The Facility Risk Index – An Actionable Metric
Many organizations want to do more than identify their facility risk – they want to be able to measure the risk of failure as well. While the data from a risk assessment can be used in a basic prioritization scenario, the Risk Index is an asset metric that can take into account multiple considerations and combines system criticality and facility condition to present a more accurate measurement of risk.
The first step is to create building models, known as risk templates, for all building types and then break them into major systems. Each system is rated on criticality and impact on operation. The models look at criticality today, five and 10 years forward. The models then are applied to the organization’s buildings. The risk profile of individual buildings can be tailored to the organization’s unique situation while the model can be adjusted by the purpose of the building and other variables.
Once risk templates have been created, a Risk Index can then be calculated. uses condition (deferred maintenance requirements linked to the area of risk, generally identified during a facility condition assessment) and system criticality/risk factor. The cost of project requirements is multiplied by the risk factor and then divided by the estimated replacement value for that system or facility. The RI is calculated for each system as well as the whole facility. Three risk indices are calculated for current, five years out and 10 years out.
Once risk is identified, proactive maintenance to address critical issues prior to failure is vitally important. With projects prioritized and the Risk Index in place, facility managers can justify both short- and long- term budget requirements by demonstrating the impact of different funding levels on the risk of an individual facility or the entire portfolio. Using “what if” funding scenarios, organizations can pinpoint the risks and highlight the financial consequences if the work is not completed.
The Risk Index provides an objective view into facility risk and builds a solid case for funding. Facility managers that can pinpoint areas of risk within the organization’s portfolio, today and in the future, and systematically prioritize projects to address that risk, will be better able to sleep at night.
A risk assessment measures the risk of failure for a facility and its associated infrastructure by identifying the relative strengths and weaknesses of individual buildings. The process of facility risk assessment can be approached in a number of ways. One basic way is to rank facilities or systems using two criteria: the likelihood (frequency) of failure and the impact (severity) of failure.
Table A – Likelihood/ Frequency of Failure
|Almost Certain||Extremely likely to occur||Daily||5|
|Likely||Likely to occur, has occurred previously and could reasonably occur again||Monthly||4|
|Periodic||Periodically has occurred in the past||1-2 Years||3|
|Unlikely||Has happened in the past||3-5 Years||2|
|Rare||Extremely rare/has not occurred in the past||5-10 Years||1|
Table A shows a way to rank facilities or individual systems by the likelihood they will fail. The likelihood is measured by how often this may happen, and the scores from one to five are applied accordingly, with a score of five for those facilities/systems that are extremely likely to fail.
Table B – Impact/Severity of Failure
|Catastrophic||Imminent/certain life safety risk; entire campus/large area may require shutdown; a critical failure with a long recovery period; legislated/code requirement with major legal/fine/penalty implications||Severe/catastrophic financial consequences (calls into question the viability of the institution)||5|
|Major||Potentially major safety risk; legislated/ code violation; major failure||Major financial consequences||4|
|Moderate||Significant failure requiring actions beyond routine activity; failure requires closing of floor or section of a building||Moderate financial consequences (budget restrictions, reallocations)||3|
|Minor||Failure which can be managed under routine activity; failure requires closing of a small area||Minor financial consequences (handled within existing budgets by reprioritization)||2|
|Insignificant||Failure not requiring shutdown or closure; minor occupant discomfort; poor appearance||Insignificant or no financial consequences||1|
In Table B, facilities and systems can be ranked by the severity of the failure, based on the potential impact, with particular consideration given to the financial consequences. Again, each facility or system can be given a score from one to five, with those whose failure would be catastrophic to the organization given a five.
Table C – Project Ranking
|16 or over||Very High Priority/ Very High Risk|
|11 to 15||High Priority/ High Risk|
|6 to 10||Moderate Priority/ Moderate Risk|
|Less than 6||Low Priority/ Low Risk|
In order to rank projects based on risk exposure, multiply the likelihood score by the impact score (Table C). Projects with the same score can be ranked from the lowest cost to the highest cost (i.e. all else being equal, lower cost projects should have a higher priority than higher cost projects). This can be done manually or by using facility capital planning software.
This type of facility risk measurement provides a basic understanding of risk in facility portfolios and can be used to quickly assess the potential for risk exposure. Next week, we will examine a more sophisticated method to measure the risk of failure that can be used to account for multiple considerations: an asset metric known as a Risk Index (RI), which uses a combination of system criticality and condition.
Within most facility portfolios, a wide variety of risks exist; it’s important to identify and quantify those facility risks in order to make better decisions now and in the future. Types of risk include life and safety issues, compliance with codes, mandates and regulations, environment hazards, natural disasters, and the possible compromise to an organization’s mission and reputation. The potential consequences of these risks include loss of business continuity, damage to the organization’s image and the high cost of unexpected damages and repairs. Quantifying these risks helps organizations make smart business decisions that can protect facility capital plans from unforeseen events and diminish risk overall.
There are three major risk-related questions facility managers need to ask: Where is my greatest risk within the portfolio, both today and in the future? What are the highest priority projects to address, given limited capital dollars? How can necessary expenditures be justified to management?
It’s important to develop an approach to facility risk so that it’s addressed in capital planning and budgeting. Key aspects of the approach are:
Definition: Is there a clear understanding of organization objectives and what constitutes facility risk?
Process: Is there an efficient, standardized process for assessing risk to facilities?
