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The 6 Steps in Prioritizing Capital Projects | Learning FM

I routinely get asked how to begin prioritizing capital projects.  To be fair, this is can be a really daunting task for anyone to undertake, especially a facility manager that is in charge of a large facility with various operations.  There is good news, however.  These 6 steps in prioritizing capital projects are very methodical and can be applied to any industry.  So, please feel free to ask me any questions that you have at the end.  Enjoy!

Step 1 – Real Property Inventory

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The RPI tells you “where your facilities have been.”  As a facility manager, you must know what you have in order to know where you go from there.  To even begin to know what direction your facilities will go, FMs must have a firm understanding of what their facilities consist of, which is everything the FM will be responsible to manage.  Not every organization will call the RPI by this name.  They should, however, all include the same basic information about all fixed assets.  The RPI is nothing more than a list (hopefully maintained in a backed-up digital format that can be easily queried) of all assets owned and maintained by the organization.  The bottom line is that you have to know all key information about your facilities.  Here is the minimum information you need to keep track of in the RPI for each fixed asset:

  • Asset name
  • Size (square footage of building, linear feet of sidewalks/utilities, tonnage of HVAC, etc)
  • Placed-in-service dates
  • Estimated useful life (discussed below)
  • Initial costs
  • Costs assigned to the asset during its life
  • Identifying information (location, model number, serial number, etc)

If you are lucky enough to already have an RPI with this information, congratulations!  Certain organizations are more diligent about record keeping than others.  If you aren’t that lucky, you are not alone.  I’ve inherited poor RPIs and no RPIs and had to go from there.  How we operate as an FM will build upon this information, so we need to be as accurate as possible in collecting it.

The asset name, size, and identifying information can usually be found easily enough.  Look for data plates in the cases of building equipment or plans/blueprints in the cases of larger structures.  From there, you will have to do more digging on the rest of the data.  Typically, you can get help from your accounting department on costs and placed-in-service dates.  You can find estimated useful life information on the internet by asset, but we will talk more about life-cycle analysis and replacements later.  As you gather the pertinent information, make sure your RPI is kept in a secure environment that is easily updated.  I’ve seen everything from spreadsheets to complex cloud-based asset inventory systems.  The bottom line: use what will work for you and what your organization can afford.

Step 2 – Facility Condition Assessment

Now that you understand what you have, you need to understand what condition it is in.  But how do we do that for every asset in every facility?  For everything within the RPI, you need to compare its current condition with the baseline condition of when it was first put into service (when it was new, regardless of if that is when your organization first put it into service).  This will give you a record of its condition and a working knowledge of what needs to be done to maintain the equipment over the course of its useful life.  This will also tell you when that equipment might need to be replaced.  The result is your new baseline and the process is called a Facility Condition Assessment.  A Facility Condition Assessment (FCA) is a thorough inspection of the facility or group of facilities to determine current condition.  The FCA is only a snapshot of the condition of all facilities at one point in time, because conditions constantly change with continued use.  The moment you “take the snapshot,” each asset’s condition begins to change, so keep that in mind.

The FCA is most easily accomplished through a team of specialists coming to your facility and conducting hands-on examinations of all identified real property assets.  While it is possible to conduct the FCA in-house, I highly recommend hiring a professional team to do this.  First, you need an in-depth knowledge of each system to accurately assess its condition and FMs typically don’t have specialized expertise in all building systems.  Second, a professionally packaged FCA will carry credibility when you use the FCA to argue for funding.  And third, the FCA takes some time to conduct and put together.  I don’t know of any FMs who can neglect all aspects of a job that requires constant attention to focus on conducting and completing a full FCA.  That said, using a professional team costs money and if you don’t have the funding, an in-house condition assessment is preferable to no assessment at all.

Step 3 – 20-Year Capital Plan

The FCA should include a recommendations section.  The format is not as important as the information it contains.  There should be a list of short-term recommendations, which are facility systems that must be addressed, typically within the next year.  This should be followed by a list of long-term recommendations.  The FCA should cover an estimation of repair and replacement activities (timeframe and cost) of all building systems over a period of time in the future with which you are comfortable.  I use a 20-year timeframe and it will directly feed my 20-year capital plan.

The 20-year capital plan is exactly what it sounds like.  Think of a spreadsheet that has every asset you own down the left side of the page.  The columns going across are the next 20 years.  For each asset, determine when you think it will need to be replaced (based on it’s estimated useful life – discussed below) and put how much you think it will cost to replace it (based on the placed-in-service cost for that asset, adjusted for inflation) in the cell that is at the intersection of the asset and the year you have projected for replacement.

Once you’re done, this is your plan that you updated every year.  When you go to make your capital budget, pull this out and go down the list.  Every cell that has a dollar amount in it under the next fiscal year should be evaluated for replacement and possibly included in next year’s capital budget.

