Investing in facilities can be one of the biggest items on the balance sheet. In these uncertain economic times, with budgets under increasing pressure, it’s critical that the right money is spent in the most efficient way. What condition are assets actually in and what expenditure is needed? Are some assets becoming too expensive to repair, and if so should they be replaced?
A "health check" for your assets
When you’re managing a large number of assets, it can be hard to keep track of their individual status. Information may be incomplete, or compiled across a range of different databases and spreadsheets. It becomes challenging to get an accurate overview and make strategic investment decisions. A key way to get better visibility is with a Facilities Condition Index (FCI).
The FCI is an internationally recognised measure of performance that’s used to objectively assess the current and projected condition of a building asset, essentially benchmarking its position over a period of time. To calculate an FCI, a facility manager or third-party assessment professional needs to quantify the cost of deferred maintenance, repair and replacement deficiencies. This is typically the outcome of a Facility Condition Assessment.
What are the business benefits of the FCI?
The FCI provides you with a measure of performance and visibility of the condition of your assets, the total cost of backlog as a function of the total asset replacement cost. This can assist with EOFY/budget planning, as well as informing longer-term strategic CAPEX planning and help prioritise capital investments. It allows senior decision makers to better understand building renewal funding needs
FCI also serves as a good indicator for where your buildings are functioning well, and pinpoints areas that need immediate improvement. This enables a more proactive and strategic approach to asset management planning, avoiding more costly, critical failures and instead potentially extending the life cycle of assets.
In addition, some businesses use FCI as a KPI measure. If the overall index is improving year-year-on year, it’s a great indication that you’re moving in the right direction. The Victorian Health Building Authority (formerly VHHSBA) is among the organisations setting KPIs around asset condition, under the Victorian Government’s Asset Management Accountability Framework. This outlines a series of requirements, from good asset management practice to service delivery, that Government organisations have to attest to meeting in their annual reports. Assets must not only be appropriately planned, but appropriately "built, acquired, operated, maintained and disposed of".
How is the FCI calculated?
The FCI is calculated as a ratio of the current deferred maintenance cost against Asset Replacement Value (ARV). A higher percentage indicates that assets are in poorer condition.
· Good - 0 to 5% FCI
· Fair - 5 to 10% FCI
· Poor - 10 to 30% FCI
· Critical - greater than 30% FCI
For example, a building that needs $200,000 of repairs, which would cost $4 million to replace, scores 5% which is "good". But if the repairs needed exceed $1 million, it would score 25%, edging into the “critical” zone. Serious consideration would need to be given to replacing it altogether, rather than patching it up.
Case study example: using FCI to build a business case in retail
The facilities management department of an Australian shopping mall operator faced a challenge with the elevators in its properties. An assessment determined that 70% of them were over 30 years old, and if they continued with the same strategy of maintenance and repair, that number would reach 90% within ten years. Elevators of this age are increasingly expensive to repair, and much more likely to experience critical failure which would mean costly outages.
By using an FCI measure, the FM team was able to demonstrate to management the risk involved in not investing in replacing the elevators. This helped them request more funding to replace, rather than repair, the oldest elevators. They’re now on track to achieving less than 50% of elevators over 30 years of age: a 40% difference from where they could have been, had FCI not demonstrated the true cost of inaction.
FCI ultimately makes life easier for asset managers. It gives better insight into where budgets are most effectively spent, and helps avoid the often costly repercussions of bad investment decisions.
AssetFuture has recently launched a FCI Dashboard within the AssetFuture Platform so customers can easily benchmark facilities according to their FCI targets:
The AssetFuture Platform FCI Dashboard
If you’d like to know more about how your organisation can carry out a Facilities Condition Assessment and leverage FCI, please reach out to us via the link below.