Monday, January 31, 2011

Creating a Sound Facilities Investment Program

For the last couple of weeks I have been discussing facilities asset management.  Understanding the true Total Cost of Ownership is important, but only a part of the process.  Total Cost of Ownership combines with Life Cycle Management and Integrated Investment Processes to form a complete facilities investment protocol.  Adapting these three elements to your particular situation without invalidating their objectivity will increase your ability to forecast, plan and execute project investments with maximum benefit.  Follow these three steps to form a sound facilities investment program.

Adopt Total Cost of Ownership as Your Investment Strategy
Initial development costs of a typical commercial facility approximate 40% of its Total Cost of Ownership.  Organizations that make investment decisions on the first build cost alone make that decision without 60% of the available information.  Using first build, benchmark Capital Replacement Value ratios, and Maintenance and Operations cost records you can predict to a reasonable certainty the actual cost of the decision over the project’s entire life cycle, thereby informing the decision process to a much higher level.  Stated simply, Total Cost of Ownership illuminates the financial life of the building.

  • At the beginning, TCO predicts the overall investment required to build, own and operate, and dispose of a built asset

  • Over the life of the project, TCO projects capital investment requirements and cash flow needs

  • At the end of the asset’s life, TCO informs best investment decisions on timing and mode of disposal

One note to remember:  Total Cost of Ownership is a valuable tool at many levels.  It can be used to manage portfolio assets such as a large site with multiple buildings and a significant infrastructure investment, the building(s), systems within a building, and even components within a system. 

Establish an Interoperable Life Cycle Database as an Investment Foundation
You are awash in data.  The question is not do you have it, but whether or not you are making full use of it.  Collected continuously throughout the life cycle of a facility, data on all facets of operations and services becomes a treasure mine.   Initial costs, the cost of providing services, preventive maintenance, operating and disposal costs are all available to you with varying degrees of certainty.  A key mistake that many organizations make is modeling the asset only twice in its lifetime; at the beginning when new projects are being conceptualized and planned, and near the end when end of lifecycle or extend options are evaluated.  Failing to maintain a continuous model along the way misses the opportunity to inform decisions throughout the life cycle.  Deciding when to refurbish an interior, to change the use of a facility, to replace a major piece of operating equipment, to expand, make capital investments to improve operating efficiency, or even to sell or retain a property in the portfolio are all decisions that benefit from your data.  Continuously feeding the database over the life of the facility strengthens your understanding of the cost and benefit of investment decisions along the way.   Each incremental save over the life of the facility is compounded over time.  Each better decision that is made along the way grows and increases the value and leverage you have on the bottom line.

Implement a High-Value Integrated Investment Process
This speaks to integrating planning and management tools so that they work in harmony with each other.  By keeping these protocols in synch you once again improve the accuracy of planning and help maximize investment benefit.  Master Planning, Integrated Project Delivery and Life Cycle Management are too often executed as separate activities.  Integrating them to share information increases the accuracy and value of each.  Integrated Project Delivery (IPD), especially when paired with Building Information Modeling (BIM), helps to lower first cost and improve first build quality.  When the BIM model is then kept alive and used throughout the life cycle to model changes and troubleshoot issues the Return on Investment for the system grows as it continues to contribute to the operating and investment efficiency of the project.  

Sunday, January 23, 2011

Total Cost of Ownership and Life Cycle Management Support Asset Investment Decisions

Master planning, Project Delivery and Integrated Life Cycle Management are three distinct processes which when properly coordinated result in a true understanding of the Total Cost of Ownership of a property or portfolio.  This holistic approach to asset management improves the quality of FM planning and services by objectively comparing development options and modeling various operating scenarios.  Taken as a whole and exercised in an integrated fashion over the course of a facility’s life they present a total picture and inform investment and operating decisions at every step.

The key the achieving the desired outcome of information sharing across the three domains is agile systems integration and cooperative communication between the principals involved. 

