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Published: Nov 20 2015

7 Steps to Better Capital Planning: Funding and Defensible Budgets

Showcase how your funding will impact the condition of an individual building, or even an entire portfolio.

By leveraging funding scenarios, you can review different cases that help you justify both your short and long-term budget requirements. As a result, organizations have a clear ability to pinpoint risks and highlight financial consequences if the work is not completed.

Understanding funding scenarios.

To demonstrate the impact of funding for your capital planning requirements, we will review three 20-year funding scenarios. The first focuses on maintaining the current condition of your portfolio over its 20-year life. The FCI never changes, as you are simply investing your capital funds in order to maintain the current condition.

A second scenario, which will focus on improving the condition over the first 10 years, will result in a higher investment for the first 10 years and then maintaining the portfolio for the remaining years. Structuring your budget this way will result in significant improvement in your FCI in the first decade, perhaps reducing it from 40 percent to 20 percent.

For the remaining 10 years, the 20 percent FCI will maintain due to the continued levels of investment. Even though it is not that large of an increased investment, a moderate increase in funding over the first 10 years makes a significant impact on the building’s condition.

Like many organizations, let us say that you only have a fixed budget available that only increases with inflation over time. Over time, the FCI of the building will increase—perhaps as high as 80 percent—without having the appropriate levels of capital investments to maintain and improve the conditions of the building. After 20 years, if the FCI goes as high as 80 percent, the overall condition of the building has likely deteriorated to the point that safety is an issue and building replacement, rather than repair, would be a consideration.

Through an analysis of the different scenarios for funding, you can understand the risk of insufficient funding for your portfolio. In addition, it can help you identify specific risks to your buildings and what would happen if you do not invest in improving them now, in five years or in 10 years.

Defending funding decisions.

Many of our customers leverage funding scenarios as a mechanism to help them improve their facility capital planning process, particularly when it comes to providing accurate budget forecasts. As a result, they can demonstrate the overall impact on condition for any time frame.

We find that organizations often underfund their portfolios and capital projects simply because budget requests lack credibility. By having accurate data and predictive tools, your team can be enabled to develop realistic and defensible multi-year capital budgets.

By combining your benchmarks and prioritization, you can feed your budget with accurate data that helps you create an objectively ranked list of capital needs, with clear assumptions about funding and costs. If available funding levels change, the budget scenario may be reapplied to determine the impact of funded projects. On the other hand, if organizational priorities change, ranking strategies can readily be modified to reflect new priorities.

As a result, you have a sound budget that demonstrates the various risks that an organization faces, including those that are internal, as well as those variables out of your control, such as inflation rate, overhead costs and budget constraints. In turn, you can maximize the condition of your buildings to ensure that they support your organization’s needs today and in the future.

Interested in learning more?Contact us today.

In case you missed it, check out the other blog posts in the series:

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