This is a great question: after all, buildings can be maintained to perpetuity – in other words, buildings can last forever. But should they be maintained forever? So long as they are well built, have purpose, and provide community value, then it makes sense to plan for their longer-term maintenance.
But there can be variances in how the Finance Department and Asset Management Team budget for building lifecycle costs, including operational and maintenance costs. The approach suggested in this article draws on our years of experience of working with organizations across all sectors on these challenges, and will help bridge that gap in thinking or perspectives.
The whole of life costs for buildings include the initial capital, operations, maintenance, renewals, upgrades and disposals. In many cases, the initial capital cost is less than half the long-term lifecycle cost. Especially if the building is part of a community’s social infrastructure including schools, hospitals, heritage buildings, and recreational buildings.
As a rule of thumb, here’s how much we typically allocate to a building’s hierarchy of care or long-term budgeting for building lifecycle costs. Note that these percentages are based on our experience that covers nearly two decades of experience with over 500,000 properties in our database:
By applying the ‘rules of thumb’ above, over 3% per annum (to the Capital Replacement Cost) could be needed to care for the building as a long term annual average – or budget for building lifecycle costs. Note that the proportions will vary with different types of buildings, i.e. single storey buildings with minimal plant and equipment could be closer 2%, whereas larger, more complex buildings could be over 4%, and larger heritage buildings could be over 5% depending on the renewal and replacement costs of heritage classed components.
To demonstrate how this approach works in practice, a new build costing $20m could have the following amounts budgeted as building lifecycle costs ramping up over say three to five years:
In our experience, these on-going building lifecycle costs are often forgotten about at the time of designing both new buildings and extensions.
In future years, the percentages would be based on the updated capital replacement cost of a building, rather than the initial build cost.
To keep the example straightforward, depreciation hasn’t been factored into the above calculations.
The largest part of this on-going building lifecycle cost is the renewals, replacements and refurbishments (i.e. the Sustainability category). This is where the building needs to be broken down into its replaceable and renewable components – and often the focus of a condition assessment that identifies, describes and assesses these components. The NAMS Property guidance material produced by IPWEA refers to the value of these assessed components (Gross Replacement Cost) and the resulting ‘residual structure value’ when compared to the Capital Replacement Cost (CRC). The GRC/CRC ratio also varies between different building types – for example, hospitals could be 0.3 whereas community housing could be 0.5.
This approach recognises that the assessed components tend to have useful or physical lives of between five to 25 years. Whereas, the residual structure value could have a life of 100 years and greater. The question each organization needs to consider is whether to apply the 1.5% factor to the CRC or to the assessed components only.
Create future data models of new buildings within the SPM Assets software using the ‘future assets’ function available within Advanced Lifecycle – this will then add the future lifecycle costs from buildings that have yet to be built and ensures your AMP budgets recognise these early.
If you’re not yet an SPM Assets customer, contact us to request a free demo to see how this could work for you.
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