Reduced to its simplest state, the model takes bottom up information from each of the three domains.  Each domain then synthesizes its own set of data and needs into its formal output, which is then shared with the other two domains.  That said, there is a closer link between Project Delivery and each of its two partners than they share with each other.  Master Planning and Life Cycle Management communicate with each other through the Project Delivery process.  Master Planning contributes asset investment planning, program needs and approval protocols to inform the design and construction process.  Life Cycle Management contributes operations, maintenance and recapitalization information, as well as learning and knowledge gained over the course of a building or portfolio’s life.  The Project Delivery process uses these inputs to develop designs and provide operating models that help improve resident processes.

Master Planning integrates three distinct planning processes with the resource planning process.  The Growth and Impact Plan, Operations Plan, and Capital Needs Plan ask for resources which must be found and allocated.  Resource planning focuses on priorities, resource alignment, and tracking of results.  It, more than Master Planning, is a constantly shifting environment with potential to significantly alter what is possible based on market realities, as we have all experienced in the last two years.

Total Cost of Ownership
Asset Investment Strategy

Capital Needs Plan                                                                                          
Life Cycle Plan                                     

Operations Plan
Materials & Equipment
Systems & Processes
Energy & Utilities

Growth & Impact Plan
Infrastructure Expansion
Space Plan
Property Expansion

I sometimes run across organizations that fail to understand, appreciate and plan for the real cost of developing new projects.  This leads to under-resourced operations, a growing backlog of deferred maintenance, and financial inability to replace assets when needed.  This is not readily apparent during the grand opening of a new project, but is sometimes glaringly obvious even in the relative early stages of a project’s life cycle.

It is incumbent upon FM’s to understand these issues and their importance, and to communicate and inform decision makers.  It is much easier to do so when one understands financial language and basic principles, and can communicate with decision makers in terms they understand. 

Saturday, January 15, 2011

Understanding the Total Cost of Ownership of Your Facilities

Owner’s often make decisions to build or not build new capital projects based primarily on the cost of initial development and depreciation.  However, the first build cost of a project is a small fraction of its lifecycle cost and not understanding the total costs could be catastrophic.  In the past FM’s have used various budget tools such as the APPA model to predict future operating costs.  Today, Building Information Modeling (BIM) not only improves the design and first build cost of a new facility, it also aids in modeling operations and predicting the Total Cost of Ownership.

To help understand the Total Cost of Ownership of a project, break the costs into time sensitive categories as follows.

One Time Development and Decommissioning Costs:  These are non-recurring costs that occur once in a project’s life.  Costs in this category include conceptualizing and designing the project, bidding the project, financing the project and building and commissioning the project.  To these front end costs do not forget to add the cost to decommission, demolish and dispose of the project at the end of its lifecycle. 

Annual Recurring Costs:  Operating budgets should be forecast through the entire lifecycle of the project and should include staffing, planned maintenance, unplanned maintenance necessary to make repairs, and utilities.  These costs may all be forecast by modeling building infrastructure and systems against your use profile, and by applying your historical maintenance experience as a modifier.  The last will help fine tune your projection to account for your individual style of operations and efficiency levels.

Periodic Recapitalization Costs:  This category should include estimated allowances for retrofits and improvements over time, modifications to support changing program requirements, and the replacement or upgrade of systems as they reach the end of their life cycles.  The less certain of these costs, allowances for retrofits, improvements and programmatic changes, can be estimated using past experience as a guide.  The upgrade and replacement of major building systems can be predicted with a high degree of accuracy, especially with the aid of BIM.

Defining and forecasting project development, operating, and retirement costs as outlined above improves the information available to decision makers, informs the design process, and helps facility managers properly organize and staff support functions.  Aside from predicting the overall investment required the analysis also provides a cash flow model and supports investment decisions to replace major systems (or the entire asset when the time comes).

