Capital is required to create, operate and maintain, replace, and dispose of university physical assets. The Total Cost of Ownership (TCO) model embodies these concepts and supports recapitalization management.
Recapitalization Management Defined Recapitalization entails periodic recurring costs for replacement and renewal projects or one-time funding for improvements and programmatic projects (reinvestment in a building or fixed asset). These projects are typically larger than annual maintenance work and address major subsystems or infrastructure (see Figure 2.9).
Figure 2.9. Total Cost of Ownership
|Three Kinds of Costs
|Birth & Burial (non-recurring)
|Concept to Bid
|Construction / Install
|Decommission / Demolition / Disposal
|Maintenance & Operations (annual recurring)
|Repairs / Breakdowns
|Recapitalization (periodic recurring)
|Retrofits / Improvements
|Replacement / Renewal
Improvements. Improvements are asset or system changes that are not required from a facility or life-cycle view but increase the value of the asset (e.g., code compliance, appearance, system additions).
Programmatic Upgrades. Upgrades increase asset value by changing or modifying spaces or subsystems in response to changes in building function or use.
Replacement and Renewal. Known future cyclic repair and replacement requirements are based on the life cycle of building components and help the facility reach its planned useful life, comply with codes and safety regulations, and address obsolescence (e.g., via replacement, renewal, and retrofitting tasks).
Framework, Glossary, and Definitions. For TCO, consistent use of clear terms is the foundation for robust, scalable, and repeatable processes; best practices; standards, metrics, and benchmarks for facilities and infrastructure management; and effective communication. APPA helped charter an inter- association committee to produce the Asset Life Cycle Model for TCO Management and the related document detailing the framework, terms, and metrics commonly used to discuss facilities-related issues.
Framework. The Asset Life Cycle Model defines cradle- to-grave responsibility to measure and manage the useful life of physical assets and provides a structure for managing TCO to support a mission.
Competencies and Industries. The Asset Life Cycle Model reflects activities over the lifetime of a physical asset (e.g., programming, design, construction, operations and maintenance [O&M], repairs, use) and core skills (competencies) required to perform them, which are further aligned with business areas supporting specialized asset management business processes and practices (referred to as industries).
Glossary of Terms. The glossary of terms and definitions is organized by industry (e.g., space, project delivery, operations, and capital asset management) and by competency and identifies metrics and cost models that can be used to measure the level of performance of each industry and competency.
Metrics. The research and model summarize key expert measures and metrics for each industry and each competency, helping identify best practices for life-cycle management (broken out by TCO main categories) and improving facilities management decision-making.
Life-Cycle Management and Recapitalization Predict the Life of an Investment. Life-cycle management enables managers to know expected asset life, plan its replacement (and have resources available), and maximize useful asset life. Asset, system, or component status can be assessed in many ways; the industry uses seven assessment levels: Levels 1 and 2 (no awareness or wait for failure); Level 3 (statistical analysis of needed funding); Levels 4 and 5 (general or detailed condition survey, needed every 3 to 5 years, especially for projects not undertaken); and Levels 6 and 7 (life-cycle or lifetime inventory and its management, with the greatest cost savings after a one-time initial inventory cost and no ongoing condition assessments).
Manage the Total Cost of an Investment. With life- cycle management, managers can make integrated decisions about assets to maximize investment over its useful life. TCO asset management tracks all costs and saves money but requires work to collect data in real time and monitor maintenance costs versus asset value. The focus on replacing an asset when that is more cost- effective than continued maintenance and capital investment (thus avoiding over-maintenance of assets) is a good (best) management practice.
Decide to Replace an Investment. Facilities personnel are always making replacement decisions, usually based on resources, useful life spent, and real needs. Life-cycle management tools enable TCO-based decisions throughout the asset life cycle and help define current capital needs and long-term needs, improving decision-making (e.g., when there is pressure to adopt the latest technologies or tools).
Recommendation to Replace and Investment. Recapitalization managers make replacement decisions based on three criteria: (1) useful life spent, the remaining life when asset usefulness does not meet the mission; (2) life cycle spent, when risk of failure is near, a similar investment is needed to maintain function, and managers might defer renewal (keep an asset beyond life cycle), often incurring emergency expenses and higher total costs; and (3) too expensive to maintain investment, when managers compare costs over the years (e.g., service requests, repairs, preventive maintenance) to replacement cost (based on asset value and life cycle), recognizing that very few assets cost more to maintain than they are worth.
History of the ROI of an Investment. With life-cycle management, facilities managers have a history of real return on investment (ROI) and costs for each asset, supporting lower O&M and capital funding costs and better new building recommendations. Asset histories and libraries adjust for new and improved assets (which can be measured against the history) and help ensure sustainability for years.
BIM and Recapitalization
Building Information Modeling (BIM) supports life-cycle management and builds on TCO to speed up retrofit, improvement, and replacement projects. BIM focuses on ROI and asset life-cycle learning, using a single database and closed data loop to build on past experience and make each project progressively better. BIM promotes improvements, better user access, and integrated decision-making (the future of facilities management). The BIM model can produce life-cycle savings as TCO data improve BIM and as BIM produces design savings and changes the way that O&M data are captured and used and the way that recapitalization tracks all costs of systems created in the design process.
Total Cost of Ownership and Recapitalization The recapitalization part of TCO manages asset (whether system or building) data; nonrecurring birth and burial costs are part of initial asset cost in the database.
Effective TCO is managed in a capital inventory where cost, life-cycle, and recapitalization data are stored (asset replacements are in this cost category).
Integrated Decision-Making and Recapitalization
Institution decision-makers need a comprehensive asset investment strategy and integrated decisions that consider construction and renovation needs and priorities, operational and programmatic costs, TCO, long-term and short-term influences, and alternative investments. This is not the norm; most institutions typically separate such decisions. Many university facilities are custom-designed or built for specialized uses, minimizing long-term flexibility in use and function. Before making any investment, decision-makers must answer basic strategic questions such as the 50 policy questions in Buildings: The Gifts That Keep Taking which can be condensed to four issues: why, where and when, and how much to invest and what is affordable.
Learning Organizations and Recapitalization Recapitalization is part of the learning organization for facilities managers, with a target of moving toward higher ROI and maximized resources. When recapitalization management is working and assets are tracked for cost and life-cycle data, some learning takes place (e.g., actual asset life cycle; total costs; excessive asset maintenance costs; future cash flow needs; capital priorities; requirements for a sustainable environment; O&M resource levels, if tracked; master planning; investment management cost reductions).