Determining Current Replacement Values
As noted previously, the BRB report, Committing to the Cost of Ownership, recommended that, in the absence of other information, M&R budgets for facilities be set at between 2 and 4 percent of the aggregate current replacement value (CRV) of the facilities (i.e., the amount in current dollars it would cost to duplicate the facilities). In order to apply this guideline, an organization must first determine the CRV of its facilities.
Federal agencies currently use two different methods of determining CRV (which some agencies call the current plant value):
The current unit construction costs (e.g., dollars per square feet) for various types of facilities in an agency's inventory are multiplied by the total number of units (e.g., square feet) of each type of facility in the inventory.3 In making the calculation, it is essential that the units of area used are the same as the units in the assumed unit costs; major errors can be introduced, for example, if unit costs based on gross area are multiplied by net or occupiable areas.
The original total cost of each facility in an agency's inventory is multiplied by an escalation factor (based, for example, on the Engineering News Record's building cost index) to determine the cost of the facility in
If a building is used for a variety of purposes and the cost of different types of space varies significantly, some agencies calculate the cost of different areas of the building separately, using different unit cost factors for each area.
Either method will give current replacement values that are sufficiently accurate for M&R budgeting purposes. However, the committee believes that in most cases the first approach is easier to use. Furthermore, for those facilities for which parametric estimating data have been developed, the first approach can give very accurate current replacement values. Regardless of which approach is used, the exercise will take time and will cost money. But in most cases it will be much cheaper than performing a detailed condition assessment, and, once done, the updating process is relatively easy.
It is not necessary to calculate the CRV of a particular facility with great accuracy because (a) agencies ordinarily combine the CRVs for many facilities to determine the M&R budget for the entire agency or a major division; consequently, errors in the CRVs for individual facilities tend to cancel one another; and (b) small cumulative errors become negligible when the overall CRV is multiplied by 2 to 4 percent to set the overall M&R budget. Nevertheless, agencies cannot treat the calculation of CRVs too cavalierly since facility managers will be tempted to inflate CRVs in order to increase their M&R budgets.