The Real Meaning of Total Cost of Ownership (TCO)

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1 The Real Meaning of Total Cost of Ownership (TCO) Presented by David Patnaude Director of Plant and Sustainability Riverdale Country School Lawrence Eighmy Managing Principle 1

2 The Real Meaning of Total Cost of Ownership (TCO) Presented by: Riverdale Country School &

3 3/10/15 3

4 HOW OLD IS YOUR CAMPUS In 1999, the average age of school buildings was 40 years, with the last renovation occurring 11 years prior. National Center for Education Statistics 3/10/15 4

5 Endowment Facilities Environmental Stewardship Value Management Effort Cycle Maintenance Deferred Maintenance Modernization Capital Construction Management Effort Value Add Value Fundraising Identity Environmental Programs Performance Improve Management Master Plan Utility Plan Space Utilization Study Life Cycle Cost Analysis 3/10/15 5

6 TOTAL COST OF OWNERSHIP The true cost of ownership Buildings The Gifts That Keep on Taking APPA Books, A Framework for Integrated Decision Making Figures 4-6 & 4-7 Typical Costs of Ownership Total Costs Distribution over Lifetime 33% 1% 33% Facility Cost Planning, Design & Construction Years Project Lifetime Lifetime Cost 33% Maintenance & Operations Plan, Design, Construction Maintenance & Operations Capital Renewal Demolition Capital Renewal Demolition 3/10/15 6

7 Building CAMPUS REPLACEMENT VALUE Marc A. Zambetti Athletic Center William C. W. Mow Hall + Student Center What is the right way to determine CRV? Year of Service Replacement Cost in 2010 Gross Square Footage 1961 $14,708,750 41, $13,699,228 38,186 Frank S. Hackett Hall 1920 $11,193,000 31,200 Weinstein Science Building 1959 $4,104,100 11,440 Cohen Science Annex 1952 $1,657,425 4, Building 1929 $6,511,313 18,150 Tower House 1900 $3,366,510 9,384 3/10/15 7

8 3/10/15 8

9 DEFERRED MAINTENANCE is defined as maintenance work deferred on a planned or unplanned basis to a future budget cycle or postponed until funds are available. Roof replacements, major building component repairs, mechanical equipment, underground utilities, and roads and walkways are projects that are often deferred to the next annual funding cycle. A deferred maintenance program is a comprehensive, one-time approach, often extended over several years, to control a massive backlog of maintenance work. 3/10/15 9

10 DEFERRED MAINTENANCE VS CAPITAL RENEWAL VS RECAPITALIZATION Capital renewal: systematic management process to plan and budget for known cyclic repair and replacement requirements that extend the life and retain usable condition of facilities and systems and are not normally contained in the annual operating budget. Capital renewal is a planned investment program that ensures that facilities will function at levels commensurate with the academic priorities and missions of an institution. Recapitalization: periodic recurring costs for replacement/renewal projects and one-time funding for improvements and programmatic projects. These are capital costs associated with the reinvestment of funds in a building or fixed asset. These projects are typically larger in size than annual maintenance work is, and they often involve replacing or renewing a building s major subsystems or infrastructure areas. 3/10/15 10

11 CAPITAL RENEWAL VS RECAPITALIZATION: Example: When the Head Of School or College President wants a new classroom paid for out of the identified capital renewal budget this is a misappropriation of funds. The thought is good but buildings that require constant maintenance suffer from spending renewal on recapitalization. 3/10/15 11

12 REAL FACILITIES PLANNING The infamous deferred maintenance project list When and how often is this examined? Is it merely a political wishlist? Mixing wish list in with true need for capital renewal A Facilities Conditions Assessment involves a knowledgeable team categorizing and prioritizing facilities projects coming due over 10 years based on observation, and typical life cycles of equipment and materials. Costs are associated with projects through industry standards, such as RSMeans. An FCA is a key component of a capital renewal strategy to understand approximate costs of maintaining facilities and determining annual need. APPA recommends refreshing the FCA every 3 years. 3/10/15 12