BIM allows us to model operating and recapitalization costs with a much higher degree of certainty.  BIM not only improves the efficiency of the design and construction processes but also the ongoing financial requirements to operate and support the building.  By operating the building virtually we can test operating profiles, develop maintenance routines, model energy performance, inform process re-engineering and predict system replacement timing.  All of these benefits further inform the understanding of the Total Cost of Ownership of the facility.

When considering the Total Cost of Ownership also factor in the effects of sustainability policies and practices.  Sustainability is now a core issue in any new development project.  It is likely that the decision to implement a new project will quickly lead to a discussion of sustainability goals for the project and ongoing operations.  These discussions and resulting decisions may well place additional demands upon the project which have the potential to change programmatic requirements.  For example, a sustainability policy to support the use of mass transit in a new project might lead to a different site selection decision and/or the inclusion of child care facilities.  Every time the program changes the requirements to support the facility changes, as does the Total Cost of Ownership of the facility over its lifecycle.

FM’s have a responsibility to elevate the dialogue on these issues when new developments are planned, and a need to demonstrate leadership and knowledge of current best practices.  Doing so helps the organization make better decisions, improves FM credibility and best positions FM to operate successfully in the new environment.

Sunday, January 2, 2011

Using Metrics to Enhance Continuous Improvement

If you are like the vast majority of FM’s you are now much more familiar with Metrics and Continuous Improvement programs than you once were.  Hopefully you have metrics that measure the important parts of your business accurately, and a system for routinely analyzing and reporting data.  Good data collection and analysis practices are at the very heart of meaningful metrics outputs.  Measure the wrong things or measure incorrectly and you are at risk of making wrong decisions.  Measure correctly and you have a gold mine of opportunity.

Ah, but that is the rub, isn’t it?  We have all of this information now, but what are we supposed to do with it?  Simply making charts to flash on the screen doesn’t seem like much value for the investment made in developing the data.  It’s not.  The real value of metrics programs is in the change they lead to.  Change, as in “Continuous Improvement.”

Organizations that link their Metrics and Continuous Improvement efforts take advantage of the knowledge gained through data to direct efforts to improve operations.  This is a key linkage that increases the return on investment from the metrics program, helps fine tune data processes, and increases the speed of Continuous Improvement.

Continuous Improvement programs that are targeted based on accurate data yield far more beneficial results than those that are not.  This is because data driven Continuous Improvement projects apply leverage to those processes in an organization that really matter and have the greatest potential to improve performance. 

As an example, let’s take a look at a classic FM service issue through the lens of a data-targeted Continuous Improvement process and one that is not.

The Issue:  Customer Satisfaction ratings on hot/cold work orders appears to be declining over time.

Untargeted Approach:  Analyze hot/cold work orders for Mean Time to Repair, Mean Time Between Failures, Mean Down Time, etc. to determine which sub-processes appear to be out of control.  Investigate and revise those processes.

Data-Targeted Approach:  Analyze Customer Satisfaction rating data at a fine level to determine which element(s) of the process is driving the rating decline.  Develop a Continuous Improvement project to address those elements.

The difference between the two approaches is that the untargeted approach assumes the entire process is part of the problem, while the targeted approach looks at data to identify the key elements(s) of the problem, thereby concentrating improvement efforts where they matter most.

Interestingly, the untargeted approach may indeed improve the overall process yet not improve the Customer Satisfaction rating.  For example, a targeted approach may identify that customer dissatisfaction is based in lack of communication and ambiguity regarding the work order status or close out. 

Metrics programs are about discovering data, seeking knowledge from the data, and then turning the knowledge into actionable wisdom.  Continuous Improvement programs are about applying systematic problem analysis methodologies to important issues in order to effect positive change in the Quality, Time, Cost and Customer Satisfaction dimensions. 

Using data to target Continuous Improvement efforts increases the metrics program ROI and accelerates the pace of operational improvement.  That seems like a positive outcome for both, and for you.