Posted on 01/11/2016

By David Isaacson, Director, Product Marketing

Capital planning is a complex and important part of your organization. There are a number of benefits your organization can receive from a robust capital planning process:

  • Visibility into what your facilities look like and what the future holds
  • Understanding of the state of the portfolio, its condition and financial needs
  • Defensibility for addressing specific needs based on unbiased data and expert analysis
  • Justification for the investments that are being made based on the reality of the condition of the facilities and their systems
  • Alignment of facilities priorities with the organization’s goals and mission to become a more strategic partner

A capital planning solution such as VFA helps you answer four related questions. With these answers, you are equipped to make the most of your capital planning strategy.

What is in the portfolio?

Knowing what’s in your portfolio means understanding not only what buildings you have, but also  the components that exist within those buildings. At the same time, you want to make sure that you understand the life cycles and the conditions of all of the equipment that exists within the buildings. That is the crux of what capital planning services provide – a report on the condition of the assets, the buildings themselves, other major structures and properties, as well as the specific systems that exist within the building. Capital planning deals with the entire building, including its mechanical, electrical, plumbing and structural components. Items outside the building, such as roadways, parking lots and walkways in a campus environment can also be included.

What is the condition?

The condition is based on the facilities condition index, or FCI. This index is an industry standard that’s been around for many years. The FCI is calculated by taking the total cost of existing deficiencies (capital needs that need to be addressed both in terms of repair, as well as those that have reached end of life and need to be replaced or renewed) and divide that by the current replacement value of the assets.

The replacement value is not the market value or the depreciated value, but rather what would it take to rebuild that building in kind. The FCI scale ranges from excellent at a 0 percent FCI up through poor at 100 percent FCI. The scale is approximate, as not every building needs to be an excellent or even good condition. The FCI target can really depend on the use of that facility or that building, and the level of risk you are willing to assume.

For example, you would want a public-facing building to be in good to excellent condition because of the impact that failure of particular components would have. A parking garage, however, could have a 25 to 30 percent FCI, as long as there are no life safety issues.

What funding do we need?

Understanding what the current condition of a building is can lead to understanding what condition it should be. As I mentioned earlier, different conditions might be appropriate for different types of buildings. Now you can look at how much funding is needed to target specific conditions. By knowing the total cost of existing deficiencies and the replacement value, you can calculate the FCI. You can examine various scenarios to understand what the different investment strategies will do to the condition of the buildings. This analysis can be done across the entire portfolio, or any subset down to a single building or system. You can look at scenarios that let you understand how much is needed, or conversely, what the impact on the condition will be based upon a specific funding level.

How should all the capital needs be prioritized?

There will always be more capital needs than funds to address them at once. Once you understand how much funding is needed, then you can address how to prioritize all of your capital needs. Within a robust capital planning system such as VFA Facility, you can define a prioritization strategy. A strategy is an approach for investing money in the facilities that allows your facilities department to align strategically with the goals of the organization. Ask yourself: What is most important to the organization? How can you be more strategic? For example, if you know what the building use is, you can compare different uses and figure out what's more important as an organization. If you’re an educational institution, is a library more important than a dorm? And is a dorm more important than a classroom? By asking these questions, you can start to not only understand what's important to the organization based upon how you prioritize, but also how you contribute to the success of the organization.


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