jsea 2012 presentation: aligning finance and facilities

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Aligning Finance & Facilities

Gina Matsoukas Jay Pearlman

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Our GOAL: Protect the REAL Prize

The average endowment

The average building replacement value

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A Disconnect between Finance and Facilities

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Sightlines profile 60+ professionals serving institutions in over 30 states

• 11 year old company based in Guilford, CT • Common vocabulary and consistent methodology

• 95% Annual retention rate • Tracking $5.9 billion in operations budgets and

$4.2 billion in capital projects • Database of 23,500 buildings and 825 million GSF

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Terms That Engage People

Annual Stewardship

The annual investment needed to ensure buildings will properly perform and reach their useful life “Keep-Up Costs”

Asset Reinvestment

The accumulated backlog of repair and modernization needs and the definition of resource capacity to correct them. “Catch-Up Costs”

Operations Effectiveness

The effectiveness of the facilities operating budget, staffing, supervision, and energy management

Service

The measure of service process, the maintenance quality of space and systems, and the customers opinion of service delivery

Asse

t Val

ue C

hang

e O

pera

tions

Suc

cess

ROPA Radar Chart

p

Optimal Target Actual

Annual Stewardship

Asse

t Re

inve

stm

ent

Operating

Effectiveness

Service

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A discovery process that provides the knowledge to take action We Insure Consistent and Comparable Analysis

•By application of the QVQ (Quantify-Verify-Qualify) Process, Sightlines assures accuracy and credibility of all information.

Measurement

•Through the benchmarking process, institutions have the capability to create custom comparisons that help them understand context and performance.

Benchmarking

•Sightlines synthesizes an institution's verified data to tell a story and create the knowledge to take action.

Analysis

Data

Information

Knowledge

Action

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National Trends for Managing Campus Facilities

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Campuses are getting older

0%

5%

10%

15%

20%

25%

2007 2008 2009 2010 2011

Square Footage Over 50 Years Old by % (Renovation Age)

Ove

rall

Data

base

More high risk space on campus

% o

f Spa

ce

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3.41 3.29 3.04 2.72

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Under 10 10 to 25 25 to 50 Over 50

Newer buildings are more complex

Technical Complexity

Ove

rall

Data

base

Age Category

Technical complexity drives up costs and requires more mechanical staff

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Staff has not adjusted with campus buildings O

vera

ll Da

taba

se

General Trades

Total Struct. Tradesmen

Total Mech. Tradesmen

Building Trades Mix

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Maintenance coverage increasing over time

79,000

80,000

81,000

82,000

83,000

84,000

85,000

86,000

87,000

88,000

89,000

90,000

2007 2008 2009 2010 2011

Ove

rall

Data

base

GSF Coverage per Maintenance FTE

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Campuses are getting busier

0

50

100

150

200

250

300

350

400

450

2007 2008 2009 2010 2011

Density Factor

Ove

rall

Data

base

More “foot traffic”, more wear and tear

Use

rs p

er 1

00,0

00 G

SF

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Facilities operating budgets flat since 2008

Facilities Operating Budget

Ove

rall

Data

base

2011 budget increases made up for prior year cuts

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

2007 2008 2009 2010 2011

$ pe

r GSF

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Decreasing Energy Consumption

132,000

134,000

136,000

138,000

140,000

142,000

144,000

146,000

148,000

150,000

152,000

154,000

2007 2008 2009 2010 2011

Energy Consumption Down by 9%

Ove

rall

Data

base

Even with more technically complex buildings, consuming less energy

BTU

’s pe

r GSF

Lower Energy Consumption = Lower Energy Cost

16.00

16.50

17.00

17.50

18.00

18.50

19.00

2007 2008 2009 2010 2011

Energy Costs per Unit

The energy cost per unit has decreased by an average of 4%

Tota

l $ p

er U

nit

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“Backlog of Needs” are increasing

Total Backlog $ per GSF

Ove

rall

Data

base

Backlogs up about $10/GSF over last five years

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

2007 2008 2009 2010 2011

$ pe

r GSF

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Start with the data – as a CFO I need to know…

• Age profile of my buildings – what’s coming due, when?

• How much “should” I be investing in annual stewardship? What

is my historical deferral rate?

• What is my asset reinvestment or deferred maintenance

backlog?

• Are there opportunities to “self-fund” increases in annual

stewardship to slow the rate of deferral? (energy, custodial, etc)

• What do my campus constituents think about facilities services?

