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Total Cost of Ownership: A Different Approach to Asset Management
The facility industry — Architecture, Engineering, Construction, Owner Operator (AECOO) — does a poor job of communicating throughout an asset’s life cycle.
This lack of communication can be attributed to a compartmentalization of expertise. While each person on the team focuses on optimizing their part of the process, few zoom out to understand the facility’s big picture or life cycle. The emergence of new technology, such as BIM, requires a life cycle view and highlights the inefficiencies one carries with a compartmentalized view, but also encourages the potential solution. However, although it provides a technological tool, facility managers still need a process that increases communication across an asset’s life.
Another emerging capability is Total Cost of Ownership (TCO). A holistic view that incorporates the entire cost of owning an asset (from first to operational to replacement to demolition costs), TCO delivers a strategic methodology to drive cost-based decisions throughout the asset’s life cycle. Cross-discipline communication is critical to the TCO approach, where everyone has a role in determining the fiscal and strategic outcome.
A primary method for increasing communication in owning assets is to deviate from a focus on first costs driving long-term outcomes. Owners bear the collective cost across the asset’s life. At the onset of an asset’s life, asset and asset components are often chosen because they are the least expensive. Management may not see the cost impact of poor quality and value over the long term due to the lower initial costs.
During asset selection, owners, operators, and maintainers must get involved in selecting assets based on their long-term cost impact. Product selections should align with maintenance expertise, current products in stock, and limiting the number of different products for resourceful maintainability (i.e., only allowing certain colors for paint, limiting types of automation or mechanical systems). Communication is required across the organization to develop standards for new assets, products, and systems so that long-term costs can be realized and risks to the organization’s operations are minimized. Although a cost may seem more expensive today, long-term benefits will offset these costs due to less or easier maintenance and longer life cycles.
While Life Cycle Costing (LCC) and Life Cycle Analysis (LCA) are solutions for determining long-term financial impacts, these tools do not present information in a way that can be internalized by the owner and only examine a single disengaged decision. A TCO approach provides a long-term, usable strategy that annually organizes multiple needs and requirements or renewal based on estimated failure dates.
A reserve study and a facility condition assessment are two ways to implement a simple strategy to increase communication across the organization.
A reserve study is merely a tool to demonstrate when funding should be made available for renewals. For example, the roof needs to be replaced every 25 years. A facility condition assessment assesses the state of a system and can assist in predicting the failure of an asset to allow planning for replacement. Coupling the reserve study with a facility condition assessment assists with allocating limited resources every year. While the reserve study provides a funding timeline, the condition assessment provides greater visibility as to which system can be delayed or perhaps renewed sooner based on its condition. Assets rarely fail according to schedule, and these two elements of TCO allow for greater communication, and a means to allocate limited resources. These tools can be used at the onset of asset procurement or while the asset is undergoing renewal or end-of-life impact studies.
During an asset’s operation, facility professionals may repair something several times when it should be replaced for various reasons if a broader view is realized.
Facilities already have the needed data
A lot has changed, yet many studies indicate that productivity in the construction industry, while no longer dropping at the rate it was, has yet to show any improvement. All this while most other industries’ productivity has been improving dramatically with automation.
A TCO approach has the following productivity benefits: The owner determines the level of quality they want to maintain through asset selection and maintaining the asset, thus increasing productivity with alignment across the organization. The designer will consider the facility manager and the operator’s impact as they are also aligned with the goal.
While a TCO approach requires data, most data is already captured in operational systems, a BIM, or a digital twin. A TCO approach emphasizes using the data already housed and minimizes data recollection by each phase of the project, as is current practice. Not only are there no additional costs to implementing this approach initially, but an information thread is also built to run through the entire project and the organization to increase communication and maximize resources, thus increasing productivity.
While the owner will be the primary beneficiary, greater communication through a TCO approach also yields a more sustainable facility that optimizes all costs and improves decision-making where all parties, including the occupants, see a win.
These concepts are not new and have been in place in manufacturing and the information technology industry for some time, so the concepts are well-tested and involve little risk to all parties. It is now simply the time for the AECOO industry to implement the concepts and begin to cut what some studies indicate is up to 50 percent waste in time due to duplication of effort and wasted materials in the AECOO industry.
Dana K. Smith, FAIA Emeritus, FbSI, is a facility and IT architect with experience across the entire spectrum of assets, from homeowner’s associations to one of the world’s most extensive facility portfolios. He is an author of articles and books on CAD, Specifications, Cost Engineering, BIM, Education, and many other facility-related topics. He was co-chair for developing the APPA TCO standards Part 1 & 2.
Ana Thiemer is an Associate Director at The University of Texas at Austin with experience across higher education facility management, including maintenance, energy management, capital renewal, asset condition reporting, project management, design, planning, cost estimating, document management, process improvement, and of course, Total Cost of Ownership. She is the author of many capital renewals, facility, and TCO articles. She is a faculty member of the APPA Institute and the APPA Leadership Academy and facilitates leadership learning at The University of Texas at Austin.