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Suggested Citation:"Stanford University Model." National Research Council. 2001. Deferred Maintenance Reporting for Federal Facilities: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended. Washington, DC: The National Academies Press. doi: 10.17226/10095.
Page 27
Suggested Citation:"Stanford University Model." National Research Council. 2001. Deferred Maintenance Reporting for Federal Facilities: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended. Washington, DC: The National Academies Press. doi: 10.17226/10095.
Page 28

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DEFINITIONAL ISSUES AND POTENTIAL REVISIONS 27 In this environment the author developed a methodology to “recognize the aging of our facilities by reserving some part of their replacement value each year against their future need for renewal.” This approach produces an estimate of the annual renewal allowance, defined as the amount of funding to be earmarked each year to offset the aging during that year. An overall renewal backlog is defined as “the value of the unmet renewal requirement represented in the present plant in current dollars” (Phillips, 1986). In this methodology, facilities are categorized by type, and major systems are categorized as either 25- or 50-year systems. 1 Systems or elements that require reworking at intervals of substantially less than 25 years are excluded “as being more suitable for renewal using maintenance and operation funds” (Phillips, 1986). Estimated replacement costs in dollars per gross square foot, adjusted for regional price differentials, are determined and totaled for all 25-and 50-year systems by category of facility. To recognize that the effects of aging “increase the likelihood of expensive (even terminal) breakdowns,” the distribution of renewal estimates is skewed in the direction of the older facilities. This is done by apportioning to each year of the age of a building a fraction of the system replacement cost, which is determined by dividing the age by the sum of the years of its maximum age: 325 for the 25-year systems and 1,275 for the 50-year systems. “Thus, the annual facility renewal allowance, i.e., the amount which should be set aside each year for facility renewal, for a 10-year old building, is the sum of 10/325 of the replacement cost of the 25-year systems and 10/1275 of the replacement costs of the 50- year systems” (Phillips, 1986). The total facility renewal backlog is the sum of each year's renewal allowance from the time of completion of the building to the present. The total facility renewal backlog is determined by multiplying the replacement costs of the 25-year systems by the sum of the years from 1 to the current age of the building, dividing it by 325, multiplying the replacement costs of the 50-year systems by the sum of the years and dividing it by 1,275 and then adding the two numbers. The same types of calculations are performed for individual facilities and then totaled for the entire inventory (Phillips, 1986). A separate methodology is applied to buildings in which some or all of the major systems have been partly or completely renovated. Stanford University Model A different approach for estimating facility renewal needs was developed at Stanford University in 1980 and described in a paper entitled “Before the Roof Caves In: A Predictive Model for Physical Plant Renewal” (APPA, 1982). It is a mathematical approach that predicts the cost and time of facilities renewal based on building subsystem life cycles and costs. In the Stanford University model, facilities are first analyzed in terms of their subsystems, defined as major components or systems such as mechanical, plumbing, electrical, elevators, roofs, and so forth, that have a significant impact on facility wear-out and resulting replacement/renewal costs. An estimate of the life cycle is then made for each subsystem. Buildings with similar uses and subsystems are grouped into categories such as laboratories, housing, offices, and so forth. Average replacement costs are then estimated for each subsystem in dollars per square foot for each category of facility. Facilities are then further classified into 5- 1 Fifty-year systems include exterior walls, partitions, conveying systems, specialties, fixed equipment, plumbing and fire protection, and electrical; 25-year systems include roofing, heating, air conditioning and ventilation (Phillips, 1986).

DEFINITIONAL ISSUES AND POTENTIAL REVISIONS 28 year cohorts by the date of construction or most recent major renovation. For each cohort the total square footage of the buildings is identified. Projections are then developed for each 5-year cohort of each facilities type as to when specific subsystems will require replacement and the associated cost. The projected replacement costs are then summed across all subsystems and facility categories to estimate the total facility renewal needs during each 5-year period. Because the projections generally show a highly cyclical pattern of expenditures, a moving average is used. “According to the basic theory of the model, the difference between actual expenditures made and facilities renewal needs (over any period of time) should be approximately equal to the increase in deferred maintenance needs over that same period of time” (Biedenweg and Cummings, 1997). This approach is not unlike the total life-cycle cost method defined in FASAB Standard Number 6, as amended, in which forecasts of maintenance may serve as the basis to compare actual maintenance expenses and to estimate deferred maintenance. To determine the validity of this model for predicting facilities renewal needs, in 1995 Stanford University tested the original published predictions in two ways. First, the forecast for annual facilities renewal expenditures was compared with actual budgeted expenditures for facilities renewal over a 10-year period. Second, “the accumulated shortfall between the predicted and actual expenditures over that period was then compared with cost estimates of deferred maintenance prepared by the building-by-building inspection performed by an independent contractor” (Biedenweg and Cummings, 1997). The initial testing resulted in only a 2 percent difference between the numbers. The degree of similarity was so high, in fact, that the authors of the paper believed it to be “an anomaly and differences of ten to twenty percent are more likely outcomes. However, the similarity did support the reasonableness of the approach and the viability of the model as a forecasting tool, and further analysis, by subsystem, was performed.” The analysis identified a number of adjustments that could improve the model's performance, including modifications/ additions of certain subsystem categories and “an acknowledgement that facility obsolescence due to program reasons also needs to be considered.” In this review the authors concluded that the experience at Stanford University demonstrates the “model can provide accurate estimates of both deferred maintenance and future plant renewal needs.” Key features of the approach include: • An executive-level view of facilities renewal that is grounded in sound theory and industry standards. This statistical approach accurately predicts both current deferred maintenance and future facilities renewal needs. • Recognition that renewal expenditures must vary from year to year based on the actual construction history of campus buildings. • The ability to distinguish between different types of buildings and the systems that support those buildings. • Identification of individual facilities and subsystems that are likely to be most in need of renewal. • The capability of including facility obsolescence (due to program reasons) in long-range planning. • A model that is tailored to individual circumstances and that is relatively easy to maintain (Biedenweg and Cummings, 1997).

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Deferred Maintenance Reporting for Federal Facilities: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended Get This Book
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In 1996 the Federal Accounting Standards Advisory Board (FASAB) 1 enacted Standard Number 6, Accounting for Property, Plant, and Equipment (PP&E), the first government-wide initiative requiring federal agencies to report dollar amounts of deferred maintenance annually. The FASAB has identified four overall objectives in federal financial reporting: budgetary integrity, operating performance, stewardship, and systems and control. FASAB Standard Number 6, as amended, focuses on operating performance and stewardship. The FFC Standing Committee on Operations and Maintenance has prepared this report to identify potential issues that should be considered in any future amendments to the standard and to suggest approaches for resolving them. The committee's intent is to assist the CFO Council, federal agencies, the FASAB, and others as they consider how best to meet the objectives of federal financial reporting for facilities.

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