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Inward Investment Guides
Deciding the Fate of Aging Buildings
By assessing a facility’s condition, functionality, and usage, organizations can optimally plan for the future and make intelligent investment choices.
Ray Dufresne, Vice President, VFA, Inc. (Q1 / Winter 2013)
 
In challenging economic times, the need for the effective management of facilities and infrastructure is crucial. Tight budgets make it more critical than ever for both public institutions and private industry to maintain and improve existing facilities and, in doing so, to ensure that they efficiently support people and services in concert with organizational goals.

But what if aging buildings make up a significant part of the portfolio? How do organizations decide whether to continue investing in those 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.

A Strategic, Holistic Approach

How should building owners and facility managers decide a building’s fate? It’s vital to understand — through accurate data and analysis — the condition, function, and usage of the buildings. It’s important to take a strategic approach, looking at the facility portfolio holistically. Any analysis, in order for it to be valid, must be based on accurate, objective data, including an understanding of current facility condition and remediation costs, functionality, and demographics. Without access to detailed information regarding these issues, facilities managers and capital planners find it virtually impossible to decide whether buildings warrant further investment or are ready for disposition.

Condition: One important first step is gathering accurate facility condition and cost information. An organization needs to determine the best objective method for data collection. A Facility Condition Assessment (FCA) is the process of collecting detailed data on facility condition and deficiencies, generally with walk-through inspections by qualified professionals (mechanical, electrical, and architectural engineers) to collect this baseline data. These teams survey the buildings, systems, and infrastructure assets in detail using consistent best practice methodologies, visualizing and taking photos rather than disassembling equipment.

Another option for data collection is facility self-assessment that employs a consistent, repeatable process for internal staff. By leveraging existing facility resources to quickly assess assets of all types and portfolios of all sizes, organizations can greatly enhance the management of geographically dispersed facilities. The self-assessment process should be rapid and cost-effective, resulting in data that can identify “hot spots” within the portfolio that require a more detailed professional condition assessment, and should help develop quick budgetary estimates. A good facility self-assessment also ensures that data captured in previous assessments is updated so that strategic decisions are based on current information. Self-assessment empowers organizations to close the loop on portfolio knowledge gaps and gain immediate insight into their most pressing facility needs.

By employing industry cost standards to estimate spending requirements for each suggested improvement, organizations can associate specific dollar amounts with each potential project. Also, lifecycle renewal costs can be a significant percentage of major operational and maintenance expenses, and a detailed understanding of renewal timelines and costs is important to effectively prioritize systems requirements and understand the further investment required to keep aging buildings in good condition.

Accurate facility condition data enables analysis of the investments needed for facility improvements. A commonly used metric, developed by industry associations, is known as the Facility Condition Index (FCI). The FCI is the ratio of deferred maintenance dollars to replacement dollars, and 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 facility’s value. For example, an FCI of 0.1 signifies a 10 percent deficiency, which is generally considered low, and 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 will rapidly highlight the buildings that are in the greatest need for updates, repairs, or replacements.

Function: Next, functional adequacy must be addressed. Facility performance should be evaluated to determine if the building in question is still suited for the purpose originally intended, or if it needs to be changed for new uses. Measuring the functional adequacy of a building or campus requires a functional assessment to capture the current status, compare it to a pre-defined standard, and then identify the gaps.

The gap analysis shows what changes need to be made to a facility to bring it into compliance. A functional score can be defined that gives the facility under review a rating as to how well it meets the overall standards. Ideally, a solution that includes a quantitative ranking system for functional criteria that enables the assignment of scores will help companies objectively prioritize current requirements and focus their capital initiatives where they will be most effective. Modeling tools for functional assessment, coupled with facilities capital planning software, can provide a framework for organizations to evaluate alternatives for capital spending and their impact over time.

Usage: With metrics such as the FCI and a functional adequacy score, companies can objectively prioritize facility projects and capital spending. 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 the 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 the 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 or may not 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 (O&M) costs, maintaining only critical systems for business continuity, making no long-term investments, and positioning for short-term disposition or alternate use.

In Sum

The key benefits of a systematic, data-driven approach to functional adequacy, which includes a holistic view taking into account facility condition, are defensible results; upgrade costs that can be quantified to facilitate all-inclusive planning; and avoidance of unnecessary spending on functionally deficient buildings. Given today’s ongoing economic challenges, now is the time for companies to assess both the functional adequacy and condition of their facilities. By combining best-of-breed methodologies for these assessments with sophisticated modeling and decision support tools, organizations can optimally plan for the future, take the subjectivity and guesswork out of the process, and use a rational, repeatable process to determine how to allocate funding where it will have the most impact and best support strategic goals. 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.

 
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