Building a Maintenance Budget From the Asset Register: A Worked Example

An illustrative calculation turning a list of equipment with ages and lives into an annual maintenance figure and a replacement provision an owner can defend.

A maintenance budget built from last year figure plus a percentage tells you nothing about what is coming. A budget built from the asset register tells you which items are approaching replacement, what the annual provision needs to be, and where a single year will be unusually heavy. The example below works the arithmetic with illustrative figures to show the method.

The situation

An owner holds a small commercial building in Riyadh, completed twelve years ago. The asset register lists seven major items with their installation dates, expected lives and replacement costs. The task is to produce an annual maintenance figure, an annual replacement provision, and a view of which years will be heavy so the owner is not surprised.

Assumptions (illustrative)

• Two air cooled chillers, installed twelve years ago, expected life twenty years, illustrative replacement cost SAR 900,000 for the pair.
• One passenger lift, installed twelve years ago, controller modernisation expected at twenty years, illustrative cost SAR 320,000.
• Roof waterproofing, installed twelve years ago, expected life eighteen years, illustrative replacement cost SAR 420,000.
• Fire alarm panel and devices, installed twelve years ago, expected life fifteen years, illustrative cost SAR 180,000.
• Water pumps and pressure set, replaced four years ago, expected life twelve years, illustrative cost SAR 95,000.
• External redecoration and sealant renewal, last done six years ago, cycle of ten years, illustrative cost SAR 260,000.

Step 1: Calculate the annual provision for each item

Divide each replacement cost by its expected life. Chillers 900,000 divided by 20 is SAR 45,000. Lift 320,000 divided by 20 is SAR 16,000. Roof 420,000 divided by 18 is SAR 23,333. Fire system 180,000 divided by 15 is SAR 12,000. Pumps 95,000 divided by 12 is SAR 7,917. Redecoration 260,000 divided by 10 is SAR 26,000.

This is the straight line provision, the amount that would have to be set aside each year from installation so the money exists at replacement. It ignores inflation and interest, which is acceptable for a first pass and must be revisited at review.

Step 2: Total the annual replacement provision

45,000 plus 16,000 plus 23,333 plus 12,000 plus 7,917 plus 26,000 gives SAR 130,250 per year.

This is the figure most owners never put in a budget. It is not a contingency and it is not optional; it is the annual consumption of assets that are visibly wearing out and will have to be paid for.

Step 3: Identify the funding gap on each item

The chillers have consumed twelve years of their twenty year life, so 12 multiplied by 45,000 is SAR 540,000 that should already have been accumulated. Applying the same to each item gives a total of roughly SAR 1,281,000 that should be in the fund today across all six.

If nothing has been set aside, the owner has an unfunded liability of about SAR 1.28 million on a building that looks perfectly serviceable. This is the number that should drive the conversation, not the monthly service cost.

Step 4: Map the heavy years

The roof is due in six years, redecoration in four, the fire system in three, chillers and lift modernisation in eight. Years three and four carry SAR 180,000 and SAR 260,000, while year eight carries SAR 1,220,000 for the chillers and the lift together.

Year eight is the problem. Knowing this now gives the owner eight years to fund it, or to stagger the work by replacing one chiller earlier, which is only possible because the register made the clash visible.

Step 5: Add the recurring maintenance cost

Illustrative annual servicing: chillers SAR 68,000, lift SAR 24,000, fire systems SAR 22,000, pumps and water SAR 14,000, fabric and roof inspection SAR 18,000, cleaning of plant areas and sundries SAR 16,000. Total SAR 162,000.

Routine maintenance and replacement provision are different things and must appear as separate lines. Combining them lets the provision quietly fund an unexpected repair, which is how buildings arrive at a replacement year with an empty fund.

Step 6: State the full annual cost

SAR 162,000 of maintenance plus SAR 130,250 of provision is SAR 292,250 a year, before any reactive repairs. Adding a reactive allowance of 10 per cent of the maintenance figure, which is SAR 16,200, gives roughly SAR 308,450.

The provision is 42 per cent of the total. An owner budgeting only the maintenance line is understating the true annual cost of holding the building by more than two fifths.

What changes the answer

• If a condition survey finds the chillers have five years of life left rather than eight, the annual provision for them rises from SAR 45,000 to SAR 72,000.
• If replacement costs rise over the period, the straight line provision understates the requirement and the review must increase it.
• If the roof is replaced at the same time as the solar array above it is removed and reinstated, the roof cost rises by the access and reinstatement work.
• If maintenance is deferred to protect short term cash, expected lives shorten and the provision requirement rises rather than falls.
• If the building is sold before the heavy year, the unfunded liability becomes a price negotiation rather than a cash problem.

What the numbers tell you

• Build the budget from the asset register, because it is the only method that shows the heavy years in advance.
• Keep routine maintenance and replacement provision as separate lines so one cannot consume the other.
• Calculate the accumulated funding gap, since it is the number that describes the real position of the building.
• Look for clashes where several major items fall due together, and stagger them deliberately.
• Revise the register after every condition survey, because remaining lives are estimates that reality corrects.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira works on buildings that already exist: surveying what is installed, specifying the systems that have to be replaced, and running maintenance and refurbishment work around the people using the property. Tell Domira which asset you are responsible for and we will say what we would inspect first.