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.  

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                                                                                          

Retrofits                                              

Renewal/Replacements                         

Compliance                                          

Life Cycle Plan                                     

Operations Plan

Labor

Materials & Equipment

Systems & Processes

Energy & Utilities

Growth & Impact Plan

Additions

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.