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Use Data to Set Effective Policies…examples

•Deliberately set targets for annual stewardship and

deferral rate

•Give operations the ability to be proactive by

funding stubborn and recurring daily service needs

• Create building portfolios to create a strategic

allocation of capital resources

•Allow operators to keep savings provided the funds

are used for stewardship or reinvestment projects

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Bellarmine Preparatory School Case Study

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The History, It’s Students & the Facilities Facts & Figures

HISTORY: • Established in 1928 for boys by Father David McAstocker • Became co-educational in 1974 with the merging of St. Leo’s High School

and Aquinas Academy Girl’s School • Approximately 75 Faculty and 40 Staff Members ITS STUDENTS: • Approximately 1,000 students with 33% receiving Financial Aid • Students participate in award winning drama and music programs and 43

athletic teams in 18 different sports and contribute 25,000 hours of community service annually

• 98% of students attend college each year FACILITIES: • 42 acres, 11 buildings & 211,000 SF of classroom and office space • 6 tennis courts, softball and baseball fields, a track and field oval and

football/soccer stadium • Annual operating revenue and expenses: ~$15.5million • Endowment Value: ~$17 million

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Long-Range

Strategic Plan

Accessibility

Spiritual Formation

Program Excellence

Excellence in People

Financial Stability

Long-range Planning Initiative

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Objectives of Long-Term Financial Stability

• Strengthen financial reserves to increase operating flexibility

• Increase availability of capital for equipment and plant

• Grow endowment through alumni support to provide long-range annual support

• Develop a facilities plan and begin phase of “deferred maintenance”

?

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Physical profile Translating campus age into risk level

$0

$10

$20

$30

$40

$50

$60

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45

$/G

SF

Age

Age Category < 10 Years

Age Category 10-25 Years

Age Category Over 25 Years

70% 8% 22%

Bellarmine $/GSF average from IFP

Facilities Peers:

Jesuit Peers:

What is the age profile of my buildings? What is coming due and when?

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$2.00

$0.75 $0.56

$0.94

$0.47

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

3% Replacement Value Life Cycle Need (Equilibrium)

Functional Obsolescence (Target)

$ in

Mill

ions

Envelope/Mechanical Space/Program

FY2010 Stewardship Targets

Defining stewardship investment targets

Industry Standard Sightlines Recommendation

Replacement Value: $66M

What is the annual investment need to sustain campus value?

Total $ in Millions $2.0 $1.69 $1.03

Lifecycle 33 Years 39.1 Years 64.1 Years

% of Replacement 3% 2.6% 1.6%

FY11 projected replacement value is $76M, a 15% increase from FY10

How much “should” I be investing in annual stewardship? What is my historical deferral rate?

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Annual Investment versus Stewardship Target

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

$2.0

2006 2007 2008 2009 2010

$ in

Mill

ions

Envelope/Mechanical Space/Programming

Annual Stewardship Spending Mix

Decreasing Net Asset Value

Funding averages 12% of annual target

Life Cycle Need

Increasing Net Asset Value

Sustaining Net Asset Value

Recurring capital from Detailed Trial Balance, one-time capital from Depreciation Schedule

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Total capital investment into existing space versus stewardship target

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

$2.0

2006 2007 2008 2009 2010

$ in

Mill

ions

Annual Stewardship Asset Reinvestment

Total Project Spending Mix

Science hall renovation impacts historical capital profile

Decreasing Net Asset Value

Increasing Net Asset Value

Sustaining Net Asset Value

Life Cycle Need

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Total investment in existing space

On average, Facilities Peers are investing

$3.65/GSF or $737K more than Bellarmine

annually.

= Jesuit peer average ($3.67) = Facilities peer average ($7.24) = Jesuit peer average ($4.17) = Facilities peer average ($6.42)

Facilities peers spend over $3/GSF more than Bellarmine per year

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Understanding the IFP terminology

Ifp inventory sample slide (screenshot of template)

A look at the project list we compiled:

• Timeframe • A: 1-3 years • B: 4-6 years • C: 7-10 years • X: no work in the 10 year horizon

• Project Category • Repair/Maintenance: Replacement of components that have failed or are failing, or planned replacement at the end of a component’s

life expectancy • Modernization: Replacement of components before the end of their life expectancy

• Investment Criteria • Reliability - Issues of imminent failure or compromise to the system that may result in interruption to program or use of space. • Asset Preservation - Projects that preserve or enhance the integrity of building systems or building structure, or campus infrastructure. • Safety/Code: Code compliance issues and institutional safety priorities or items that are not in conformance with current codes, even

though the system is “grandfathered” and exempt from current code. • Program Improvement: Projects that improve the functionality of space, primarily driven by academic, student life, and athletic

programs or departments. These projects are also issues of campus image and impact. • Economic Opportunity: Projects that result in a reduction of annual operating costs or capital savings.

Integrated Facilities Plan terminology:

What is my asset reinvestment or “deferred maintenance” backlog?

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Understanding needs relative to campus space

Bellarmine’s Total Need: $40.76/GSF

Bellarmine’s total needs included in the IFP – $8.6M

77%

7%

16%

Building Infrastructure Grounds

Building- Project needs occurring within the walls or on the exterior shell of a building on campus. Infrastructure- Projects dealing with heating, cooling, electrical, water and other central utility generation and distribution on campus. Grounds- Projects including green space, sidewalks, parking lots, roads, athletic fields, etc.

