A couple of weeks ago, I posted an article entitled, When to Replace Facility Assets. I realized that it really didn’t paint the full picture of replacements strategies throughout your facilities. As Facility Managers, we must be cognizant of what we call the life-cycle of every asset that we manage. Does anyone know the mortality rate of FMs? It’s 100%. Everyone has a life-cycle, just as every asset has a life-cycle. In this article, I will answer the question, What is the Asset Life-cycle, explain the three stages it moves through, and delve into life-cycle cost. Life-cycle cost is vital to the budgeting process for current year and future programming projections.
What is the Asset Life-cycle?
Every asset has a life-cycle, which is its useful life from acquisition to disposal. Inevitably, the facilities we manage will outlive their installed building systems. The facility manager is responsible for managing not only the maintenance, but also the replacement of these systems. Additionally, FMs replace components and systems for the purpose of improving performance or efficiency, which might occur prior to the end of the asset’s useful life. Regardless of the reason, all replacement projections are put into a strategy referred to as a long-term capital renewal plan, which aids the FM in their budget forecasts and requests. There are three stages in the life-cycle
- Acquisition – this begins the life-cycle of the asset. Once the asset is designed, procured, and installed according to specifications, it is placed in the RPI (Real Property Inventory). Here, it is tracked through its useful life.
- Useful life – this stage encompasses the vast majority of the life-cycle. All O&M activities are performed and tracked during the useful life stage in the life-cycle. When the asset has reached the end of its useful life, it is disposed.
- Disposal – at the end of the asset’s useful life, it is removed from service and sold, re-purposed, thrown away, or recycled. If there is still an operational need for the disposed asset’s purpose, the life-cycle begins again with acquisition of a replacement.
The useful life of an asset refers to two things. First, is an asset’s condition of service. An asset is still within its useful life if it is functioning properly. If the asset is not functioning and cannot be repaired, it has reached the end of its useful life. Second, is the asset’s intended use. Assuming it is functioning properly, an asset that is still meeting its intended purpose is within its useful life. If operations have changed and the asset no longer meets its intended use, it is no longer within its useful life.
Life-cycle cost (LCC) is the total cost of ownership of an asset during the entire life-cycle. This includes acquisition, operation, maintenance, support, and disposal and should be considered along with other tools (such as the FCI) when determining replacement. Examples of LCC costs include the initial capital investment (design, procurement, construction, etc.) and all recurring costs (O&M, energy consumption, consumable goods, etc.). Additionally, the FM should consider value-added items with LCC. An example of a value-added item would be if the asset increases productivity or adds to safety measures, which lowers insurance premiums.
When considering acquisition of a new asset, the FM needs to consider space requirements and potential for the new asset to meet growing demand as the business expands in addition to LCC. It might make more sense to spend more now to purchase an asset with more capacity than the current demand rather than purchase a bigger replacement asset later when the demand grows, but before the end of its useful life. Similarly, the FM should consider how important any given asset is to the operation when considering life-cycle replacements. If an asset is critical, it might move up in the priority of replacement over something that is not critical but has a higher FCI and is already past its useful life. Confidence in building systems is important for operations.
Once a determination has been made to replace an asset or acquire a new one, care should be taken to procure what is needed. This may or may not be the same thing that the end-user thinks they need. Determine what the operational need is first. Once you know the need, you can either source it directly or contract with professional services to engineer or design the solution. Keep in mind, if the need is new or has changed, there might be infrastructure changes required to place the asset in service. For example, if a larger piece of equipment is needed to meet growing demand, the facility might require upgrading part of the electrical system to accommodate the project.
Understanding what an asset life-cycle is and how to manage it will absolutely increase the value your bring to your organization through smarter planning and efficient processes. This, in turn, makes you more valuable as a Facility Manager as you have a direct impact on supporting the strategic vision of your senior management.
Thanks so much for reading! Please leave any feedback or comments below on how you conduct life-cycle analysis for facility assets. I can also always be reached at email@example.com. Until next time…