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.  

1 comment:

  1. Great take on the Life Cycle Database as an Investment Foundation and the role Preventive Maintenance plays.

    Take a look at our webinar on Supercharching Your Preventive Maintenance. Learn the fundamentals of a PM program, 5 components for PM Success, and the steps required to establish a workforce of trained & professional technicians.