Why you need life cycle planning: the new breed of capital renewal planning will revive your campus--even in a down economy. (On The Money).

If you haven't been paying attention to the recent evolution in capital renewal planning, now's the time: The past five years have seen a true paradigm shift in the way higher education plans for capital renewal. An estimated 10 percent of IHEs now utilize some form of life cycle planning for capital renewal.

To put it simply, the old method--preparing a list of items in a backlog of deferred maintenance, and bringing it to the senior decision-makers for approval--no longer works. Presidents, provosts, and boards now expect to see multi-year plans that take into account both the current and future condition of the facilities, along with program needs. But that's not all; given the change in economic climate, they also expect clear explanations as to why capital renewal is needed. Fortunately, the tools for creating these multi-year plans have improved considerably over the past five years and are now available at a reasonable cost from vendors such as Diversified Intelligence (www.telligence.net), VFA (www.vfa.com), and our own firm, Pacific Partners Consulting Group (www.ppcg.com).

GOODBYE, CONDITIONS ASSESSMENT

Higher education institutions have always had the need to assess the overall condition of their facilities. However, until the late 1990s, the only reliable tool available to most of higher education was the Facilities Conditions Assessment. This conditions assessment (or physical plant audit) was performed either by an outside consulting firm, by internal staff, or by some combination of the two. Engineers and technicians would perform building-by-building, system-by-system inspections to document the physical condition of a campus. The inspection surveys usually covered the entirety of the physical plant needs, including utility distribution systems and hard-scape (courtyards, walkways). Audit teams consisting of university personnel and members of the firm examined selected components and judged the level of physical deterioration. Typically, these inspections identified areas of the backlog, including structures, foundations, and substructures; roofing and exterior walls; plumbing and electrical systems; safety systems; ceiling systems; floor coverings; interior walls; conveying systems; and heating, ventilation, and air-conditioning systems (HVAC).

The product of these audits was a list of backlogged maintenance needs by building component. The campuses were then responsible for prioritizing the items on the list and bringing this prioritized list forward to the appropriate senior leadership. Senior leadership would then review the list and decide what could be funded this year and what could wait. In the meantime, the comprehensive list was put on a shelf to gather dust. (Sound familiar?)

Unfortunately, there are a number of significant weaknesses to this approach. First, it only identifies today's backlog. The approach simply does not have the capability to determine future facilities renewal needs. Nor is it useful in distinguishing current renewal needs versus backlogged maintenance needs. Yes, a few campuses tried to remedy these deficiencies by performing regular condition assessments every few years. But they soon found that the cost of the periodic assessment programs was prohibitive.

The second weakness of the conditions assessment is that the high level of detail provided--while useful to facilities managers in determining work priorities--is, in effect, a list of building components requiring attention. It is difficult to turn this kind of audit into a long-term facilities renewal plan that can inform budget officers and legislators of the true state of need. A third weakness is that the conditions assessment has no way of explaining to the senior officers why the institution is in the condition (or state of disrepair) it is in. Finally, conditions assessments are expensive. A thorough conditions assessment can run over $.10 per gross square foot (gsf). A campus wishing to have 5 million gsf examined would have to pay over a half-million dollars each time it needs an assessment.

Exacerbating these problems is the fact that most IHEs have experienced huge increases in size of backlog over the past decade. Recent estimates indicate the size of the total higher education backlog has ballooned from $28 billion in 1996 to over $50 billion today. It's no wonder most senior leadership now sees they can no longer plan for capital renewal based on a list of today's needs.

THE NEW PARADIGM: LIFE CYCLE PLANNING

Life cycle planning is a methodology that allows campuses to easily create multi-year plans for facilities renewal. It is based on two key elements: (a) Building systems have known life expectancies; and (b) the remaining life of each building system can be estimated.

The life cycle planning approach estimates both current and future renewal requirements for each campus facility, by individual system (electrical, HVAC, plumbing, roofing, etc.). It indicates when each system is likely to fail and what the cost of replacement/renewal will be. To predict annual facilities renewal needs, the methodology uses facility type, gross square footage, construction and renovation dates, facility sub-systems, their life cycles, and replacement/ renewal costs. Expected renewal costs are aggregated by building and time period, to project total renewal needs into the future.

The approach is highly flexible, and typically, the software used to implement the model is customized to the specific IHE. For instance, facility types and systems are selected to accommodate regional and institutional differences. Replacement costs and life cycles, while based on industry standards, can also be adjusted to reflect actual experience. The implementation can also be designed to ensure a consistent approach is used across multiple institutions (in a large system, for instance).