Step 4 – Life-Cycle Evaluation, Costs, and Projections

Every asset has a life-cycle, which is its useful life from acquisition to disposal.  Inevitably, the facilities we manage will outlive their 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. 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.  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, repurposed, 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.

Every asset has an estimated useful life (EUL).  One easy reference for determining the EUL of building assets is by using EUL tables.  If your department does not currently have an estimated useful life table for your existing assets, you can find examples on the internet.  These are often used by accountants to determine how long to depreciate assets.  FMs can use the EUL in conjunction with other tools to determine when assets will likely need to be replaced.  This process is called life-cycle analysis.  One tool that I have used many times in life-cycle analysis is the Facility Condition Index (FCI).

The FCI is an equation that yields a ratio, quantifying the condition of a particular facility asset.  The ratio is then given a rating of either good, fair, or poor and used in conjunction with the EUL to determine when to replace an asset.  First published in the book Managing the Facilities Portfolio by the National Association of College and University Business Officers in 1991, the FCI rating scale identifies the ratings as good (< .05), fair (between .05 and .10) and poor (>.10).  The FCI is a very basic equation that compares repair costs to replacement costs.  Here is the FCI formula:

FCI Ratio = Current Year Repair Costs of Asset ÷ Replacement Cost of Asset

As an example, if our department spent $500 to repair a fan motor and $500 to replace a condenser in June on one particular HVAC split system that would cost $6,200 to replace, the equation would look like this:

FCI = ($500 + $500) ÷ $6,200

FCI = .16

That is a poor FCI because .16 is greater than .10 in the FCI rating scale.  However, that doesn’t necessarily mean I’m going to replace the asset immediately.  I use the FCI in conjunction with other information in order to make my recommendations for asset replacement.  If that split system was beyond its estimated useful life and it was an inefficient system, chances are good I would recommend replacement.  However, if the fan repair happened because of an external cause to the system (it was damaged by something) and the asset still had over half its useful life left, I would probably wait on recommending replacement.

Step 5 – Major Project Recommendations from Within

Employees know their facilities inside and out.  These occupants that work in the facilities daily are your experts.  Start there.  Ask them what is and isn’t working as part of the facility and what could stand to improve.  Some of the best projects we have accomplished that get the highest reviews from our customers and guests have come from recommendations from the employees.  Sometimes the end user just doesn’t know what they want until you tell them.

Start by interviewing individual employees and recording their comments.  Look for trends in recommendations and feedback.  Resist the urge to fix every problem, but focus on the recurring negative comments that you can control.  Then, move to include managers and department heads in brainstorming sessions (a SWOT analysis is a great tool, but we’ll have to cover that another time) where you go through employee recommendations and come up with solutions to solve the issues at hand.  Finally, present those recommendations to senior management for approval.

The goal for step five is to consider ways to improve existing operations.  Your goal here is not to drive the strategic direction of the company – that comes in Step 6.

Step 6 – Master Planning With Strategic Decision Makers

The Facilities Master Plan (FMP) is a long-term plan that describes the vision and direction of the organization, specifically in terms of facilities.  The FMPs I have worked on projected one to two decades into the future.  These plans are not created in a bubble or vacuum, however.  The direction of the FMP will be steered through a larger vision (such as a strategic plan) at the organizational level.  Once again, this plan can be created by a team of professionals, which might be required depending on the scope and size of your facilities.

This plan differs from the Step 5 in several ways.

First, it examines how the existing facilities meet the requirements of all stakeholders now compared to the future.  For instance, if the organization’s strategic plan calls for unparalleled growth that will double the number of occupants in the facilities, the FMP will study what will be required to meet the increased demand.  These requirements will probably include more building space and might also include things like IT infrastructure improvement, increased parking capacity, and a traffic study to name a few.

Second, the FMP will propose major projects to remedy identified facility shortfalls (for instance building expansions as identified in the scenario above).  Other projects will be identified through interviews with stakeholders and surveys to determine future requirements apart from those already identified.  For instance, the FMP might determine a completely new structure will be required to accommodate a new service offering like a fitness or daycare center.

Finally, the FMP will paint a picture of what the facilities look like when all plans have been accomplished.  If the FMP is larger and includes a number of projects that will have to be accomplished over time, these can be broken down into phases as desired.

Remember that the FMP is an evolving document and will change as requirements change.  No matter what the scope of the master plan is, there has to be representation from all stakeholders during the planning process.  This is typically accomplished by establishing a leadership team that meets during each stage of the FMP process.

In Summary

These 6 steps in prioritizing capital projects are universal.  Every facility manager must understand what they have (step 1), what condition it is in (step 2), develop a plan for current assets (step 3), evaluate that plan (step 4), recommend larger projects outside of asset replacements (step 5), and then be involved with the strategic plan of the organization (step 6).  I truly hope you have gotten something out of these six steps that you can take with you in your role in FM.  Please feel free to leave comments below or send any questions to  Thanks!

If you’d like to get in-depth with all of these knowledge domains, check out my book here: The Complete Guide to Facility Management.