Maximizing short-term profitability is a top accountability of management. It usually requires reducing operating costs, minimizing the demand for capital investment, generating positive cash flow, and growing the owner's equity to support long-term viability. When this accountability trumps all others during management of building ownership, it can cause the management team to lose sight of long-term value, and to choose value-destructive short-term options. As the total cost of building ownership (TCBO) continues to rise, in part because of this short-termism, management paradigms are shifting toward long-term value creation. In addition to creating sustainable shareholder value, environmental stewardship is also now recognized as a beneficial outcome of managing the TCBO.
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The services offered by Sustainable Renewal Planning Inc. are designed specifically to bring clarity to facility renewal capital investment and planning decisions - optimizing the total cost of building ownership through total investment impact analysis. www.srpcanada.com
Helping clients achieve the lowest total cost of building ownership (TCBO) by:
After all, what is good for the environment is repeatedly proving to be much better for business than most people expected. Studies have established a strong correlation between sustainability and improved cash flow, at the building portfolio level. Owners are therefore beginning to understand the connection between sustainable buildings and higher returns for real estate investment.
Unfortunately, many organizations continue to throw away five percent (or more) of their facilities' capital budget each year**. Historically, management analysis has not included the discipline of linking operational lifecycle cost information to capital planning. Capital often gets deployed on facility renewal projects that offer only short-term ownership benefits for the organization. In addition, in the absence of a disciplined analysis of the TCBO, other important value impact factors such as social accountability, economic output, and portfolio right-sizing, are not fully considered when allocating capital.
In many organizations, the facilities management team and the capital planning team operate in separate silos. This approach can blur their understanding of how one team's actions impact the other team. The typical outcome is reduced effectiveness of limited capital investment funding, missed opportunity to reduce operation and maintenance costs, shortened building component lifecycles, and higher ownership costs.
A strong body of literature demonstrates that substantial productivity gains can accrue from a comprehensive plan which optimizes the cost savings contribution of energy end-use components. These components typically account for 35% of the building components subject to facility renewal. Failing to properly estimate the TCBO for various facility renewal options creates risk, and obscures future cost certainty.
**Accruent press release 2015
Conflicting Objectives about Facility Ownership,
and Capital Investment Value:
The continuous pressure on facility management and capital planning teams naturally leads to the need for making difficult choices when investing limited capital funding. The first set of tough choices is between (a) meeting short-term needs (b) creating long-term value. These choices are connected to another set of choices for establishing measurable investment objectives, which typically involves choosing between objectives such as:
Of course, fundamental to meeting any of these investment objectives is the requirement to know the comparative financial benefits (ROI/NPV). This is often where "the foolhardy pursuit of short-term profit" can start to cloud good judgment.* One of the best ways to ensure the clarity of such investment decisions is to first understand how each investment affects the total cost of building ownership (TCBO).
Sustainable Renewal Planning Inc. works to help Owners understand the TCBO; not only when capital investments are being considered, but also in managing the maintenance and operation, energy consumption, and facility renewal costs associated with building ownership.
*Beth Knight, EMEIA Financial Services, published by Ernst & Young Global Limited, 2015, page 12
