Most facilities teams at schools, colleges and universities face the same dilemma: literally hundreds of capital projects and a limited budget. The challenge is establishing an effective facilities capital planning process that balances short-term needs with long-term goals. Such a process will ensure that valuable funds are not spent on the non-critical projects, that costly emergency repairs and downtime are avoided, and that key stakeholders feel confident that scarce capital funds are being well used. Implementing a consistent and objective methodology for prioritization of facilities capital projects is a key step in achieving these goals and in aligning spending with organizational objectives.
Given this never-ending challenge, schools must find an effective approach to prioritizing projects in a way that eschews guesswork and politics. By relying on solid data and a clear understanding of organizational objectives, facilities managers can determine what to do first and demonstrate how they reached those conclusions.
Items critical to the continuous operation of key facilities must be at the top of the list and must not be subject to the chaos of budget cuts. Whether a facility contains classrooms, gyms, or faculty offices, if it serves the mission of the organization, its condition is crucial. And its shutdown can have serious consequences.
These critical projects must be identified and prioritized, and defensible data is needed to get them funded. Developing an effective long-term capital plan requires a school to maintain a comprehensive understanding of the entire facility portfolio, determine what improvements are required, prioritize those improvements to align with the overall goals of the organization, and finally ensure that the budget is spent as planned.
With the right data and consideration of criteria such as life and safety, compliance with codes, mandates and regulations, functional adequacy, and mission impact, facilities teams can make more informed spending decisions and begin to convert facilities data into an actionable capital plan.
A Prioritization Methodology
Most schools have a five-to-10-year horizon for reviewing their capital requirements. Prioritizing capital projects begins by categorizing identified deferred maintenance requirements that fall within this time horizon into “buckets.” These categories typically include major operations and maintenance projects, including system renewals and mandated projects such as those involving regulatory compliance.
The next step in implementing a repeatable, defensible process for identifying which capital project to fund is to create consistent evaluation criteria and a reliable process to apply those criteria. This can help limit the sometimes political nature of the capital allocation process. Some common criteria schools use to prioritize requirements include life and safety, relation to code compliance, and strategic importance to the school’s mission and goals.
Another common measure used in evaluating spending priorities across a portfolio is the Facility Condition Index (FCI), an industry-standard parametric tool used to relatively compare building conditions. The FCI is the ratio of deferred maintenance or problem budget to replacement budget. The FCI is typically applied at the building level, but institutions can develop similar indices at the systems or portfolio level to help prioritize maintenance activities and capital investments.
FCI = Deferred Maintenance Cost ÷ Replacement Value of the Asset
The lower the FCI, the lower the need for remedial or renewal funding relative to the facility’s value. An FCI of 0.1 signifies a 10 percent deficiency. An FCI of 0.7 means that a building needs extensive work or that it needs replacing. Different schools may target different FCI levels.
For example, a facility with a $25 million replacement value and $5 million worth of deferred maintenance has an FCI of 0.20. That rating may encompass a multitude of deficiencies, such as:
• Life Safety – Exit stairs not fire resistant, insufficient emergency lighting
• Building code compliance – Doors not fire rated, deficiencies related to electrical outlets, electrical receptacles, entry vestibule and landing
• Building integrity – Aged canopy, entry doors (aging and operational problems), aged exit doors, wear/rust of exterior stair, aged water pipes, ceilings, water heater deterioration, etc.
• Energy – Overall site energy issue, lack of control system integration
• Functionality – Inadequate directional signage, miscellaneous electrical issues
Ranking deficiencies using a multi-point scale of urgency enables the facilities team to determine one level of relative priority. This ranked list, further weighted using defined organizational criteria, will yield a comprehensive picture of budget priorities. Statistical ranking methods, such as pair-wise comparisons, can be used to facilitate the process, effectively tying deferred maintenance requirements to organizational priorities. After each capital request is scored, all requests for funding can be ranked by score.
The result is a multi-year capital budget that supports the school’s strategic objectives and the mission of education.
Maximizing the Value of Capital Spending
When schools have a basis for making informed decisions about project prioritization and capital budget allocation, they are less vulnerable to the kinds of emergency failures that impact their ability to deliver a safe and functional place to work and learn. Emergency repairs also incur hefty premiums associated with labor during non-standard work hours, rushed shipments, and unplanned but necessary one-off purchases. These expensive consequences can be avoided with smart planning.
It is important to go into the prioritization process with both a clear view of the end goals and the realization that a strategic capital plan is a fluid document that should be updated as organizational objectives and budgetary realities shift.
With capital becoming increasingly scarce, the challenge is to deploy it as effectively and efficiently as possible. Schools must find an effective and efficient process for ensuring that their facilities are running smoothly over the short term while they are also planning for the long term. They need to ensure that valuable funds are not spent on the wrong projects and that costly emergency repairs and downtown are avoided. Following a consistent and objective methodology for prioritization of facilities capital projects lets facilities teams align spending with organizational objectives and have confidence that they are addressing the right projects first.
Lieberman is senior vice president and chief marketing officer at VFA, Inc., a Boston-based provider of end-to-end solutions for facilities capital planning and management.