How do organizations decide whether to continue investing in facilities?
It takes a strategic approach based on accurate and current data.
If a building is less critical, if it’s no longer serving the purpose or program for which it was built, or if its condition is so poor that the cost of improvements is too high, it is time to plan for disposition. On the other hand, a key asset could be targeted for investments to improve the condition and proactively renew systems.
How should building owners and managers decide a building’s fate?
The key is to understand, through accurate data and analysis, the condition, function and usage of the building.
It is important to take a strategic approach and look at the building portfolio holistically. In order for it to be valid, any analysis must be based on accurate, objective data, including an understanding of current facility conditions and remediation costs, functionality and demographics. Without access to detailed information regarding these issues, building managers and capital planners will find it virtually impossible to decide whether a building warrants further investment or is ready for disposition.
An important first step is gathering accurate building condition and cost data, which results in a benchmark to analyze the effect of investing in building improvements. Developed by industry associations, this benchmark is known as the Facility Condition Index (FCI). The FCI is the ratio of deferred maintenance dollars to replacement dollars. It provides a straightforward comparison of an organization’s key estate assets. To calculate the FCI for a building, divide the total estimated cost of deferred maintenance projects for the building by its estimated replacement value. The lower the FCI, the lower the need for remedial or renewal funding relative to the building’s value. For example, an FCI of 0.1 signifies a 10 percent deficiency, which is generally considered low, while an FCI of 0.7 means that a building needs extensive repairs or replacement.
The FCI provides the ability to compare similar buildings to each other and to establish target condition ratings. Comparing buildings analytically rapidly highlights the buildings in greatest need for updates, repairs or replacements.
With insight into current building conditions and costs, an organization must also have access to data on demographics and function in order to prioritize its buildings. The most successful prioritization is based on organizational objectives as well as an understanding of the relative importance of assets, the functionality of the buildings and demographics that may impact use. For example, most organizations have certain buildings in their portfolio that are strategically critical with a high-level of permanence. They serve a specific and highly necessary function, and the population that uses these buildings is growing. These buildings are essentially irreplaceable and a low FCI is important. The strategy for such critical buildings may be to invest to improve – renewing systems proactively, providing redundancy, ensuring regulatory compliance and addressing deferred maintenance.
On the other hand, many buildings in their portfolio may be operationally redundant, subject to frequent mission change and easy to replace. They may no longer be serving the purpose for which they were built and may be able to be re-purposed. Demographic analysis for the population that uses these buildings may show a decline in future use or a change in who is using them. Depending on what the analysis shows, the strategy for these less vital assets may be to reduce operation and maintenance costs, maintaining only critical systems for business continuity, making no long-term investments and positioning for short-term disposition or alternate use.
The benefits of a strategic approach to determining the fate of buildings are numerous. Analysis based on accurate data results in objective prioritization, a clear path to decision-making and, ultimately, intelligent investment choices resulting in cost-savings over time.
Susan Anson is general manager of VFA Canada Corp., a provider of solutions for facilities’ capital planning and asset management.
