Maintenance and Operations requirements have always dominated the complete life-cycle of Higher Education facilities and with current economic conditions, is at the forefront of the “cost-cutting discussion”. The increasing age of facilities stock in the US is automatically leading to higher maintenance costs and subsequent increases in operational expense incurred through the support of these maintenance requirements. Budget cuts and restrictions mean doing more with less, usually resulting in a blow out in deferred maintenance.
Even when we return to “normal” economic times, there will be still be pressure to keep “non-core” expenditures at today’s levels. Most deferred maintenance projects result directly from and underfunded M&O budget. It is no secret that higher education is facing at $26 billion backlog of deferred maintenance – with some institutions having exposure to hundreds of millions of dollars in critical maintenance. On a square footage basis, M&O cost have declined by almost 30% in real terms in the past decade.
Excluding Rent and Escalation costs, Capital Projects and Salaries, M&O costs typically account for around 43% of the total facilities operational budget. For an average size university, this can represent millions of dollars of opportunity to “cherry pick” costs out of budgets. With universities constantly trying to balance falling enrolment and revenue with increased costs, Facilities tends to always find itself accepting the lion’s share of the cuts (proportionally).
Generally, a Facilities Department develops their annual M&O funding by adjusting the last years spend, adjusted for economic conditions and indicators. This is a very short-sighted approach and when combined with opportunistic cost cutting has a devastating impact not only on the life-cycle viability of campus facilities, but also on the Facilities Director’s ongoing ability to secure the correct level of funding that supports campus infrastructure. Once the mind-set of continual cost cutting has been adopted and accepted as the norm, this becomes the expectation for the future. The cycle is almost impossible to break.
Facilities leaders need to have tools in their arsenal that allow them to take a more defensible approach to total portfolio management – one that uses accurate data, properly benchmarked – that will reinforce the value to the University or College of proper funding levels and the impacts of being underfunded. Facility leaders should be taking advantages of the processes and technologies already available to help facilitate them change in attitudes to M&O funding.
Techniques for Developing and Justifying Budgets – a Model Approach
Facilities Managers have tended to use one of the following methodologies to arrive at their annual budget requirements;
- Apply inflation and changes in the size of the portfolio and multiply this by last year’s budget,
- Use last year’s data on actual M&O costs and add a “fudge” factor based on student enrollments and expected work order load based on last year’s ratios,
- Use the square footage method for total costs, then apportion those cost based up M&O categories.
- Use benchmark data from other institutions, applying to their campus.
While each of these methodologies has a degree of merit for high level forecasting, they do not provide a defensible budget – one which can be use to secure the right level of funding for your operations. Worse, because they are not defensible, they leave themselves open to the Chancellor’s/ Provost’s office picking out the “low hanging” fruit – often with disastrous results to essential facilities programs.
The most effective way to realize a reliable and defensible solution with predictable results is to develop a Maintenance and Operations Model. A major reason to develop a model is to show the true cost of M&O activity and its effect on facility performance. The modeller must be diligent in documenting this approach over several annual budget cycles. When the facilities manager can clearly articulate needs clearly and can describe the economic impact to the University or College of deferred maintenance, the result will more often than not will be acquiescence to budget requests.
Integrated Workplace Management Systems (IWMS) software solutions – much more sophisticated that run of the mill CMMS systems – such as Planon have a Planned Maintenance module that allow facility managers to “time-travel” and develop what if scenario models allowing facilities managers to forecast maintenance and operation costs a specific points in time. Planon also allows facility managers to “plug in” reduce numbers to determine long term economic impacts.
Once models are developed, they become an essential part of operations – much the same as a strategic plan. Once the initial data has been entered, there are minimal upkeep costs and resources involved. They provide a more efficient way to clearly define the component costs of M&O over time and can be applied to future construction projects to facilitate accurate budget forecasts. This reduces the stress of budget work each year, freeing up resources to perform more value added work.
In simple terms, the model needs to be developed using the following process. This is not all-encompassing. Experience gained over time will refine the process and add more value to the model.
- Buildings must be categorized by usage or function. This is easy to do if the University adheres to the CIP coding required by OMB-A21. CIP codes also allow for highly accurate financial reporting.
- Space/ Rooms should also be categorized using CIP codes. Facility Managers then need to determine what room types drive what M&O expenses. This assists with developing custodial and preventive maintenance costs.
- Ascertain the scope (size range) of the facilities being managed. As the size of the facility increases, so too does the quantity of serviceable units (Boilers, chillers, meters, etc). The size can also determine the strategy for maintenance (roof type, etc)
- Develop analogs. Locate facilities within each CIP code that are nearest the average of each size in (3) and use these as the basis for your analog model.
- Take an inventory of all equipment in these facilities, inventoring room use, finishes, hours of operations and so on that can be uses in develop custodial and recurring maintenance components.
The budget model needs to address the following areas of preventive maintenance, custodial services, utilities costs, pest control, refuse collection, recurring maintenance, and reactive maintenance and project costs. Using an IWMS system with configurable Task Specific Interfaces (TSIs), allows the facilities manager to build highly detailed models of each are of operations. TSIs can be integrated to almost any data source and with the right data validation process, information can quickly be assembled from a variety of sources. This information is then modeled and place in a “sandbox” environment to allow the development of multiple budget scenarios without impacting existing data.
Linking the model permanently to the IWMS system so that users can generate M&O budgets by location, facility type and room type, etc and roll these up to a portfolio wide budget.
A model approach to Maintenance and Operations budgeting provides Facilities Leaders with a defensible, fact based budget that lines out all costs and also demonstrates the financial risk to University Operations of not adopting the model budget.
(c) 2009 Anthony R Stack
About the Author
Tony Stack is the Managing Director of BeyondFM. With over 25 years of facility management and real estate strategy and operations experience in the higher education and corporate world, Tony has worked with Facilities Leaders around the globe to develop business processes that position facilities groups as change leaders. He has been instrumental in the development of several large scale facilities strategies for Universities and Colleges based on demographic and economic change drivers and brings insight into the way technology and business process can be blended to enable and support change.
Tony is experienced in with multiple FM technologies (IWMS, CMMS, RRM) and their uses in a number of industries.