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