STRATEGIC PLANNING FOR CAPITAL RENEWAL
I. Introduction
The past few years has seen a paradigm shift in the way institutions plan for capital renewal. The old method -- preparing a list of items in the backlog and bringing it to decision makers for approval no longer works. Supervisors and Boards now expect to see multi-year plans that take into account both the current and future condition of the facilities along with program needs. Senior officers also expect clear explanations as to why capital renewal is needed. Fortunately, the tools for creating these multi-year plans have improved considerably over the past few years and are now available at a reasonable cost from a number of vendors.
II. The Appeal of Life-Cycle Planning
Fiscal officers, policy makers, and governing bodies generally agree about the importance of preserving the value of an institution's plant assets. They are not always convinced, however, of the magnitude of the overall problem of facilities renewal needs. Nor are they necessarily knowledgeable about the level of need in any given year.
Life-cycle planning identifies both where immediate problems are and where problems are likely to occur in the next few years. In this way life-cycle planning facilitates the creation of multi-year plans – plans that can easily be linked to programmatic needs. These multi-year plans also support more effective management of resources and can help save money by identifying when a subsystem will have to be replaced. (For example, suppose a building needs an immediate electrical renovation. If, within the next five years, the building also will need a replacement of the mechanical system then it may be cost effective to renovate both sub-systems at the same time).
Life-cycle plans are inexpensive to implement and can help save money because a well-implemented life-cycle plan substantially reduces the need for conditions assessments. Conditions assessments tend to cost $.15 per gsf and require costly updates every three to five years. Implementing a life-cycle plan is typically 1/10th the cost of a conditions assessment and the life-cycle plan can be easily (and inexpensively) updated every year. Every campus should consider implementing a life-cycle plan for its facilities renewal needs.
III. The Historical Method – A Conditions Assessment
Institutions have always had the need to assess the overall condition of their facilities. However, until recently the only reliable tool available was the Facilities Conditions Assessment. These conditions assessments (or physical plant audits) were building-by-building, system-by-system inspections of the physical condition of a campus or district. The inspections covered the entirety of the physical plant needs. Audit teams consisting of campus personnel and members of an outside firm examined selected components and judged the level of physical deterioration.
The product of these audits was a list of deferred maintenance needs. The institution was then responsible for prioritizing the items on the list and bringing this prioritized list forward for funding. Supervisors and Boards would then review the list and decide what could be funded this year and what could wait. In the meanwhile, the list was put on a shelf until more funds were available.
Unfortunately, there are a number of significant weaknesses to this approach. First, it only identifies today's deferred maintenance needs. The approach simply does not have the capability to determine future facilities renewal needs. (Some campuses remedied these deficiencies by performing condition assessments every few years. However, the cost of these periodic assessment programs is substantial and is therefore prohibitive.)
The second weakness of the conditions assessment is that the high level of detail provided, while useful to janitors in determining work priorities, is, in consequence, a list of building components requiring attention. It is difficult to turn the audit into a long-term facilities renewal plan that can inform school supervisors and other officers of the true state of need.
A third weakness is that the conditions assessment had no way of explaining to the senior officers why the institution was in the particular condition or state of disrepair.
Finally, conditions assessments are expensive. A thorough conditions assessment can run over $.15 per gsf. A district wishing to have one million square feet of buildings examined would pay $150,000 each time.
Exacerbating these problems is the fact that most districts have experienced substantial increases in the size of their backlogs over the past ten years. (Higher Education, which may be a reasonable indicator for K12, indicates that the size of their overall backlog ballooned from $28B in 1996 to over $60B today.
It's no wonder senior leadership recognized they could no longer plan for capital renewal based on a list of today's needs.
IV. The New Paradigm – Life-Cycle Planning and 10-year Forecasts
Life-cycle Planning is a methodology that allows campuses and districts to easily create multi-year plans for facilities renewal. It is based on three key elements: (1) Building Systems have known life expectancies; (2) The remaining life of each building system can be estimated and (3) reliable estimates of the renewal costs can be made.
The life-cycle planning approach estimates both current and future renewal requirements, for each building, by individual system (e.g., electrical, HVAC, plumbing, roofing, etc.). It indicates when each system is likely to fail and what the cost of replacement/renewal will be. The methodology uses facility type, gross square footage, construction and renovation dates, sub-systems, life cycles, and replacement/renewal costs to predict annual facilities renewal needs. Expected renewal costs are aggregated by building and time period to project total renewal needs into the future.
The approach is highly flexible and the software used to implement the model is configured to the specific institution. For example, facility types and systems are selected to accommodate regional and institutional differences. Replacement costs and life cycles, while based on industry standards, can also be adjusted to reflect actual experience. The implementation can also be designed to insure a consistent approach is used across multiple campuses in a district.
One of the key benefits of life-cycle planning is that 10, 20 or even 30-year forecasts can be created for each campus.
What can be learned from a 10-year (or 20-year) forecast?
10-year forecasts provide two levels of information to help senior officers. First, they demonstrate how much needs to be spent – on a year-by-year basis – in order for deferred maintenance [1] to stop growing. When renewal does not take place at the end of a system's useful life, then the deferred maintenance increases. Second, they explain, for the institution, both the magnitude of the backlog and why it exists.
Using life-cycle planning, it is easy to estimate the change in deferred maintenance over time. It is simply the difference between the actual renewal expenditures made and the facilities renewal needs (over a period of time). Studies at Stanford University have demonstrated this using actual Stanford experience [2].
CONCLUSION
In summary, life-cycle planning supports long term planning, facilitates understanding of backlog and facility renewal needs and the linkages between them, is based on a solid conceptual and analytic framework is easy to understand and communicate, is built on accepted industry standards, is easily updated (sustainable!), and is inexpensive to implement.
END NOTES
[1] A building's system is said to be in deferred maintenance (or, past its useful life) either when it has failed (the roof is leaking) or when it is in such a deteriorated condition that failure is immanent (the HVAC controls are not expected to last through the year). The result is usually emergency repairs.
[2] NACUBO Business Journal December
- Rick Biedenweg
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