Technology: Is there a standardized methodology that leverages automation?
Metrics: Is there a way to measure and report on risk objectively?
Knowledge and Education: Do the right people have access to the information they need?
It’s crucial to identify the specific risks the organization faces in terms of its facilities and the importance of each. Life and safety issues are always important to any organization, but they may be even more so in a facility that caters to the public. The type of facility affects the level of risk – for example, the failure of an emergency clinic is more crucial than the failure of an office building; for a university, the failure of classroom buildings most likely has a greater impact than the failure of athletic buildings, although perhaps not if it is a Big Ten school.
Every organization has a unique definition of facility risk. Facility teams need to work with departments across the organization to understand what facilities and systems are most critical in support of the organizational mission and specific objectives. Knowledge is power, and identifying and quantifying risk benefits any building portfolio by becoming the first defense against the worst or the unplanned.
BURNABY, B.C.—May 8, 2013—VFA Canada Corporation, the leading provider of end-to-end solutions for facilities capital planning and asset management, today announced it will be presenting at International Facility Management Association (IFMA) Toronto’s fourth annual FM Education Day on Thursday, May 9, at the Arcadian Loft.
Susan Anson, president, VFA Canada, will discuss “The Next Space Measurement: Functional Adequacy – Do Your Facilities Meet Their Function?” at 4:15 p.m. ET. Tight budgets make it more critical than ever for both public institutions and private industry to maintain and improve existing facilities, and in doing so, ensure that they efficiently support people and services in concert with organizational goals. But how do organizations decide whether to continue investing in those facilities? To make intelligent decisions, it’s important for facility managers to have an understanding of current facility condition and remediation costs, functionality, and demographics.
The key benefits of a systematic, data-driven approach to functional adequacy, that includes a holistic view taking into account facility condition, is that the results are defensible; that upgrade costs can be quantified to facilitate all-inclusive planning; and that unnecessary spending on functionally deficient buildings can be avoided.
In this session, attendees will learn about the importance of a data-driven approach, key metrics for facilities performance, and how to prioritize and optimize investment options.
To connect with VFA, please follow us on Twitter at @VFAINC, or visit our blog, Foundations, which is aimed at providing information to readers that serves as a foundation for intelligent capital spending and facilities capital planning and management.
Date: Thursday, May 23, 2013
Time: 11:00 AM Pacific/2:00 PM Eastern
Length: 45 minutes
Fees: This webinar is complimentary
Location: Available Online Using WebEx
Competing demands and scarce resources have forced many colleges and universities to look beyond reactive actions and static facility data to take a long-term perspective on capital planning. Integrated assessment strategies and improved reporting capabilities are enabling communication between senior facilities staff and program administrators, resulting in an understanding of how facilities and program requirements are linked and must be addressed simultaneously.
Learn how the University of Rochester’s approach has gained more widespread recognition that facilities needs are an integral part of strategic planning, and led to needed funding.
In this webinar, you’ll learn how:
- Implementing a holistic and integrated facility assessment program has helped the University to build an effective capital renewal program
- The University overcame the challenges they faced in managing the maintenance and renewal of their facilities
- The capital budgeting and planning process has changed as a result of having a central repository of updated facilities data
Paul Wurster, Assistant Director of Facilities, University of Rochester
Moving from Reactive to Proactive
It can be argued that facility managers face some of the greatest challenges to any organization; budgets, deferred maintenance, and stakeholders’ interests – plus often costly emergency situations – must all be juggled simultaneously every day. There’s seldom the opportunity to be proactive, especially if you don’t have current facility condition data. Data, with its notoriously limited shelf-life, requires constant upkeep in order to effectively and realistically prioritize projects and develop budgets. This week, we’ve created a list of questions that every facility manager should ask when putting together a proactive facilities capital planning process.
- What do we have? Leverage a proven process to manage and rapidly capture facility condition data across your entire portfolio, documenting the condition and lifecycle of assets and systems.
- How do I collect the data? Utilize a standard, consistent method of data collection and embrace routine data maintenance. Using a single unified data center prevents the gray areas that emerge with separate spreadsheets and keeps redundancy out of the equation altogether. “Fresh” data, as well as a holistic view of that data, is your first defense against tricky budget meetings or unforeseen maintenance emergencies.
- Where are my problems? If your data is standardized, identifying problems within the portfolio will be relatively easy. Centralized data ensures there will be no scrambling to find that one spreadsheet or that missing information needed to make a final decision.
- What are the most pressing issues? The ability to objectively prioritize all identified issues is crucial – unless you happen to have an unlimited budget, which is unlikely, you will not be able to address all the deferred maintenance at once. Ranking projects by their relative urgency, support of organizational mission, or other criteria important to you will result in an effective plan and budget that you can actually execute against.
- How do we handle future re-assessment needs? Planning for recurring assessments, whether you leverage a guided self-assessment process or have a portion of your portfolio professionally assessed each year, lets you keep data current and enables you to confidently map future capital planning needs.
Facility Managers: Click here to learn how facility condition assessments can provide you with the accurate data you need to be proactive.
Facilities Management Journal
Dates: October 29 – October 30, 2013
Venue: The Amway Grand Plaza, Grand Rapids, MI
Dates: May 29- May 30, 2013
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Dates: October 2 – October 4, 2013
Venue: Pennsylvania Convention Center, Philadelphia, PA
Come visit us at booth #1236!