Key Performance Indicators for Federal Facilities Portfolios: Federal Facilities Council Technical Report Number 147 (2005)

As noted in Chapter 1, senior executives in Federal departments and agencies require information that will allow them to answer the following questions:

• What facilities do we have?

• What condition are they in?

• What facilities are needed to support the organization’s missions?

• What problems and issues need to be addressed?

• How much are we investing? How much do we need to invest?

• What are the results or outcomes of those investments? What are the outcomes of decisions not to invest?

In the course of this study the consultants identified a number of key performance indicators being used within the various participating agencies that could help to answer these questions. These indicators are described below.

As noted in Investments in Federal Facilities: Asset Management Strategies for the 21st Century (NRC, 2004, pp. 34-35),

Many Federal departments and agencies do, in fact, have a centralized database that contains information about the number, type, location, age, size (typically in square feet or other appropriate units of measure),¹ and value of their facilities.

Number, Size, and Types of Facilities. These are indicators of the magnitude and diversity of an organization’s facilities portfolio. These factors have implications for facilities asset management: Differing levels of resources and management practices are required to maintain portfolios of several hundred as opposed to several hundred thousand facilities. Portfolios with a preponderance of one type of facility, such as office buildings, may lend themselves to more standardized procedures and practices than portfolios with a wide range of facility types or a preponderance of one-of-a-kind high-tech facilities.

Location. Location-related information is indicative of the geographic concentration or dispersal of facilities, which has profound implications for the organizational structure and processes needed to manage them.

Age. The age of facilities is a key indicator of requirements for maintenance, repair, recapitalization, or replacement. As facilities age their various components and systems experience increased wear and tear and begin to break down. “The rate and onset of breakdowns increases if maintenance has been implemented haphazardly or not at all, and the operating condition deteriorates. Aging facilities require more, not less, maintenance and repair to keep them operating effectively” (NRC, 1998, p. 17).

Value. At least two differing indicators are currently being used by federal agencies to measure the value of their facilities portfolios. Current Replacement Value (CRV) is an indicator of the total amount of money invested in a facilities portfolio. CRV is a function of the original acquisition cost of each facility in the portfolio plus capital improvements occurring after the original construction, multiplied by an inflation factor (based, for example, on the Engineering News-Record’s building cost index) to calculate the present value of the investment.

Plant Replacement Value (PRV) represents the cost to replace facilities assets using today’s construction costs and building standards and codes. It is typically calculated as a function of the current unit construction costs (e.g., dollars per square feet) for various types of facilities, multiplied by the total number of units (e.g., square feet) of each type of facility.

Federal agencies use a range of techniques and methodologies to assess the condition of their facilities. Typically, condition assessment surveys utilize trained personnel who inspect the facilities, make determinations regarding the facilities’ physical condition and their performance, and identify maintenance or repair deficiencies. In most cases the results are entered into computerized maintenance management systems so that the inspection data can be reported out. Some agencies use the Engineered Management Systems (EMS) developed by the Army’s Engineering Research and Development Center-Construction Engineering Research Laboratory (ERDC-CERL). The EMS is a family of tools (e.g., BUILDER, RAILER, PAVER) that aid in assessing the condition of facilities and allocating funding (see Appendix C).

Facility Condition Index (FCI) also called Asset Condition Index (ACI). To quantify the results of condition assessment surveys, many federal agencies use a Facility Condition Index performance indicator. The FCI is, in fact, the performance indicator most widely used by agencies participating in this study. The FCI is a method of measuring the current condition of facilities to assess how much work, if any, is recommended to maintain or change their condition to acceptable levels to support organizational missions. What constitutes an acceptable level of condition will vary by agency, by mission, by the importance of specific facilities (e.g., mission critical, mission supportive, mission neutral) and/or by types of facilities. This variability underlines the importance of setting performance goals for facilities asset management.

