By January 3, 2011 2 Comments Read More →

Postpone Capital Renewal Projects : Double Your Costs And Your Headaches

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Capital PlanningI recently visited a facility for a meeting and my experience demonstrated why you need a good capital plan and adequate funding.

At the facility, I had to park in their multi-level above ground parking facility, which was really the only choice unless you wanted a long walk. It was so busy, I ended up on the top level. Good thing it wasn’t snowing out.

Then, I walked to the elevators only to find out they were out of service. Walking down 5 parking levels wasn’t a problem for me, but on my way down, I passed several people working their way up. At least one of them looked like they were struggling.

Any time something fails, there must be a story, so I asked the Facility Manager. It was simple enough, a major component failed in what was a very old elevator.

It looks like it will be a few months before the elevator is back in operations – repair wasn’t much of an option given it’s age. Replacing the elevator will take a while, with the lag time in approvals, design, tendering, manufacture and installation. So what are they doing? Waiting. And walking. One option they are considering is using golf carts to ferry people up and down the parking garage to help people who would otherwise have a hard time walking up and down the stairs.

They figure when It’s finished, it will have cost them at least double the cost and take months longer than if they had implemented a planned replacement.

Of course my next questions is whether the need to replace the elevator had been identified already. The good thing is they had a comprehensive, multi-year capital plan and have been saying for a while that the elevator needed to be replaced. The problem is, their funding was limited and the elevator kept falling below the cut-off line. There were other more urgent items ahead of the elevators, either based on condition or on risk. Too bad this never got the funding it needed when it was identified by the Facility Manager - they would have saved a lot of money.

This is exactly why you need an adequate capital renewal funding budget. Even if you don’t have enough, and it's unlikely you do, you should set aside a portion of the funding to do things that never seem to make the top of your priority list because the risk (or condition) simply isn't seen as being bad enough, but are well overdue like this elevator.

And, it’s why you need to do a multi-year capital renewal plan. Mostly so you can prioritize your funding in a systematic way, including based on all types of risks and the related costs from actual repair, disruption or lost-time and corporate image.

Hopefully it will help you get the funding you need when you need it, but at the very least, when something like this does happen, you can point to your efforts to get the funding you needed and use it as a good example of why you need more funding for the other items on your long list. Don't ever say 'I told you so', but if you eve face a problem like this (or you can use this example) you will then have something you can use to help justify an increase in funding.

When faced with something that you need to do, assess the difference in cost between a planned replacement/repair and an emergency replacement/repair and factor that into your business case.

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2 Comments on "Postpone Capital Renewal Projects : Double Your Costs And Your Headaches"

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  1. It sounds as if these folks need a better decision making process. How do they assign risk? How do they priotize projects?
    It’s true when you say you have to catch the below ther cut items but you need a rational way to identify them. It’s a classic problem that’s been with us for years.

  2. Thanks for your comment, Jim, you are right, it’s a classic problem.

    From what I can tell, they do have a process for prioritizing their capital plan, but don’t factor in the cost of planned vs. emergency replacements. Also, things that affect their core business (which does not include this elevator) get the highest priority. This is simply the problem almost everyone who manages a building faces – you can’t eliminate all risk with the limited funds you get. Having said that, many organizations don’t have an effective process for developing their renewal/capital project plan or good decision making (not to mention information) for prioritizing capital renewal projects.

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