Finance for Facility Managers (OR/How we beg, borrow and steal to - - PowerPoint PPT Presentation

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Finance for Facility Managers (OR/How we beg, borrow and steal to - - PowerPoint PPT Presentation

Nov 21, 2022 248 likes •523 views

Finance for Facility Managers (OR/How we beg, borrow and steal to get our money) Chris Hodges, P.E., CFM, LEED AP, IFMA Fellow hodges@feapc.com March 19, 2013 Facility finance as it is today. Facility finance as it is should be.

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Finance for Facility Managers

March 19, 2013 Chris Hodges, P.E., CFM, LEED AP, IFMA Fellow hodges@feapc.com (OR/How we beg, borrow and steal to get our money)

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  • Facility finance as it is today.
  • Facility finance as it is should be.
  • Practical financial tools for building the

business case.

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Numerophobia is the fear of

  • numbers. Another name for the

condition is Arithmophobia. Fear of the number 13 is Triskaidekaphobia Fear of the number 666 is Hexakosioihexekontahexaphobia, Fear of the number 4 is Tetraphobia.

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“I’ve changed my view 360 degrees on that issue.”

  • - Unknown politician

“Half of the schools in the district are below average.”

  • - Unknown school administrator
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At the end of the day!

O&M = $6.37/sf Capital Renewal = 1.55% Utilities = $2.56/sf Cleaning = $1.57/sf PM/CM = $1.23/sf Security = $0.56/sf

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$1 = ???

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Moving money

3 Terms:

  • Capitalization rate
  • Discount rate
  • Net Present Value/Total Cost of Ownership
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Capitalization Rate

Or: What can you do with $1

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1 2 3 4 5 Salvage Value (S) Year Initial Cost Maintenance (M) (M) (M) (M) (M) Capitalization Rate Energy Savings (E) (E) (E) (E) (E)

Time Value of money

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Discount Rate

Or: What it’s worth today

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NPV 1 2 3 4 5 Salvage Value (S) Year Initial Cost Maintenance (M) (M) (M) (M) (M)

Discount Rate

Energy Savings (E) (E) (E) (E) (E)

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Discount Rate = Capitalization Rate

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TCO = total of all expenditures an

  • wner will make over the course of the

buildings service life. Includes:

  • Conceptual Planning, Design,

Construction

  • Normal Operations; heating, cooling,

lighting, and Maintenance, Repairs, Replacements, Alterations

  • Disposal

Total Cost of Ownership (TCO)

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NPV 1 2 3 4 5 Salvage Value (S) Year Initial Cost Maintenance (M) (M) (M) (M) (M)

Discount Rate

Energy Savings (E) (E) (E) (E) (E)

Net Present Value

NPV calculations consider all cash inflows and

  • utflows over the life of an investment and convert

them all to the value of today’s dollar.

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Moving money

3 Terms:

  • Capitalization rate
  • Discount rate
  • Net Present Value

A few examples

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The Lexus and the olive Prius.

Sticker Price $24,000 $45,000 Annual Mileage 18,000 18,000 MPG 42 16 Fuel Price $3.50/gal $3.50/gal Annual Maintenance $400 $600 Analysis Period (SL) 5 yrs 5 yrs Resale Value (5 yrs) $10,000 $12,000

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1 2 3 4 5 Salvage Value (S) Year Initial Cost Energy Savings (E) Maintenance (M) (M) (M) (M) (M) (E) (E) (E) (E) Chiller A 1 2 3 4 5 Salvage Value (S) Year Initial Cost Energy Savings (E) Maintenance (M) (M) (M) (M) (M) (E) (E) (E) (E) Chiller B

NPV = ??? NPV = ??? Prius Lexus

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Which would you choose?

Chiller A – Initial Cost = $150,000

  • Annual energy savings = $5,000
  • Annual maintenance = $5,000
  • Salvage Value = $15,000

Chiller B – Initial Cost = $225,000

  • Annual energy savings = $15,000
  • Annual maintenance = $8,000 (escalating)
  • Salvage Value = $10,000
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1 2 3 4 5 Salvage Value (S) Year Initial Cost Energy Savings (E) Maintenance (M) (M) (M) (M) (M) (E) (E) (E) (E) Chiller A 1 2 3 4 5 Salvage Value (S) Year Initial Cost Energy Savings (E) Maintenance (M) (M) (M) (M) (M) (E) (E) (E) (E) Chiller B

NPV =

  • $325,000

NPV =

  • $300,000

Chiller A Chiller B

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More Tools

  • Payback Period
  • Return on Investment
  • Internal Rate of Return
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Money basics

3 Rules:

  • Make your money work for you (value of $1)
  • Know your minimum expected rate of return

(capitalization rate)

  • Your benchmark is the existing condition
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$1.00 = $1.10

Your goal:

$1.10 = $1.21 $1.21 = $1.33 $1.33 = $1.46

Make money work for your company!

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Annual U.S. Energy Production in Quads of BTU’s

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The Value of Numbers Wait a second!

1 Second 100 Seconds 1,000 Seconds 1,000,000 Seconds 10 Seconds 1,000,000,000 Seconds 1,000,000,000,000 Seconds One Hundred Thousand Trillion Quadrillion Million Ten Pretty Quick! Not too shabby! 1.6 Minutes -- Starting to tap my feet! 16.7 minutes – waiting patiently! 11.6 days – getting impatient! 31.7 years – growing old! Billion 1,000,000,000,000,000 Seconds 31,710 years – long gone! 31,709,772 years – too much!

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Finance for Facility Managers

March 19, 2013

Chris Hodges, P.E., CFM, LEED AP, IFMA Fellow hodges@feapc.com