There is also variability in how the FCI is developed across departments and agencies. In the Department of Energy and the U.S. Coast Guard, FCI is calculated as Deferred Maintenance (see below) divided by Current Replacement Value. NASA’s FCI uses a 5-point scale: 5 means no or few repair requirements, 1 means the facility

should be or is condemned. Values are generated annually in tandem with calculation of Deferred Maintenance, using a parametric model.

Agencies also use a range of techniques to convey condition-related information to executive management: color schemes, letter grades, numerical scales, dollar scales, or ratios. These schemes often blend two different issues: the current state of facilities and users’ or occupants’ expectations for them. Three, four, or five color schemes are used. Some color schemes derive from a “traffic signal” concept of red-yellow-green.

Building Condition Index (BCI). The BCI has been developed as a component of the BUILDER EMS. The BCI is developed from a roll up of system component sectors to components, to systems, to a building. It could potentially be used across an entire portfolio of facilities and provide “drill down” data as well (see Appendix C), although no agency is using BCI this way today.

Deferred Maintenance (DM), also called Backlog of Maintenance and Repair (BMAR). Federal Accounting Standards Advisory Board (FASAB) Standard No. 6, as amended, requires federal agencies to annually report their total dollar amount of deferred maintenance. The FASAB standard defines deferred maintenance as “maintenance that was not performed when it should have been or was scheduled to be and which, therefore, is put off or delayed for a future period” (FASAB, 1996).

To calculate deferred maintenance some agencies systematically itemize nonroutine repair requirements at the building system level and cost these out. These costs are then aggregated at the building level, over classes or installations of buildings, and ultimately at the agency level. The agency then seeks to fund these requirements through funding accounts that have a variety of names referring to major (or minor) capital expenditures. The DOE aggregates deferred maintenance by building, by system. NASA has developed a parametric model for estimating deferred maintenance across an entire inventory of facilities.

Because agencies do not necessarily obtain sufficient funds to address all the maintenance and repair requests, a separate measure is developed called Backlogged Maintenance and Repair (BMAR). Projects that have not been funded within a year of their recognition are included in this list, and their costs in aggregate reflect a level of deferred maintenance. When they are funded they are dropped from the list. The Smithsonian Institution, and perhaps others, prioritizes BMAR into levels of urgency or overall condition for a facility.

These questions are interrelated. As noted by the GAO and others, two of the major issues facing federal facilities managers today are the (1) lack of portfolio alignment as evidenced by facilities that are excess to the mission; and (2) the deteriorating condition of buildings as evidenced by the ever-growing estimates of deferred maintenance. A separate but related issue is determining the point at which it is more cost effective to replace existing facilities than to continue to operate, maintain, and repair them. Several measures have been developed to help indicate the presence of underutilized facilities, facilities excess to the mission, and those that should be replaced, as described below.

The Asset Utilization Index (AUI). Developed by the DOE, AUI is used to measure the asset inventory against mission requirements. This index is a ratio of utilized assets to total assets. Utilized assets are determined by annual surveys, and separate measures are developed for facilities versus land holdings. The AUI detects surplus space. Deficiencies in facilities quantity surface with proposed acquisitions and through the funding cycle.²

The BCI described above and in Appendix C also addresses the functionality of facilities and could potentially be used to help indicate facilities that are obsolete.

Vacancy Rate. Used by the GSA and the Department of Veterans Affairs, a vacancy rate measure could potentially be used more widely as an indicator of excess space. However, great care is required in calculating and interpreting a vacancy rate indicator. For example, a single aggregate number indicating that x percent of the total square footage of the facilities portfolio is vacant would not distinguish between facilities that support mission and those that might be excess. Nor would vacancy rate necessarily distinguish between short-term (turnover) vacancies and space that has been vacant for several years or longer. A single aggregate indicator also may not distinguish between concentrations of usable vacant space large enough to support an operational unit versus scattered pockets of vacant space suitable for 10 or fewer people.

