
• Natural Gas
• Hydrogen
• Water
• Chemicals
– Operator and Maintenance Overtime?– Lost Production?
ContingencyContingency• Contingency is the amount of money which must
be added to a base estimate to provide for uncertainties.– The amount of contingency added is directly related to
the risk of overrun.
• Contingency is not:– A slush fund or catch all for predictable items such as
escalation.– Provision for added or extra work– Provision for unforeseeable circumstances (process
issues / storms)– A substitute for good Shutdown management
Contingency was calculated based on assessing the risk value and weight associated with each Risk Factor for the shutdown. Scope Changes and Productivity (Cold Weather) were identified as having the biggest impact to the success of this shutdown. The following table represents the Risk Factors and their contribution to the overall contingency:
AEF ExampleAEF Example
+/- 23%Estimate Accuracy
25%Overall Contingency
100%2.58
Total Weighted Project Risk Factor
23%15.004Productivity
3%5.001.5Escalation
12%15.002Pricing
8%10.002Material Quantities
Estimating Variations
4%5.002Labor Conditions
4%5.002Market Activity
Economic Variations
12%15.002Performance
2%5.001Contract Plan
Execution Variations
27%20.003.5Scope Changes
6%5.003New Technology
Design Variations
Contribution to Overall RiskInput Risk WeightInput Risk ValueRisk Factor
50/50 Estimate
Daily Costs Estimate vs Actual
$6,300,000.00
$6,676,067.94
$6,500,000.00
$0
$500,000$1,000,000
$1,500,000
$2,000,000$2,500,000
$3,000,000
$3,500,000$4,000,000
$4,500,000
$5,000,000$5,500,000
$6,000,000
$6,500,000$7,000,000
$7,500,000
10
Jan
15
Jan
20
Jan
25
Jan
30
Jan
4
Feb
9
Feb
14
Feb
26
Feb
2
Mar
7
Mar
12
Mar
17
Mar
22
Mar
27
Mar
1
Apr
6
Apr
11
Apr
16
Apr
Estimate
Actual
Forecast
Capital and ExpenseCapital and Expense
• Expense– All routine and non-routine work– Opportunity Work– Operational Costs
• Capital– Project work– Significant replacement in terms of cost– Major component– Over 50% of the replacement value
Estimate ExampleEstimate Example
500,0009,250,000Totals
1,250,000Operations Shutdown Costs
2,000,000Shutdown Indirects
1,000,000Opportunity Shutdown Work
500,0005,000,000Routine & Non Routine Shutdown Work
CapitalExpense
Building From the PastBuilding From the Past
• Establish a baseline or benchmark
• Identify the “Heavy Hitters” as areas for improvement.
• Allow time to adjust work plans and estimates based on actual values post shutdown.
Responsibilities Responsibilities
• Shutdown Coordinator– Overall Budget– Indirects and Contingency
• Shutdown Planners– Direct Routine and Non Routine work– Opportunity work
• Operations Coordinator– Operations shutdown and start up costs
• Engineering– Capital project costs
SummarySummary
• Different levels of the organization have different needs– Owners– Managers– Shutdown Coordinator
• Must fit into Companies Business Plans and Objectives
• Everyone needs to talk the same language
• Should be Realistic not Optimistic