Capital Asset Portfolio Performance-Based Capital Planning Decision Making
CAPITAL ASSET INVENTORY AND CONDITION ASSESSMENT
After receiving the strategic planning inputs of the organizational priorities, capital asset space allocation requirement, and available financial resources, organizations conduct an inventory of all facilities and supporting infrastructure capital assets—the Bethesda Campus portfolio in the case of the National Institutes of Health (NIH). An inventory typically includes multiple building components, such as building foundation and structural elements; plumbing, mechanical, irrigation, and electrical systems; building envelope and roofing systems; and hazardous materials. Establishing and continuing a regular ongoing inventory of facility capital assets—as has been conducted by the NIH Office of Research Facilities (ORF)—provides the foundation for effective capital planning.1
Once the capital asset inventory baseline has been documented, assessments are conducted to determine the facility and equipment condition, typically through a life cycle condition assessment that is based on a Facility Condition Index (FCI).2 A life cycle condition assessment captures the year of last replacement for major facility components and equipment. The manufacturer’s estimated design life for each individual system is then applied to the year of last replacement to project future or “outyear” requirements. This method is combined with the subject matter expert opinion of facilities professionals to produce a reliable, cost-effective method used to establish a baseline condition of the capital asset portfolio. As part of the capital asset condition assessment, data to track remaining useful life, primary failure modes, and failure triggers is also typically identified (Hirai et al., 2004).
1 Bill East, U.S. Army Corps of Engineers, Engineer Research and Development Center, “Obtaining and Maintaining Accurate Asset Inventories,” November 13, http://sites.nationalacademies.org/cs/groups/depssite/documents/webpage/deps_085867.pdf
2 FCI, Deferred Maintenance divided by Current Replacement Value. Deferred Maintenance refers to the existing maintenance backlog, while Current Replacement Values for constructed facilities are determined by estimating the cost to replace the existing facility with an identical one.
To determine optimal capital asset condition level by capital asset, best practices suggest the critical importance of establishing a link between capital asset condition level and the impact with respect to enabling the accomplishment of end user mission/business objectives. The condition of the built-environment components is one means to optimizing operational and strategic business performance. Working together with scientists, staff, and facilities professionals to determine specific critical performance requirements in the campus built environment is critical in determining how administrative, office, clinical, and laboratory research performance requirements can be sustained and enhanced.
CAPITAL ASSET PRIORITY INDEX
By combining capital asset condition and organizational mission, NIH organization leadership, based on the advice and recommendation from the Facilities Working Group (FWG), have the opportunity to identify strategic capital asset portfolio opportunities using, for example, a Capital Asset Priority Index (API).
API is a quantitative metric, currently used by NASA (Lipka, 2016) and the National Park Service (NPS) to assess the priority, or level of importance, of facilities relative to one another. API is one tool that facility managers can employ (in conjunction with other key metrics such as utilization, condition, and operating costs) to support policy-level strategic capital investment decision making. It enhances the ability of managers to make the best decisions possible to determine which capital assets to repair, where and when to build new, whether to enter or exit leases, and when to dispose of capital assets, all within the context of contribution to mission (DOI, 2005).
API is recognized by the Federal Real Property Council as a valid approach to comply with its “Mission Dependency” data requirements (LeMay and Armstrong, 2009). Furthermore, API has been recognized as a best practice and adopted by ASTM as a Standard (ASTM E-2495).
By combining API and FCI, organizational leadership can identify key and surplus capital assets:
- The high API-high FCI area (top-right quadrant) contains key capital assets that should receive increased management attention and/or additional investment.
- The low API-low FCI area (bottom-left quadrant) should receive less operation and maintenance (O&M) budget and should be assessed for potential transfer to where API can be increased.
- Capital assets in the low API-high FCI area (bottom-right quadrant) should be divested.
Regardless of the specific data system utilized, the ability to more accurately prioritize capital assets based on capital asset condition and research program priorities (mission support) enables NIH senior leadership to align funding and to allocate resources for the most valued capital assets on the NIH Bethesda Campus. In addition, senior leadership will have the opportunity to more rigorously assess the comparative value of capital budget investments specific to strategic research program decisions.
At one time, the best practices in capital asset management were limited to inclusion during design and construction phases of the facility life cycle, and the focus on performing effective preventative and corrective maintenance operations did not occur until after the newly acquired capital asset was commissioned into service. Over time, the understanding or capital asset management has grown to be very sophisticated (IWR, 2013).
The integration of the facility capital asset management principles and practices into the strategic planning process better enables making capital need decisions resulting in the efficient, effective, and economic delivery of facility and infrastructure capabilities to support organization goal obtainment. They
also empower facilities management leadership with the ability to answer core questions that address how best to manage facilities to achieve greater efficiency and effectiveness:
- What inventory of facilities and equipment does the organization control (“as-is” portfolio)?
- What is the condition of each facility and its related equipment?
- What level of funding is required to properly sustain the facilities and equipment portfolio over time?
- How does one determine when it is best to divest instead of continuing to invest in a facility?
- Which facilities and equipment projects are the highest priorities, and where should the organization focus resources?
- How should the organization monitor the performance of its capital assets over time and had better integrate the budgeting process for these capital assets with their performance?