The Installations Readiness Report (IRR). The IRR is used in the Department of Defense. Base Commanders provide readiness ratings for all facilities under their command, where facilities are classified into one of nine different categories. Ratings range from C-1 (ready) to C-4 (cannot support mission). The facility readiness ratings system is augmented by an IRR that flags serious deficiencies in facilities. A rating of C-4 indicates facilities that are excess to the mission or require replacement.³ The Navy’s version of the IRR also shows where the requirement is exceeded.

A senior executive in a private-sector organization is likely to ask, “What are the operating costs for our facilities?” when making investment decisions. A key performance indicator for facilities portfolios, then, is operating costs (e.g., utilities, custodial services).

In the federal government, tracking utility costs is difficult because many buildings are not metered. Tracking operating costs in general is difficult because existing budgeting and accounting systems typically are structured to track other information, such as total funds appropriated for operations, of which facilities is only one of many components. Similarly, it is difficult to determine how much money is being invested in facilities because all of the components—new construction, operations, alterations, maintenance, repairs, and demolition—are tracked through a variety of accounts and may not be easily identifiable.⁴ To track such costs existing systems will likely need to be modified, an undertaking that can be resource intensive. In gathering such data or revamping accounting systems it is important to consider the trade-offs “between the amount of data collected, the frequency at which it is collected, the quality of the data, and the cost of the entire process, including data entry and storage” (Sanford and McNeil, 1997; NRC, 1998).

Lacking data for operating costs, the questions posed by senior federal executives today more often become, “How much are we investing? How much do we need to invest?” Several differing performance indicators and performance measurement systems have been developed in response to these questions.

Sustainment Rate. The Department of Defense has developed a facilities Sustainment Rate indicator and a Recapitalization Rate indicator to track annual progress toward the established goal: C-2 readiness for facilities, on average, by the end of fiscal year 2010. (The current status of facilities readiness is also tracked using the aforementioned Installations Readiness Report). The future-years defense program (the DoD’s funding plan) tracks the resources related to the performance indicators, and summary performance reports for the DoD’s leadership are in place. Snapshots of the Sustainment and Recapitalization Rates are taken annually at three major points: as programmed, as budgeted, and as executed.

The Sustainment Rate is the product of sustainment funding divided by sustainment requirement (SF/SR) and measures the adequacy of funding for facilities maintenance and repair (but not the adequacy of funding for capital

renewal and replacement). The goal is 1.0 (i.e., 100 percent). Results of less than 100 percent indicate a failure to fund current needs. Below some minimal funding level the Sustainment Rate would indicate that funding shortfalls are potentially shortening the expected service life of facilities and degrading their performance. In this sense, Sustainment Rate is a predictive indicator of the potential future consequences of today’s investment decisions.

The overall sustainment requirement is computed with a department-wide Facilities Sustainment Model (FSM). The model covers all sources of sustainment funding, including sources external to the DoD. The model also covers all types of facilities, sorted into approximately 400 common categories. The sustainment requirement for each of the 400 categories is expressed in the unit of measure for that category (e.g., per square foot, gallon, ton, mile).

Sustainment requirements are based on common commercial benchmarks for each category. The benchmarks account for normal maintenance and repair tasks, including routine (i.e., expected) replacement of major facility components, required to sustain a facility through an expected service life. Each benchmark is further defined by specific tasks and a normal schedule (e.g., replace carpeting every 10 years). Individual tasks are priced for materials and labor. The Sustainment Rate indicator is also used by the military services (Army, Navy, Air Force) and is under consideration by NASA.

Recapitalization Rate. The Recapitalization Rate is the product of the expected service life divided by the funded service life (ESL/FSL). The minimum goal is 1.0 (i.e., 100 percent). Often a shorthand Recap Rate is described simply as the funded service life (e.g., 136 years); the expected service life (e.g., 67 years) is described separately as a corporate goal. The overall recapitalization requirement is computed using a department-wide facilities recapitalization metric. The current metric covers most facilities and funding sources in the DoD and is being extended to cover others (such as family housing).