RENEWAL CURVES

One of the key benefits of life cycle planning is the renewal curve that can be created for each school. Renewal curves (along with the supporting data) are extremely important because they quickly illustrate the ongoing cyclical cost of capital renewal, are highly accurate yet inexpensive to create, provide the necessary information to allow for multi-year planning, are credible with senior officers, and provide consistent and comparable results across institutions. What's more, a renewal curve provides three levels of information to help senior business officers:

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How much money needs to be spent. A renewal curve plots how much is needed to keep the current facilities adequately renewed. Because the curve is based on sound concepts and industry standards (tempered by institutional experience), a facilities director can use the curve to demonstrate both today's need and the needs over the next five years. (The facilities director can use the building-by-building, life cycle planning results to back up the data shown in the renewal curve.)

The cyclical renewal pattern. There are two reasons renewal is always cyclical: a) each system is cyclical (and the campus renewal curve is the sum of thousands of individual system renewal curves); and b) campus buildings have been constructed unevenly over time.

A look at the gsf of construction for an "average" university system over the past 100 years would show the largest amount of construction during the 15-year period from 1961 to 1975. Over 40 percent of total gsf would have been constructed during this 15-year period, with buildings 25 to 40 years old in the year 2000.

Such buildings are now showing their age; that is, either they have been recently renewed, are in immediate need of renewal, or will need renewal very soon. This major renewal cycle happens to buildings around the time they hit 30 years of age. It is the age at which the roofs, the HVAC equipment and controls, and electrical systems all need renewal. It is also the age at which the wet-labs need substantial renewal of their built-in equipment and specialties.

The result of the large percentage of buildings constructed in the '60s and '70s is the steep increase in the renewal curve that we saw from 1990 to 2000. This steep increase is also the reason that, even if an IHE had enough renewal funds 10 years ago, it usually does not today.

Renewal curves explain the backlog. The backlog includes the systems (in specific buildings) that are past their usable lives. A building's system is said to be past its useful life when it has failed (the roof is leaking) or when it is in such a deteriorated condition that failure is imminent (the HVAC controls are not expected to last through the year). The result is usually emergency repairs. When renewal does not take place at the end of a system's useful life, the backlog increases.

THE APPEAL OF LIFE CYCLE PLANNING

Using the concepts of life cycle planning, the difference between actual expenditures made and facilities renewal needs (over a period of time) should be equal to the increase in the backlog over that same period of time. The box above, Renewal Needs Vs. Actual Expenditures, shows both the renewal curve (top line) and actual expenditures on renewal/backlog at one campus for a 10-year period from 1990 to 1999. The difference (the shaded area) is the increase in backlog over this 10-year period. (The linkage between renewal and backlog, and the steep rise in the curve during the 1990s, also help explain why many institutions of higher education saw significant increases in backlog during the 1990s--in contrast to the 1980s when their renewal needs were substantially less.) But life cycle planning supports long-term planning and facilitates understanding of backlog and facility renewal needs and the linkages between them. What's more, it is based on a solid conceptual and analytic framework, is easy to understand and communicate, is built on accepted industry standards, and is easily updated (sustainable!) and inexpensive to implement.

Demonstrating magnitude. Fiscal officers, policy makers, and governing bodies generally agree about the importance of preserving the value of a college or university's plant assets. They are not always convinced, however, of the magnitude of the overall problem of facilities renewal needs. Nor are they necessarily knowledgeable about the level of need in any given year. This is especially true at institutions with older physical plants, where a substantial portion of the facilities were constructed more than 40 years ago. The total magnitude identified can be so daunting as to discourage a rational allocation plan.

Facilitating the multi-year plan. Yet life cycle planning identifies both where the immediate problems lie and where problems are likely to occur in the next few years. In this way, life cycle planning facilitates the creation of multi-year plans--plans that can easily be linked to programmatic needs. These multi-year plans also support more effective management of resources and can save money by identifying when a subsystem will have to be replaced. For example, suppose a building needs an immediate electrical renovation. If, within the next five years, the building also will need a replacement of the mechanical system, then it may be cost effective to renovate both subsystems at the same time.

Saving $$. Life cycle plans are inexpensive to implement and can save money because a well-implemented life cycle plan substantially reduces the need for conditions assessments. Implementing a life cycle plan costs between $.01 and $.02 per gsf (and the plan can be easily and inexpensively updated every year). Compare that to the $.10 per gsf cost of the conditions assessment--which also requires costly updates every three to seven years! Bottom Line? It's time to seriously consider life cycle planning for your facilities renewal needs.

Rick Biedenweg ([e-mail]) is president of The Pacific Partners Consulting Group, a Palo Alto, CA-based firm specializing in analytic end policy studies for Higher Education. He is co-author of Before the Roof Caves In: A Predictive Model for Physical Plant Renewal (APPA).