Facility Size and Type-
The Impact on TCO
Total Cost of Ownership and Total Cost of Occupancy are metrics that planners use to estimate the real cost of acquiring new facilities on college campuses, government installations, or corporate headquarters.
TCO is defined as…
the total of the present value of all direct, indirect, recurring, and nonrecurring costs incurred in the design, development, production, operation, maintenance, and renewal of a facility, structure, or asset over its anticipated life span.
Total “Life-cycle” Cost
The thinking of designers, planners, university administrators, and corporate development execs has evolved beyond calculating the cost of facility acquisition and then using historic data to estimate maintenance costs/sf. In the past, maintenance costs over the lifecycle of a facility were expensed as incurred and not considered part of the total capital cost of a facility. However, when designing single, campus, or organizational facilities they now consider the complete capital cost to go far beyond the acquisition cost to include the operating and maintenance costs over the life of the asset.
Total “Capital” Cost
The planning for and constructing of facilities represents a very small portion of the life-cycle of a building. Once a building has been constructed, it may operate for 30-50 years or longer giving rise to the largest portion of life-cycle expenses. In fact, it is estimated that 60-70% of the life-cycle costs are encountered during the ownership phase of the lifecycle.
Arriving at Accurate TCO
In the past, practitioners assumed that dividing maintenance costs by square footage gave a reliable measure of costs/area that could be used in forecasting operating expenses when acquiring new building assets in their portfolio. However, recent research has found the relationship to be much more complex than was generally assumed. For example, a recent study found that the role that facility size and type of space play in predicting operating costs of acquired assets are crucial to effectively managing facilities and estimating and controlling total costs.
Size Matters: Benchmarking Facility Size, Type of Space, and Maintenance Costs/Rentable Square Foot (Justin Dodd, M.S., Jake Smithwick, PhD, MPA. & Dipin Kasana, M.S., – Dept. of Engineering Technology and Construction Management, University of North Carolina at Charlotte) (Mike Brown, PhD, College of Engineering & Technology, Brigham Young University, Provo, Utah)
The purpose of this study was to identify the nature of the relationship between facility costs, type of space, and size for use in benchmarking comparisons and for quantification of economies of scale in facility operations and maintenance.
- To determine if the type of space being reported on has an effect on the average maintenance costs.
- To determine if there is a linear relationship between facility size and maintenance costs.
This study utilized two independent variables:
- Type of facility space (single facility, campus facilities, and organizational facilities – multiple buildings in multiple places).
- Facility Size in rentable square feet (RSF). Rentable square feet is defined as building exterior gross area minus exterior walls, major vertical penetrations, interior parking space and void areas.
- Campus and organizational facility spaces report significantly higher maintenance costs than single facilities despite being significantly larger. If campus and organizational facilities are significantly larger than the average single facility reported, then an economy of scale should suggest that they have lower reported maintenance costs/sf, but the results contradict this. This suggests that variables other than size are contributing to maintenance costs.
- Additional research should focus on identifying these variables for maintenance costs, and further testing of the size and cost relationship for specific industries or facility types, such as office buildings that may also play a role in determining maintenance costs/sf.
What’s It to You?
The accurate projection of the total cost of ownership is critical to the long-term management of capital expenditures for facility acquisition and ownership in universities, government installations, and corporate headquarters. The total cost goes far beyond the acquisition cost and is affected by many variables that must be considered when attempting to accurately project cost. Facility size and type are just two of the many variables that must be factored into total cost of ownership. Future research will serve to improve the predictive reliability and accuracy of TCO and add another professional tool to the architect’s, planner’s, and development executive’s kit.
Read More: Simplar.com