Facility Planning Guidelines for Facility Renewal and Adaption

This continues the Foundational Thinking miniseries with an overview of Financial Planning Guidelines for Facility Renewal and Adaptation published as a joint project between the Society for College and University Planning (SCUP), the National Association of College and University Business Officers (NACUBO), the Association of Physical Plant Administrators of Universities and Colleges (APPA), and Coopers and Lybrand in 1989.

The purpose of Facility Planning Guidelines was; “to provide executive managers and trustees with guidelines for long-term financial planning for plant renewal and adaptation.”??The objective of this guidance was to assist; “strategic decision makers in gaining a better understanding of the financial planning requirements necessary to protect the value of their institution’s plant assets in relation to evolving institutional missions by giving them a clearer way to think about those assets.”?

From a college and university perspective, Facility Planning Guidelines echoes the story about public works and US Government facilities being told at the same time.?The report’s call to arms statement is; “It has become clear that American higher education has failed in the stewardship of its facility assets.”?It details that causes for this are multiple and complex.? It identified a causal factor was the lack of a “clear and commonly accepted understanding of how much money an institution should allocate each year to assure the continuing value of its facilities to its evolving institutional mission.”? To address this, it makes the following recommendations:

“In order to preserve the value of its physical plant to the changing mission the institution, each college or university, should allocate:

• Sufficient ‘plant renewal’ funds on an ongoing basis to keep the plant in good condition for its present use, based on facility subsystem life-cycles (1.5% - 2.5% of the plant replacement cost for most institutions);
• AND sufficient ‘plant adaption’ funds on an ongoing basis to alter the physical plant for changes in use and codes and standards, based on recent experience and judgement (0.5% - 1.5% of plant replacement cost at most institutions);
• AND sufficient ‘catchup maintenance’ funds over a short-term to bring the plant into reliable operating condition, based on a facilities audit.”

The objective of these recommendations was to find a “financial equilibrium” to balance leadership objectives that direct facility renewal and adaptation with funding provided by and through interested parties that need these facilities to achieve their mission objectives.? Facility Planning Guidelines further notes; “the absence of an approach based on sound theory and built into ongoing institutional practice” and “the lack of any clear commonly accepted understanding of what is required for the stewardship of facilities” as reasons to why colleges and universities were short on investments needed to continually renew their facility portfolios.?To address these challenges, the report outlines tactics that rally around the following themes:

• Develop and use performance indicators to inform how to maintain “financial equilibrium” between objectives, budget, and facility programs,
• Ensure funding strategies recognize and reconcile renewal, adaptation, and new capital requirements interdependencies,
• Ensure facility total cost of ownership is accounted for and used to inform budget and investment decisions, and
• Make use of user pay models and strategies to incentivize economic use of limited funding.

Facility Planning Guidelines cemented many elements foundational to what is known as disciplined asset management today.?Prominent among these was introduction of the Facility Condition Needs Index (FCNI) which is computed as the sum of catchup backlog, renewal, and adaptation requirements divided by the replacement cost of the asset.?The FCNI will evolve into the Facility Condition Index (FCI) that will be formally defined in another foundational source covered in an upcoming newsletter.

Other foundational elements covered by Facility Planning Guidelines include approaches that:

• Assure the level of expenditures on normal maintenance is adequate,
• Regularly assess the condition, functionality, and replacement cost of the physical plant,
• Establish sustaining budgets for facility renewal and adaption,
• Calculate the Facility Condition Needs Index and use it in budgetary decision making,
• Forecast and coordinate facility renewal and adaptation and for new construction requirements,
• Identify and program funding for facility projects that must be addressed over the next five years,
• Create a facility renewal and adaptation plan and strategy, and
• Repeat the process of doing all the above every year.

As will be shown in later articles in this miniseries, these capabilities become essential parts of an organization’s facility asset management system, but in 1989 they were considered stretch goals for organization’s that wanted to make better use limited resources.

Written by: James J. Dempsey | April 25, 2023

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