Recapitalization requirements are based on internal benchmarks for expected service life. Estimated expected service life averages 67 years for the DoD as a whole when weighted by Plant Replacement Value. The benchmarks assume full sustainment levels throughout service life. If expected service life has been shortened (because of lack of sustainment or other causes), the Recapitalization Rate needs to be temporarily accelerated accordingly. The DoD has common but combined restoration and modernization programs in each military service and agency. Modernization typically addresses service-life-based recapitalization needs caused by normal aging processes; restoration typically addresses accelerated recapitalization needs caused by low sustainment rates or unforeseen events. The Recapitalization Rate indicator is also used by the military services (Army, Navy, Air Force) and by NASA.

Facilities Revitalization Rate (FRR). NASA uses a Facility Revitalization Rate to determine major repair requirements and to track requirements and funding. The FRR is an indication of how often a facility is completely revitalized. It is calculated by dividing CRV by annual facility revitalization funding. NASA’s annual revitalization funding is Construction of Facilities funding minus those projects that are “new capability” or “new footprint” construction. The FRR accounts for repairs and upgrades needed because of obsolescence, modernization, aging materials, and new requirements.

In NASA, the FSM, FCI, and FRR are used together to describe a total facility maintenance, repair, and revitalization requirement. Using these indices with its parametric model, NASA can estimate how much funding is required to raise the FCI of its facilities portfolio from a level of 4.0 to 4.5 on a scale of 1 to 5.⁵

NRC Guideline. One other indicator of the level of investment used by several agencies, including the Agricultural Research Service and the Smithsonian Institution is a guideline developed by the National Research Council in 1990, often referred to as the “2 to 4 percent of CRV” guideline. This guideline states that “an appropriate

budget allocation for routine M&R [maintenance and repair] for a substantial inventory of facilities will typically be in the range of 2 to 4 percent of the aggregate current replacement value of those facilities (excluding land and major associated infrastructure)” (NRC, 1990, p. ix). Agencies that are investing less than 2 per cent of CRV on an annual basis are assumed to be underinvesting in facilities. The report also states that the “specific percentage for any inventory will depend on such factors as the age of the buildings in the inventory, the type of construction (permanent, temporary), the level of use of the buildings, the structure of the maintenance organization, and the climate. However, the relationship between M&R requirements and the current replacement value of single buildings may be outside the proposed range” (NRC, 1990, p. 10).

At the Smithsonian, facility conditions are color coded and then normalized to the NRC guideline. Facilities requiring routine maintenance and repair may require funding levels of 2 percent of CRV and are coded blue. Facilities in a more deteriorated condition may require investments of 3 percent of CRV and are color coded green. Severely deteriorated facilities may require investments of 5 to 6 percent of CRV and are coded red or lavender. Physical changes then are costed by systems, summed for a facility, and compared with the color standards to determine color status. Projected or expected funding is matched to repair schedules to project when color status will change in an out year.

For any organization it is important to understand why its decision-making processes or management practices led to success or failure and how that understanding can support improvements. “Best-practice organizations measure the results or outcomes of facility investments by establishing baselines and performance measures to constantly monitor and track all aspects of operations and their results in relation to organizational objectives” (NRC, 2004, p. 65).

The stated purpose of this study is to

To understand the results or outcomes of facilities investments, Federal departments and agencies first need to establish facilities asset management performance goals that (1) derive from or are supportive of organizational goals; (2) are actionable; and (3) have a time frame for attainment. Performance indicators designed to measure how well the goals are being met can then be tracked over several years and be compared to a baseline to determine whether the situation is improving or deteriorating: Investments made in portfolios of facilities are not often immediately visible or measurable but are manifest over a period of years. Snapshot reporting (where performance is now) is insufficient to understand whether facilities investments and management changes are resulting in desired outcomes. Trend reporting, reflecting historical performance in relation to organizational goals, is essential to support effective decision making and to determine whether progress is being made toward attaining the goals.

