By Alan Millin
Alan Millin, director of consultancy, Imdaad, asks why life cycle cost analysis isn’t taken seriously, and urges a process of continuous improvement.
In a previous article we looked at how facilities management can be defined. I have since found several more definitions and there are bound to be still more around. I have also recently experienced a client redefining FM as they found it necessary to adjust to the current economic climate. One of the definitions we looked at involved integrating people, process, place and technology. A worthy goal you might say, but what about cost optimisation while we’re doing it?
Surely cost optimisation is a key part of such a large scale integration process. Why then is life cycle cost analysis (LCCA) so often overlooked? With clients redefining FM as a matter of necessity the concept of LCCA is one that should not be ignored, yet it regularly is.
Life cycle cost analysis is a great tool for assessing alternative solutions, but all too often it is used in isolation. For example, a comparison of different chillers might show that the more expensive chiller has a higher operating efficiency and lower life cycle cost than its competitor.
A more holistic viewpoint is needed. We can achieve this by leading the process and integrating the project team into the LCCA process from the outset. What seems like a good idea for cost optimisation on one system, such as air-conditioning, may have an adverse impact on another such as the structural or electrical systems. Unless the project team is involved in the process potential pitfalls can go undetected until it’s too late.
Too often we get called to value engineering (VE) meetings only to find these are little more than cost-cutting exercises. The output from a VE exercise should be enhanced value to the client without loss of function. If we lose function as a result of our VE process we have essentially redefined the project. Isolated VE exercises can introduce an unnecessary element of risk to projects unless the outcomes are subjected to rigorous change control procedures to ensure no adverse effects on other project elements. Value engineering and change control are phrases that we do not often hear in the same breath, or even the same room…
A reduction of AED1 in annual operating costs is ultimately much more valuable than a capital saving of AED1 at the start of the project.
Costs associated with staffing or occupancy of a facility represent a significant proportion of the total facility operating costs, as much as 92 per cent over the lifecycle cost for an office building (Langston & Ding, 2001; Alexander, 1996). Langston & Ding also point out that the design of a building can have a huge impact on the salary cost factor, but that this is often overlooked during the design stage.
Dell’Isola & Kirk (2003) note that “…it almost appears that the primary function of a facility is to conserve energy rather than to house people”. When running costs may account for only six percent of a building’s total over 50 years the authors seem to make a valid point.
As our facilities become more energy efficient it becomes increasingly difficult to make more energy savings while the staffing costs may reflect a larger percentage of overall costs.
Facilities managers are therefore ideally placed to ensure efficient functionality of a facility, along with maximum value to the client, by leading the LCCA process. Design teams often overlook this vital aspect in their pursuit of technically excellent solutions. As we know though, technical brilliance does not always translate to business success. Langston & Ding (2001) point out that the ability of building design to influence occupancy costs and worker productivity has been met with scepticism.
Enter the facilities manager…Facilities Manager’s have the rounded technical and business skills needed to keep a project team focused on the ultimate objectives, however the client may articulate them. The facilities manager has the opportunity to educate others regarding how buildings are really used. And don’t forget that facilities manager’s need to be able to demonstrate their own value, and what better way to do this than by making significant savings while delivering the required quality?
Dell’Isola & Kirk (2003) also inform us that a five percent reduction in construction and operating costs is realistic using life cycle costing and value engineering while the cost of LCCA itself lies between 0.5 percent and 0.2 percent of budgeted project cost. Taking these figures the client receives a huge benefit. Incentive enough to take LCCA seriously? Then why is this tool ignored?
Could it be that we don’t know what LCCA really is? I don’t think so. Let’s start educating others and allow our clients to reap the benefits while reinforcing the essential role that facilities management and its exponents play in today’s business world.
Why wait for clients to notice that they are over budget on a facility that ultimately underperforms? Why not implement LCCA, followed by a process of continuous improvement when the building is operational and live data becomes available?
What are you waiting for…?
Alan Millin is the consultancy director of Imdaad.
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