‘decent Exposure: Reducing Facilities Risk in the Post-downturn EnvironmentDecember 11, 2012
Jay Pearlman, Associate Vice President, Sightlines
The acute economic downtown that began in 2008 had a profound effect on facilities investments within education. We observed a marked decrease in annual stewardship (funding that protects buildings and systems), capital spending and daily service facilities budgets. Unfortunately, at the same time, buildings continued to age. The result of these trends is the addition of risk through increased annual maintenance deferrals, growing project backlogs and, in some cases, decreased organizational capacity.
Increased risk translates to the potential for facilities’ failures, program interruption and decreased market position. Luckily, we are seeing signs of recovery in facilities investment. However, since facilities’ needs continue to accumulate even as schools increase spending, many campuses will not be able to afford the large capital infusion that would be required to regain some of the ground lost over the past four years. Schools will need to be strategic in the years to come in order to maximize the value from dollars invested and avoid the most serious facilities’ exposures.
As business officers, you are often expected to wear many different hats both in and out of your comfort zone. For those without a formal facilities management background, our hope is to provide tools to help you get out in front of the risks ahead. This article outlines five simple risk indicators to examine with your facilities officers to help frame the largest exposures at your school.
“Reductions in capital budgets and facilities funding have led to increased project backlogs since the economic downturn. Since facilities recovery will lag economic recovery, it is important for business officers and facilities leaders to “get out in front” of items that could pose the largest risks to their campuses. This chart is based on Sightlines’ on-site data collection at over 325 colleges and K-12 institutions.
1: Age Profile
Although conducting a full facilities condition assessment or life-cycle study is the best way to understand how close major systems are to the end of their “useful life” or at the point of failure, there are also several simple processes that will help you evaluate the condition of your campus. One of the easiest yet most valuable indicators of pending facilities needs is the age profile of buildings and components. For larger campuses with multiple buildings, understanding the percentage of space that is less than ten years old, 10 to 25 years, 25 to 50 years and over 50 years old is an indicator of your risk profile. However, for smaller or single-building schools, it’s important to focus on primary systems — boilers, chillers, roofs, exteriors, electrical panels, transformers etc. — the items that could cause major disruptions at your school. For components that are beyond or approaching their expected lifespan, have your team validate that the systems are functioning properly or have a plan to replace or upgrade. Your goal is to anticipate the risk and likelihood of failure to avoid emergency repairs.
2: Annual Stewardship/Deferral Rate
One of the questions we continually help our member schools answer is, “How much ‘should’ I be investing in plant annually?” Administrators need something more specific than “3% of replacement value per year”. This question is crucial to the long-term facilities health of the institution, but so is the inverse: “How much should I be deferring every year?” In order to anticipate major building projects, gifts and new space, it’s important to defer some maintenance in order to get the most value for precious capital. However, it is important to not take future funding for granted and let deferrals get out of control. As a business officer, you should keep track of how much you are investing annually, how much you are adding to that deferred maintenance backlog and your ability to coordinate repair needs with modernization investments that address functional obsolescence. Make sure that the project plan, or lack thereof, does not create a liability that will be hard to mitigate in the years to come.
3: Facilities Project Mix
In finance, investment diversity is important to avoiding risk. Facilities management is no different. In fact, one of the best indicators of future risk is past diversity. We suggest that schools measure facilities investment among discrete project packages and examine the distribution. For most institutions, a breakdown among building envelope, building systems, infrastructure, space renewal and safety/statutory is sufficient. The key concept is balance over time. Historical investments should balance the backlog of needs, lifecycle requirements and mission. Unfortunately, this balance is often hard to facilitate, and project selection tends to skew towards particular packages. At many institutions, space renewal receives much of the focus — until a major mechanical system or envelope reaches a crisis point. Be proactive and use your historical project mix to advocate for projects that often don’t have a champion. A good practice is to treat the capital budget as a multi-year program in order to avoid alienating departments whose project requests do not “make the cut” for the current allocation. Having a five-year budget separated by package also gives facilities managers visibility and the ability to anticipate when approval of major repairs can be expected.
4: Work Order “Hot Spots”
Many schools have implemented Computerized Maintenance Management Systems (CMMS) as a means to manage work order submission and completion. These systems take different shapes, from fully deployed enterprise systems that integrate with financial platforms and payroll to much simpler web-based Software as a Service (SAAS) solutions. Whichever system a school chooses will give it greater workflow management and reporting ability than in the past. One of the most valuable reports we suggest but rarely see is what we refer to as a Daily Service Concentration or “Hot Spot” report. Essentially, are there specific locations that require a disproportionate level of facilities labor? For example, running such a report at a large member institution revealed that almost a full FTE was dedicated annually to answering “hot and cold calls” in one specific area of the school. A further engineering review showed the aging system needed replacement and upgrading. These findings influenced project selection priorities and ultimately freed up labor that was redirected to planned maintenance and projects rather than reactive repairs.
5: Energy Cost and Consumption
Utility cost and consumption are important to watch. From procurement and generation to distribution and building energy use, energy management requires technical competency, sound operations and effective communication within the organization. A breakdown in any one of many cogs in the wheel can lead to wasteful energy consumption and higher utility expenditures. Ask for a simple monthly utility report showing energy cost, consumption and unit cost — three separate issues. Compare consumption to previous years and benchmark unit costs among peers. With this discipline, you may be able to identify issues that are invisible to the naked eye but which could have big impacts on your bottom line.
Unlike similar challenging periods of the past, business officers and facilities professionals have access to more powerful information and management tools. The latent power of existing data can be released to help separate “fact from fiction”, to mitigate facilities risks and create a bridge to financial recovery. With facilities and financial officers working together on the core indicators of facility health, we believe that you can get in front of facilities deferral, continue to support your programs and maintain your market position.
Sightlines is a facilities-based firm that has created a process for analyzing facilities assets with the same rigor as endowment assets. Their Facilities Measurement, Benchmarking and Analysis service, which they perform at over 325 campuses annually, monitors performance among the core families of Annual Stewardship, Asset Reinvestment, Operations Effectiveness and Customer Service. Sightlines educates senior administrators on core facilities issues, communicates performance to all levels of the institution and creates constituency for action.
We are pleased to present an article written by Jay Pearlman, Associate Vice President at Sightlines, that originally appeared in NBOA's Net Assets Magazine earlier this year. For more information you may contact Jay Pearlman at email@example.com.