As summarized in Table 3.1 there is wide variability among the key performance indicators being used by departments and agencies to determine the results of facilities investments. No one department or agency uses all the identified measures. Some agencies refer to an indicator by the same name but calculate it differently, for example, FCI. In some cases the same type of indicator is referred to by different names, for example, FCI and ACI.⁶ And some indicators have different names and are calculated differently but serve the same purpose. For instance, Sustainment Rate and the NRC Guideline both measure the adequacy of funding for facilities mainte-

nance and repair. Both operate on the premise that investments below a minimum level over several years will shorten the useful life of facilities and lead to degraded performance.

Because of their differing missions, the diversity of their portfolios (large/relatively small; limited/broad range of types; centralized/dispersed), and the wide range of investment levels, it is not necessary that every agency track the same performance measures or track them the same way. The cost in time and resources to reconfigure accounting systems and databases would likely far outweigh the potential benefits. However, within agencies the performance indicators in use should be calculated consistently and tracked over time in relation to established baselines.

To improve decision making about facilities investments and to improve management of federal facilities portfolios, it is important that agencies track (1) measures that characterize their particular facilities portfolio; (2) the level of alignment of that portfolio with organizational mission; (3) investment levels; and (4) the results or outcomes of those investments.

Indicators that are useful in characterizing an organization’s facilities portfolio include the total number and size (in square feet or other appropriate measure), general types (e.g., administrative, laboratory, industrial), median age, geographic dispersal, value (CRV, PRV), and condition (FCI, IRR, DM).

A portfolio that is aligned with mission could be characterized as having the right facilities in the right locations at a level of condition to support day-to-day operations cost effectively. It would not include large amounts of space excess to the mission or large numbers of facilities in such a deteriorated condition that mission achievement is hindered. Indicators that would be useful in characterizing the level of alignment with mission include surplus space (AUI) and condition.

Levels of investment are important in that facilities require funding to support routine maintenance and repair to operate efficiently and cost effectively, and to perform for the duration of their projected useful life. Even with timely maintenance and repair, components wear out and require renewal or replacement over time. Some facilities require replacement due to changing technologies or materials, obsolescence, or other factors.

The Sustainment Rate (SR) or the NRC Guideline can be used to track the adequacy of funding for maintenance and repair. The Facilities Revitalization Rate or an equivalent measure can be used to track the adequacy of funding for long-term capital repair and replacement. The Recapitalization Rate, or an equivalent measure, can be used to determine whether funding should be temporarily accelerated if expected service life has been shortened due to lack of sustainment or other causes. In federal organizations where the level of funding is inadequate to perform timely maintenance, repairs, renewal, and replacement of facilities, these measures will indicate that the useful life of facilities will likely be shortened, and that long-term operating costs will likely be higher than necessary. Thus, in a sense, they can be viewed as predictive measures.

Tracked over time and in relation to performance goals and baselines, the set of indicators described above and shown in Table 3.1 (total number and size of facilities, general types, median age, geographic dispersal, CRV, PRV, FCI or IRR, DM, AUI, SR or NRC Guideline, FRR, and RR) can be used to begin to measure the results or outcomes of decisions to invest as well as the outcomes of decisions not to invest.

Combined, these indicators can measure

• Improvement or deterioration in the overall condition of an organization’s facilities portfolio;

• Increases or decreases in the size of the portfolio;

• Increases or decreases in the median age of the portfolio and the implications for the continuity or disruption of government operations;

• Adequacy of funding for facilities maintenance and repair, renewal, and replacement and the implications for overall long-term operating costs;

• Adequacy of funding for facilities maintenance and repair and the implications for the useful life of facilities;

• Level of alignment of an organization’s mission and its facilities portfolio as evidenced by surplus, excess, or insufficient space; and

• The implications of surplus, excess, or insufficient space for future funding requirements.

For those organizations that have specific goals to reduce deferred maintenance or reduce the overall size of the facilities portfolio, specific measures could be developed and tracked. DOE’s NNSA, for example, employs Deferred Maintenance Reduction and Footprint Reduction (reduction in excess facilities) indicators. Deferred Maintenance Reduction is the annual dollar amount of deferred maintenance backlog reduced (and cumulative percentage of the estimated total deferred maintenance backlog of $1 billion to be reduced). Footprint Reduction is the annual gross square feet (GSF) of excess facilities space reduced (and cumulative percentage of GSF reduced) to achieve a total of 3 million GSF of excess facilities space reduced by fiscal year 2009.

