Capital budgeting and capital improvement planning are not phrases typically associated with innovation, teamwork, collaboration, and whole systems thinking. Yet, we are seeing some innovators in higher education and airport facilities take a new approach, which is generating better financial forecasts and renewal plans.
At a recent Western Association of College and University Business Officers (WACUBO) conference, a facilities executive spoke about his efforts to transform the capital improvement planning process at his organization. His story started with a harmless question from the Vice Chancellor:
Vice Chancellor: “What are our total capital improvement needs and costs over the next 20 years?”
Facilities executive: “To be honest, I don’t really know”
Vice Chancellor: “Ok. What are the steps we need to take to figure that out?”
Facilities executive: “Well, we have a lot of activities, plans, and budgets, but we haven’t put it all together.”
I loved this honesty, and it is similar to what I see happening at many organizations”a visionary new CFO (or other executive) asking tough questions about long-term capital renewal needs juxtaposed with a finance, planning and facilities team scrambling to answer them with no apparent system to handle the complexities of capital planning and budgeting for a large campus. Like others, this institution was faced with an array of challenges, including:
- A lack of existing planning systems for managing and investing in renewal beyond a short-term timeframe.
- A complex network of organizational groups and departments each engaged in their own planning, with no mechanism for pulling them all together.
- A lack of understanding of criteria to prioritize decision-making for investments and renewal.
- An incomplete understanding of current asset and infrastructure conditions, making it difficult to see causal relationships between the plans being developed and the actual needs.
- Finance and operations teams that want to consider the total cost of ownership without a mechanism in place to do so.
The San Diego International Airport was recently in a similar situation. Faced with the need to develop a first ever 20-year capital improvement plan and budget in just a few months’ time, airport executives knew they needed a quick approach to harness the knowledge of their staff to overcome these obstacles. They were successful, and, as I and other Haley & Aldrich staff embark on refreshing the plan with our airport colleagues, it seems like a good time to share a few things we’ve learned together:
1. Knowledgeable staff can be a “secret weapon” in developing great data
People often avoid comprehensive long-term capital improvement planning plans (CIP) because they don’t have the funds to update facility condition assessments (FCA) or are unsure about how to use the FCA data that they do have. Strong data from robust studies are great, but if unavailable, as the San Diego Airport team learned, your front line workforce often knows enough to generate a rigorous qualitative data set.
The San Diego Airport lacked up-to-date FCAs, but their team of asset managers, facilities managers, and O&M staff were very familiar with the buildings, systems, infrastructure and needs. Your O&M staff and vendors know the conditions of your buildings and assets and can forecast replacement needs and costs, where maintenance can extend life, etc. As we learned with the airport, you just have to ask them for this information in the right way. For example, rather than ask your staff to fill out forms and spreadsheets, engage them to co-develop their “list” of capital improvements. With the right engagement you can dramatically improve the quality and consistency of information.
2. People can be taught to think about the long-term
This statement usually creates a lot of skepticism and is one of the most common themes we’ve heard lately” “but I can’t get anybody to TELL me what we need.” Our colleagues at San Diego Airport were highly skeptical, as well. And with good reason”the initial outreach from Finance about CIP projects over 20 years generated a data set of projects that looked like this:
- 2015-2020 hundreds of projects and multiple millions in forecast capital improvement needs.
- 2021-2025 had one-tenth the forecast capital improvements of 2015-2020
- 2026-2030 had one-thirtieth
- 2031-2035 had virtually nothing
Our CIP process started in a series of focused workshops with department leaders and key staff. We started by giving each department a chance to tell us their strategies, priorities, and wishes and desires for the next 20 years. At first it didn’t work! But with some analysis tools and training on forecasting and intentional facilitation techniques, people were able to identify more and more needs. Staff began to think less in terms of specific projects and more about categories of needs. For example, they weren’t sure what the computing needs in terminal X would be, and couldn’t even say with certainty that WiFi would even exist, but they did have enough knowledge to know that some kind of IT-related infrastructure would be needed.
3. Prioritization can be easy — it’s all about ranked criteria.
By using the Airport’s vision and operating goals, the team was quickly able to identify six criteria for assessing projects. Not all criteria are created equally, ranking the relative importance of the criteria is often missed. Using a tool known as pairwise ranking, we were then able to rank our criteria and prioritize our projects.
Armed with a list of 100s of projects and 100s of millions of improvement needs over 20 years, we gathered key stakeholders from multiple departments in a room to first understand the scope and breadth of each department’s needs. Every project was reviewed! This initially slow step later facilitated rapid decision making as we applied the criteria across the organization. It was critical for all leaders to understand needs and projects beyond their own lens into the system. Leaders indicated it was “eye opening to see the whole system of needs all together. We avoided blind spots.”
With criteria and prioritization determined together, the project selection process was relatively easy. Lots of “pet projects” received a lower rating when we used standardized criteria and rated all projects with everyone as a group. This was not an auto-rate function built into excel; it was a systematic hands-on process. Naysayers became converts when given a voice. Even project owners were supportive when they saw the whole system “they were sometimes the first to give their own projects a low rating! As one participant indicated,” Shared criteria development improved objectivity. It was about criteria that showed how each project served our needs “not about who had power in the room.”
4. You’ll have far more than just a budget and a list of projects
Don’t underestimate this as an opportunity to create alignment and a more holistic understanding by your staff and critical stakeholders. CIP is often treated as a data collection and budgeting activity, but imagine the benefits of approaching it as an opportunity for engagement and collaboration. Taking the time to help staff at all levels and across departments to deeply understand what the CIP is and why it’s needed gives all participants in the process a purpose and direction. As a result of the engagement efforts in San Diego, senior leaders indicated they have “never seen such shared understanding across departments and as individuals.” A systematic process gives people a structure to quickly reach consensus and shared language for ongoing adaptation.
The San Diego Airport is an example of a large campus getting beyond an array of complex challenges to develop a consensus-driven capital improvement plan. As a result of this innovative approach centered around systemically engaging employees to harness their knowledge, the airport has consensus across departments and is positioned to start executing the highest priority projects in the short term, and over the next 20 years. What are the total capital improvement needs and costs for your facilities over the next 20 years?
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Service Leader, Lean Consulting