$6.6M

$1.4M $0.6M

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

Building Infrastructure Grounds

Mill

ions

Total Need by Structure

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$0.9

$0.3

$0.6 $0.6

$0.6

$0.4

$0.8

$0.1

$0.7

$0.2

$0.2

$0.1

$2.6

$0.3

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

Building Envelope Building Systems Infrastructure Safety/Code Space Improvement

$ in

Mill

ions

Total Need by Package

A B C

Identified need by package Needs are distributed proportionally well across the various packages

62%

38%

Total Need by Category

Repair/Maintenance Modernization

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Asset reinvestment backlog versus peer institutions Backlog identified during the IFP process was $40.76/GSF; lower than peers

$111.81

$65.36

$0

$20

$40

$60

$80

$100

$120

Bellarmine Facilities Peers Jesuit Peers

Back

log

$/G

SF

Backlog of Need on Campus

$40.67

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Facilities operating budget

$3.40 $3.89 $3.55

$0.23 $0.22

$0.26

$1.24

$1.85 $1.93

$0

$1

$2

$3

$4

$5

$6

$7

$8

Bellarmine Facilities Peers Jesuit Peers

$/G

SF

Facilities Operating Budget Actuals – Adjusted for Regional Cost of Living

Daily Service PM Utilities

% change in daily service costs since 2007:

Bellarmine Facilities Jesuit

- 4% + 8% +9%

Bellarmine’s operating budget is lower than peers, and has been decreasing

Are there opportunities to “self-fund” increases in annual stewardship to slow the rate of deferral?

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Custodial department Covering less space per worker and using more materials; below average results

Inspection Score (1-5) BP Facilities Peers

Jesuit Peers

Cleanliness 3.7 3.9 4.3

*FY10 inspection scores do not take the new Booster Gym into account

= Jesuit peer average (29K) = Facilities peer average (33K)

= Jesuit peer average ($0.13) = Facilities peer average ($0.14)

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Capital Funding Strategies to Reduce Asset Reinvestment Backlog

Case Study

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Breaking campus into portfolios

Total Needs

$8.6M

Building Needs $6.3M

Acad/Admin

133,100 GSF $4.6M

$33/GSF

Student Life

60,100 GSF $1.2M

$26/GSF

Transitional

15,200 GSF $450K

$34/GSF

Grounds/Infrastructure Needs $2.3M

Athletics $873K

Non-Athletic $1.4M

6 3 2

# of buildings:

Admin Building Orell Library Orton Hall Snyder Hall Father Weber Hall Allen Building

Booster Gym Names Gym Chapel

Student Center Portable Classroom

Boiler House

$8.6M

$6.3M $2.3M

$873K $1.4M

$4.6M $33/GSF

$1.2M $26/GSF

$480K $34/GSF

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Capital Funding Scenarios

Scenario #1

Current capital plan

Scenario #2 Scenario #3

Maintain Backlog Decrease Backlog

10-Year Investment:

$5.4M

10-Year Investment:

$14.3M

10-Year Investment:

$19.7M

Key Considerations

1. Transitional Portfolio Management- Buildings slated for demolition should only receive funding for safety related issues. Sometimes the most cost effective way to mitigate deferred maintenance is to demolish a building!

2. Project Selection- To ensure the right projects are completed, it is critical to create a clear and flexible plan that aligns available resources to key campus priorities.

3. Master Plan Integration- Coordination between deferred maintenance priorities and master planning efforts should be considered in order to achieve the maximum return on investment.

4. Physical Footprint Expansion- Expanding the current campus footprint will impact current funding projections and annual investment targets. It is important to understand how future campus growth will influence the plan prior to “pulling the trigger.”

Forecasting the Asset Reinvestment Backlog using the 3 funding scenarios

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Funding scenario 1: $5.4M

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0

$18.0

$20.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ions

Catch Up vs. Keep Up

IFP Backlog Accumulated Deferral

$8.8M increase

Scenario #1 reduces current backlog, shortfalls in stewardship accumulate a new backlog

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$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ions



No net change

Scenario #2 creates a “No Net Change” to the current level of campus need

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$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ions



$5.4M decrease

Scenario #3 reduces current level of campus need by $5.4M over 10 years

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Where do we go from here?

• Campus Communication

• Portfolio “Re-alignment”

• Priority Revision

• Tracking Spending • Communicate Results • Contingency Management

• Project Impact • Portfolios • Investment Criteria • Financial Alignment • Multi-year Plan

• Technical Review • Information by System • Integrate Program • Integrate

Infrastructure • Assess Urgency

Project ID Project Selection

Capital Budget Process

Project Execution

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Concluding Comments

jsea 2012 presentation: aligning finance and facilities

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