What the Facilities?
Owners, particularly institutional owners, have many issues related to the evaluation of their building inventory. Building studies and capital planning are an inevitable consequence of holding valuable real estate property. Acronyms have flourished in this market.
What do some of them stand for? More importantly, after knowing what they mean, how can the resulting information be used intelligently?
For Owners, the journey usually starts with a Facilities Condition Assessment, an FCA.
Just as the name states, the FCA appraises the Condition of the building(s) in question. The thoroughness of the evaluation, however, can be highly variable. Running the gamut from little more than a ‘drive-by’ inspection to an intrusive intervention testing all building systems, the cost and time requirements can vary by orders of magnitude. More is/costs more.
A detailed FCA typically itemizes the building components in need of repair, along with a current cost estimate for the necessary maintenance work. Commonly, this repair cost is calculated as a multiple of standard components, e.g. price per SF of new roofing, price per motor rebuild, price per fixture replacement, etc.
Seems motherhood and apple pie good, but look below for warnings…
Many FCA’s are reduced to the citation of the Facilities Condition Index, the FCI.
Although there are variations, the typical formula for the FCI is:
A salient characteristic of this Index is that ‘Bad’ Buildings yield higher numbers than ‘Good’ buildings. In fact, if a building is so bad its maintenance repairs exceed Replacement Cost, the FCI is more than 1.0.
Consequently, to give ‘Good’ building higher indices, some institutions prefer a re-stated FCI where
Have I lost the nerdly yet?
In my view, no matter how the FCI is calculated, there remain fundamental flaws in the use of the Index for Capital Planning. Both the numerator and denominator of the fraction are often fallacious. Hold on, later…
Now the Fun continues with a recent introduction, the Facilities Quality Index, or FQI. Loose definition:
I won’t add the tedium of variations.
The ‘F’ products are tools, and just like hammers in the hands of skilled carpenters or novices, they can be used well or poorly.
As stated above, the FCI components can be misleading.
The ‘Total Cost of Deficiency Repairs’ is often misused by Planners formulating Capital Projects; or worse yet, for projecting multi-year Master Plans. The estimate for the cost of a comprehensive, all-inclusive list of repairs usually varies from what might be the total cost of a capital project renovation. Many factors affect the estimate, for example:
- Will all deficiencies be addressed simultaneously?
- If not, which ones, and what does deferral do to the estimated cost of those that remain?
- Will the facility be taken out of service for the duration of the renovation project?
- Will logical building upgrades be incorporated into the activity?
- Will furniture be moved and/or replaced?
- Are there any economies of scale?
- Are there any penalties of scale?
- Does the method of construction or procurement have any impact on cost?
- Are there related ‘outside of project’ expenses?
The ‘Replacement Cost of the Facility’, too, is subject to Institutional interpretation. What is ‘Replacement’ exactly?
- Replacement in place with a building of equal architectural character and historic fabric?
- Replacement with a simple, functional building?
- A new building with contemporary construction techniques and features?
- A building which addresses advancements in institutional programmatic needs, with added building components or features?
The FQI further complicates the assessment, with the introduction of the potentially subjective ‘Quality’ component. The effect upon the statistical analysis is possibly troublesome.
Too often, it seems, FCA’s, with the related FCI’s (and perhaps FQI’s) are used without acknowledgement of their fundamental intent and their limitations.
Is this the best F word? I’m flummoxed.
Proper building analysis should address the mission of the Owner. Whether it’s manufacturing or mathematics, strategic goals of the Company or Institution require periodic redefinition and restatement. Trends, too, bear relevance.
Don’t forget money. What’s the plan for funding or financing? (F emphasis omitted) In order to avoid future problems, good financial planners will also assess ongoing maintenance budgeting. More about that in another Notes from the Road.
There is no denying the elemental merit of competently prepared FCA’s. The reduction of building assessments to simple benchmarks (FCI’s if you like) has value, but that value may not address more nuanced analysis.
What’s a conscientious planner to do?
Perhaps here’s a crude outline of a plan:
- Settle on the appropriate level of Facility Condition Assessment, deciding on scope, content, comparison to peer Owners, cost, time, etc
- Reach consensus understanding about the defined terms of the FCA and its resulting formulas.
- Accept the FCI, for what it is: an evaluation of maintenance REPAIRS as a portion of the agreed-upon replacement. Then, develop renovation cost models that go beyond what a maintenance program entails.
- Test the appropriateness of multiple capital program scenarios against the institution’s mission and funding options.
- Redo, reevaluate, refine. (NOT forever!)
- Vet the proposals with vested constituents for endorsement and support.
Do these (or some variant) in a consensus-building collaborative setting, and the value of the F words will be shown.
OK, now do you have an idea about where to turn?
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