Over time and as resources allow, additional indicators should be developed to measure outcomes for cost effectiveness, customer satisfaction, and process efficiencies. Additional measures for consideration are the subject of Chapter 4.

(A) To improve decision-making about facilities investments and to improve management of federal facilities portfolios, it is important that agencies track (1) performance measures that characterize their facilities portfolios; (2) the level of alignment of their portfolios with their organizational missions; (3) investment levels; and (4) the results or outcomes of their investments.

Federal departments and agencies are at different levels of sophistication and development with respect to performance measurement systems for facilities asset management. The variation in facilities asset management systems is not surprising given the wide variation in the roles, missions, and facilities portfolios of Federal agencies.

Most agencies maintain a centralized database with information about the number, type, location, age, size (typically in square feet or other appropriate units of measure), and value of their existing facilities, measures that characterize their facilities portfolios. However, the accuracy, integrity, and completeness of the information within existing databases vary. If departments and agencies are to develop effective performance measurement systems, accurate and complete data for these types of facilities portfolio characteristics are required. Efforts are already underway within the Federal government to address this issue.

(B) Investments made in portfolios of facilities are not often immediately visible or measurable but are manifest over a period of years. To understand the results or outcomes of facilities investments, a set of performance indicators should be tracked over a period of years and be compared to a baseline to determine whether the situation is improving or deteriorating.

Because of the long-term nature of facilities and facilities investments, snapshot reporting (where performance is now) is insufficient to understand whether facilities investments and management changes are resulting in desired outcomes. Trend reporting, reflecting historical performance in relation to organizational goals, is essential.

(C) A variety of facilities portfolio-level performance indicators are being used by individual agencies to measure various aspects of facilities asset management.

These performance indicators include a Facilities Condition Index; Asset Utilization Index (an indicator used to measure the portfolio against mission requirements); Current Replacement Value (an indicator of the total amount of money invested in the portfolio); Plant Replacement Value (the cost to replace facilities assets using today’s construction costs and building standards); and Sustainment Rate (a measure of the adequacy of funding for maintenance and repair); among others.

(D) The performance indicator used by the greatest number of agencies is the Facility Condition Index (FCI), also called Asset Condition Index. Various approaches are used to calculate the FCI and to report condition-related information.

The FCI is a method for measuring the current condition of facilities to assess how much work, if any, is recommended to maintain or change the condition to acceptable levels to support missions. The calculation of FCI varies by agency. What constitutes an acceptable level of condition also varies by agency, by mission, by the importance of specific facilities (e.g., mission critical, mission supportive, mission neutral) and/or by types of facilities. Agencies also use a range of techniques to convey FCI-related information to executive management.

(E) A base set of key performance indicators for measuring the outcomes of facilities investment and management within Federal agencies could include total number and size of facilities; general types; median age; geographic dispersal; Current Replacement Value; Plant Replacement Value; FCI or Installations Readiness Report; Deferred Maintenance; Asset Utilization Index; Sustainment Rate or NRC Guideline; Facilities Revitalization Rate; and Recapitalization Rate.

Used in combination and tracked against baselines over time, these indicators would help to measure

• Improvement or deterioration in the overall condition of an organization’s facilities portfolio;

• Increases or decreases in the size of its portfolio;

• Increases or decreases in the median age of the portfolio and the implications for the continuity or disruption of government operations;

• Adequacy of funding for facilities maintenance and repair, renewal, and replacement and the implications for overall long-term operating costs;

• Adequacy of funding for facilities maintenance and repair and the implications for the useful life of facilities;

• Level of alignment between an organization’s missions and its facilities portfolio as evidenced by surplus, excess, or insufficient space; and

• The implications of surplus, excess, or insufficient space for future funding requirements.