13 FACILITIES CONDITIONS INDEX & FACILITIES QUALITATIVE INDEX FCI = The Building s Deficiencies Current Replacement Value (CRV) APPA indicates that an FCI over 0.10 indicates major repair or replacement should be considered. FQI = The Building s Deficiencies + Functionality Improvements Current Replacement Value (CRV) 3/10/15 13

14 A GUIDE FOR USING FQI FQI Range Recommendation Requires regular maintenance and capital renewal of systems based on life cycle Some deficiencies, limited to moderate renovation Moderate deficiencies, moderate to extensive renovation Extensive deficiencies, comprehensive modernization required >1.00 Candidate for demolition or modernization with potential change of use Adapted from Qualitative Facilities Assessment: Beyond the Condition Audit. Kaiser, Harvey H.; Klein, Eva Facilities Manager, v26 n6 p12-14, Nov-Dec /10/15 14

15 Prioritizing Capital Renewal Priority 1* $604, % Complete Priority 1* - Immediate Priority Years Priority Years Priority Years Complete $12,000, % Priority 1 $6,216, % Priority 2 $5,502, % Priority 3 $10,398, % TOTAL IDENTIFIED NEED $34,720,584 3/10/15 15

16 Mow Energy Plant Conversion Last year: 1920s coalfired boilers retrofitted to oil-fired boilers 3/10/15 16

17 Mow Energy Plant Conversion This year: Replaced with high efficiency condensing gas-fired boilers Recapitalization 3/10/15 17

18 MOW ENERGY PLANT CONVERSION A new back up generator powers key equipment in Mow Complex in the case of a power outage. Improved thermal comfort Improved efficiency of equipment, improved operations and maintenance Improved operator control Significant cost savings Emergency preparedness 3/10/15 18

19 PLANNING FOR EXISTING FACILITIES 3/10/15 19

20 PLANNING FOR EXISTING FACILITIES Renovate vs Rebuild Retro Commissioning Energy Audits Modernization Capital renewal overlap 3/10/15 20

21 PLANNING FOR NEW FACILITIES Project Planning and Delivery Commissioning Green Building Communication Team: Internal vs External Capital renewal overlap 3/10/15 21

22 POTENTIAL OVERLAP WITH CAPITAL PROJECTS Building Project Efficient Project Delivery Cost & Ops Savings Estimated $ Lindenbaum Gas Connection for Future from Natatorium Service Gas service already needed for Natatorium, Boilers have reached end of service life Gas has significant cost savings from oil, lowers carbon footprint $200,000 vs. $120,000 in kind Gas: $12/MMBTU vs Oil $23/MMBTU ~$20,000 annual savings JR Consolidated Boiler Plant for Perkins Replacement and JR Service required for Perkins, JR requires HVAC upgrade, Boiler nearing end of service life Increases usable program space, consolidated plant is more efficient and easier to maintain, fuel cost reduction $300,000 vs. $100,000 in kind Gas: $12/MMBTU vs Oil $23/MMBTU ~$4,000 annual savings Campus Repave roadways near Natatorium and Perkins Will already be patching and repairing where damaged Would have to repave soon anyway, due for cycle maintenance $50,000 Perkins $120,000 Nat Natatorium Utility Service Route through field Turf fields are due for cycle maintenance and can be replaced at the same time Shorter run minimizes conflicts with existing service & uses less material TBD 3/10/15 22

23 Your School can best support its community at the intersection of Sustainability, Stewardship, & Mission Student-led Group Sustainability Education/Program GHG Inventory STARS Organizational Mission Energy Policy Purchasing Endowment Investments Optimum Performance Environmental Sustainability Facilities Stewardship Green Building (e.g. LEED) Material Flows Reduced CO 2 /GHG emissions Identification of needs/solutions 3/10/15 23

24 PLANT RESERVE STRATEGY Building up plant fund reserves by transferring income surplus offers a source for capital renewal funding. This decision is made in assigning priorities in the institutional budget-making process. Although not a guaranteed stream of funding, prudent financial management can create reserves allocated to fund deferred maintenance projects. Reserves can be drawn from a pool of funds as projects are defined and expenses incurred. Capital Renewal and Deferred Maintenance Programs. Kaiser, Harvey H.; APPA Body of Knowledge; APPA Leadership in Education Facilities, Alexandria, VA; /10/15 24

