MechChem Africa February 2017

Mario on maintenance

return on investment to something that may not necessarily happen. So what to do? The only solution is to take the trouble to learn enough about the financial tick boxes, the perspectives and language of expression so thatwe canget ourmessage across. Having done that, the rest is easy, as our disciplined approach lends itself to completing thepuzzle very well. Each business and situation is dif- ferent and changes with time, but there are some basics that apply in most situations. The considerations in the table beloware not exhaustive but should be helpful to anyone who is in the starting blocks to prepare a justification. It assumes approval is required for purchasing something, but the principle applies equally well to other forms of invest- ment in assets or resources. Most technical people will find the above perfectly manageable, once they decide it is worth doing. The most serious challenge will come from the thing that most engineers struggle with. How to convey the message succinctly so that the CFOwill both read and understand it. A good target is to make the execu- tive summary fit onto one page or, if in a PowerPoint format, on amaximumof 5 slides. This goal is to create sufficient interest for theCFOtowant to look further. Thinkyoucan do it? Sure you can. q

In the first Mario on maintenance column for 2017, Martec’s Mario Kuisis shares advice for helping engineers communicate effectively with CFOs. The engineer’s nemesis

A s a whole, engineers and other like-minded technical people are both very versatile and good at a great many things. In fact, I think remarkably versatile compared tomost other disciplines. But there is one thing that prob- ably trips upmost engineers, thingsmonetary, especially writing financial motivations. I know,becauseItooamanengineerandIregu- larly encounter and see the frustrations and consequences of failed capex justifications. In my opinion, far too many sound engi- neering projects are trashed simply because the CFO is not persuaded. But, whether we like it or not, without his or her blessing our pet projects will not see the light of day. If we are prepared to be honest with ourselves, we have to admit that usually the problem lies not in theproject or theCFO, but in the way that we present our case. Simply put, it isoftennot convincing infinancial terms in the language of the personwho has to ‘sign the cheque’ –or thesedays, authorise theEFT. Now why should that be? Perhaps if we put the CFO into our position, it would be obvious that he or she would not even know what questions to ask about the technical aspects of the project, let alone understand and interpret the answers, identify issues and problems, work out solutions, come up with designs, manage conflicting parameters, etc. Why, then, would it not be the same, in reverse, if we step into the CFOs shoes? That, I believe, is the nub of the matter. Neither party understands the language of the other. Wemust realise that theCFOcontrols the purse strings. So, the ball is firmly inour court. We therefore have no choice but to adapt our strategy.What thismeans – andmany techni- cal people seem to baulk at this – is that we need to learn ‘money speak’. In reality, not only money, but many other related things that go with it. Things suchas expected life, quantities and volumes, risks of many kinds, forecasts and projections, return on investment, etc. Why is this a problem for us? I believe we are uncomfortablewith themsimply because they are not in the usual technical curriculum. In our study and training, all concentration is on gaining technical expertise – and that is usually more than enough for most of us. The fact that financial understanding plays such an important role at certain times in a

technical career is seldomrecognised as justi- fying appropriate coursematter in a technical syllabus. But, if the right words and numbers are not in the financial motivation, it will necessarily be rejected because a complete picture is not conveyed. The subject of this column ismaintenance. Unfortunately, this is often amongst themost difficult of areas forwhich topreparefinancial motivations. This is because we are usually dealing with a great many grey areas fraught with uncertainty, such as unplanned failures, uncertain asset life, design changes, impaired performance, safety and environmental is- sues, etc. Also, many of the proactive initiatives previously spoken about in this column cannot be motivated on the basis of yields and production achieved, but on the rather more nebulous concept of failures and con- sequences prevented. Nebulous because it is usually difficult to ascribe a value and hence

Guidelines to help engineers prepare a financial justification for financial consideration The proposal:

Details what is to be procured, fromwhom, when and for what purpose; quantity, manufacturer, supplier, model, etc; whether new, replacement or upgrade; and the op- tions considered and reasons for a particular supplier. The rationale and alignment with organisational strategy. Whether outright purchase, lease, rental, etc. and why. Impact on depreciation, salaries/wages, consumables, license fees, maintenance, calibration, training, storage, safety requirements, etc. Evaluates the value of additional sales revenue, gross margin or other financial benefit that will be realised; where it will be seen in the accounts and when; payback period; and explains the link between investment and return. Tabulates other operating expenses not already identified and quantified (fuel, electricity, gas, insurance, tracker fees, data fees, toll fees, factory space, etc). Relevant assumptions made in the justification. The proposed source of capital.

Reason:

Funding:

Use of funds:

Incremental costs:

Assumptions:

Revenue and profit:

Other expense:

Debt capacity: Applicable if funding requires an increase in company debt. Intangible and other benefits: Public perception, quality, morale, social upliftment, risks mitigated, etc. Risks: Business risks associated with the investment, or not making the investment, relevant to the proposal.

Benchmarking:

Relevant peer reviews if available.

16 ¦ MechChem Africa • February 2017