Strategic Importance of Facilities
A corporation's property portfolio is usually the second-largest item on the balance sheet, following only employee salaries and benefits. Business operations are dependent on the facilities and infrastructure. Increasingly, facilities departments are taking a more sophisticated approach to long-term facilities capital planning. Successful capital plans - and their effective execution - enable these teams to reduce both risk and cost, promote a better working environment, and better serve the overall organizational goals.
It's imperative that the facilities capital plan is integral to the organization's overall strategic plan, or at a minimum, that facilities capital planning is carried out in tandem with strategic planning activities. Companies with strong processes and systems for assessing facility condition, prioritizing requirements, and documenting the impact of alternative funding scenarios are best positioned to advance their objectives.
The Process of Facilities Capital Planning and Management
It is important to have a structured and consistent approach. Ideally, a facilities manager has a process in place to gather objective facility condition data, enabling the company to:
- Pinpoint exactly where repairs and upgrades need to be made
- Calculate the estimated costs of those requirements
- Prioritize the requirements according to company priorities
- Run funding scenarios that demonstrate the impact of different spending levels
- Identify and address risks to business continuity
- Develop a capital plan and budget that will sustain the facilities and support their function for years to come
The Benefit of Benchmarks
The greatest benefit of accurate facility data is that when data is analyzed, the result is an objective benchmark regarding necessary investments in facility improvements, as well as the impact future levels of investment will have on facility condition. Developed by industry associations, this benchmark is known as the Facility Condition Index (FCI), and is the key to a strategic facilities capital plan. The FCI is the ratio of deferred maintenance dollars to replacement dollars and provides the ability to compare similar buildings to each other, highlighting the buildings that are in the greatest need for updates, repairs, or replacements. Certain facilities are crucial to the organizational mission and call for an improved target FCI. FCI analysis demonstrates the true cause and effect of investment decisions.
Reaping the Rewards of Strategic Capital Planning
With the right facilities capital planning and management process in place, companies are able to:
- Develop a long-term view of capital planning with accurate multi-year forecasting
- Make investment decisions based on objective, analytical, and transparent information
- Reduce financial, operational, and legal risks
- Deliver substantial cost savings and efficiency gains
When facilities capital planning efforts are aligned with a company's objectives, investments can be optimized to deliver value. Proactive 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. Strategic facilities capital planning and management leads industry to far superior and more defensible results.