25 WHAT IS THE RIGHT AMOUNT? $4,500,000 COMPLETED $12,000,000 ESTIMATED NEED $22,720,584 TOTAL NEED $34,720,584 Need 2% Replacement Value Funding 3% Ops Budget $4,000,000 $3,500,000 $38,880,000 $3,000,000 $2,500,000 $22,720,584 $2,000,000 $1,500,000 $1,000,000 $16,351,260 $15,900,000 $500,000 $0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 3/10/15 25

26 PLANT RESERVE VS. GREEN FUND ENERGY SUB- SYSTEM BUILDING TRADE PROJECT Distribution K-3 Mech Boiler Plant Pumping ENERGY EFFICIENCY MEASURE COST GAS IMPACT kbtu ELEC. IMPACT kwh ANNUAL SAVINGS PAYBACK PERIOD ROI % CO2 IMPACT MTONS $8,000-7,378 $1, % 4.5 Distribution Multiple Mech Chiller Plants $92,000-96,881 $20, % 58.9 Distribution Multiple BAS Controls & Automation $25,000 50,000 52,800 $10, % 34.7 Envelope Theater Insulation Insulate Roof $50, ,000 14,000 $5, % 20.4 Lighting Campus Elec End Use Campus BAS Lighting Improvements Retro Cx & Controls Optimization $57,500-81,000 $15, % 49.2 $85, ,000 88,000 $23, % 84.2 TOTALS $317, , ,059 $76, % Identify high return energy projects Use energy savings to pay for more energy projects 3/10/15 26

27 25,000 RIVERDALE ENERGY CONSUMPTION: TRENDS AND FORECAST 20,000 15,000 MMBTU 10,000 Oil Gas Electric 5, /10/15 Projected 27

28 $1,400,000 RIVERDALE ENERGY COST: TRENDS AND FORECAST $1,200,000 $488,469 $1,000,000 $800,000 $600,000 $370,579 $460,266 $72,007 $486,300 $452,750 $494,606 $515,722 $464,254 $385,409 $346,868 Electric Gas Oil $400,000 $106,632 $58,851 $86,216 $593,446 $68,754 $80,420 $80,725 $63,774 $200,000 $112,062 $253,653 $270,036 $298,909 $117,704 $188,257 $200,196 $231,159 $231,460 $124,342 $105,246 $ /10/15 28

29 THE RIVERDALE PLAN 3/10/15 29

30 MASTER PLAN Who s in control of The Master Plan? Is it part of your school s strategic plan? Does it go out 5-10 years? Who is on the Master Plan committee? Who is on the Strategic Plan Committee? Board members, consultants, faculty, HOS-> strategic plan Does it align with mission & pedagogical goals? What s your review cycle? Is it a living document? Matching master plan to strategic plan 3/10/15 30

31 STRATEGIC INVESTMENT PYRAMID Asset Investment Strategy Capital Plan M&O Plan Resource Plan Decision Perspectives Mission Alignment Financial/ Budget Economic/ TCO Facilities Data & Metrics Common Terms & Definitions Strategic Priority Indices Physical Assessments Statistical Assessments Strategic Questions Why Invest? What Can We Afford? When and Where to Invest? How Much Should We Invest? Integrated Decision Framework 3/10/15 31

32 CLASSROOM OF THE FUTURE What does it look like? How does it affect facilities? What is on the horizon that we don t yet know about? What s the window for re-evaluation? 3/10/15 32

33 CLASSROOM OF THE FUTURE? 3/10/15 33

34 CLASSROOM OF THE FUTURE? 3/10/15 34

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36 QUESTIONS How do you get your board, committee, Head of School to support investment in capital renewal and recapitalization? How do you decide which projects are prioritized? What are some strategies for getting the right people to see the long term? Who are the right people? What costs have we not discussed? 3/10/15 36

37 THANK YOU David Patnaude, Director of Plant and Sustainability Riverdale Country Lawrence Eighmy, Managing 3/10/15 37