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.

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.

FM TODAY: A STORY OF REALITIES AND VISION - Pt. 4

The Future of FM Is Up to Us

The realities of today naturally influence our vision for tomorrow and ability to attain it.  Although often painful at the moment these realities are guiding us toward a reshaped future that will be more efficient, which will demand and reward creative solutions, and which requires each of us to accept responsibility for our share of the outcome.  We have an opportunity to leverage the conditions as they now exist and dictate what we will make of them, and that is what we are in the process of doing on a daily basis.

FM’s often complain about not being heard and thus having to be in reactive mode most of the time.  When I hear these comments I often wonder how much FM is pushing the issue and how much we are to blame ourselves for being “comfortable” with the status quo.  Just as in any other area of life, if we do not like the current reality then we must accept our role in changing it.  Let’s not fall into the category described by the famous philosopher Pogo when he said, “We have met the enemy and he is us."

Fine, you say.  How do we do that?  How do we assume our role, accept accountability and move the FM agenda and profession forward?

We start by being the best we can be, by challenging ourselves more than others do, and by being thought leaders inside our organizations. 

We start by refusing to accept the status quo in ourselves. 

My challenge to each of you for 2011 is this:

• Demand more of yourself than you do of others
• Demand more of your staff than you have
• Learn what your CEO’s top three concerns are and address them directly
• Create solutions that inspire and amaze
• Lead by example with integrity and purpose
• Give yourself away by mentoring others
• Make the commitment first, then figure out how to accomplish it. 

Congratulations on a successful year and enjoy the holiday season with those you love.  It is a special time of year; make sure you enjoy it and capture its memories.  I will be back in January with new FM musings.

FM TODAY: A STORY OF REALITIES AND VISION - Pt. 3

Technology Must Support Increased Efficiency and Productivity

Coming out of the financial downturn companies will capitalize technologies that directly affect core FM concerns; improving space efficiency, reducing energy costs, reducing the cost and time to build, and increasing productivity.

Previous posts discussed the increasing frequency and importance of Building Information Modeling (BIM) and Integrated Project Delivery (IPD) in the capital projects arena.  The efficiencies and gains derived from implementing BIM and IPD on new projects should not be under estimated.  New projects, however, represent a very small fraction of the built environment.  The existing built environment represents a much larger opportunity and risk. 

For those not building new facilities the emphasis is clearly on increasing utilization and efficiency of existing assets.  Many CEO’s are challenging unit heads and FM to increase headcount and revenue within the existing physical footprint and with limited re-capitalization.  This is driving renewed emphasis on Alternative Workplace Strategies (AWS) while prioritizing the smart use of technologies that increase productivity and collaboration.

It is important that significant changes required by these initiatives be properly socialized within the organization to assure alignment with corporate goals and culture, and to speed acceptance.  It is likely that policy changes will be required, that fact alone elevating the discussion.  Recent conversations with peers across the profession make it clear that many are dealing with these issues.  For example, underutilized office space represents an asset that can be redeployed to increase collaboration, but such changes cannot be made unilaterally.  It is likely that space entitlement policies and even key personalities are involved and must be accommodated or changed through a studied process that discovers, informs and advises decision makers.  Only then can the right policies, projects and protocols be put in place.

Executing the project successfully, however, is just the beginning. Technology systems will be expected to collect and dashboard data, making understanding of collaboration and productivity metrics readily available.

This last is a key change for most FM’s.  We are used to and comfortable with measuring space and reporting its efficiency and utilization in terms of area, headcount, units produced and revenue.  Some of us even measure collaboration and the tools for both empowering it and measuring it are now beyond the infancy stage.  Most FM’s, however, will simply stare at you when you ask them how their FM metrics measure productivity across the entire organization.  For many of us that will be the next frontier.  We are, after all, in the business of supporting business.  Everything we do is pointed toward helping our organizations be more efficient and productive but most of us have been measuring only one of those domains.

Productivity SLA’s and metrics are the other half and they are waiting for your attention.

 

FM TODAY: A STORY OF REALITIES AND VISION - Pt. 2

Sustainability Is Moving Along the Maturity Curve

Sustainability is maturing beyond the “new build” emphasis that characterized it not so long ago.  Today, the emphasis is on developing corporate sustainability policies and protocols to improve behavior and outcomes while working to strengthen new build rating systems and credentials.

The growing interest and effort behind developing net zero buildings is placing a premium on the integration of design and operation, and recognizes that a building’s affect on the environment continues over its entire life span, the sum of the whole being several factors greater than first environmental cost.  Key strategies in this maturation include green leasing, supply chain accountability, making data transparent and possibly a bit of social engineering.

The Global Reporting Initiative (GRI) continues to evolve but is only one example of maturing sustainability regimens.  In August of this year the UK Green Building Council published the results of its latest review with members as it gears up for a GRI update in 2011.  The Leadership in Energy and Environmental Design (LEED) program continues to refine its credentials and provide market-niche specific certifications.  In whole, these and similar transitions in other protocols indicate a continuing trend toward knowledge specialization with the goal of driving sustainability consciousness deeper into the built environment psyche.

An interesting evolution to watch is the increasing use and effect of visible building performance data.  Important to operators because visibility makes operating efficiency transparent, and therefore important to them personally as well as organizationally, it also has the potential to broaden its reach.  Buildings with good sustainability resumes command higher rents.  As technology makes information more visible, however, it will not only be owners and operators who see it.  Occupants will be able to compare energy performance of other occupants in the building.  This visibility has some peer pressure potential and most certainly will encourage lessees to include occupant energy profiles on their lease shopping list.