1. Financial Planning For Major Capital Projects ECIS Annual Leadership Conference Seville, Spain April 25, 2014 Presenter: Larry Kraut

2. Who is Responsible… The Board of Trustees (BoT) is responsible for the Facilities, in both the short and long term, to ensure that student safety and program learning environment needs are adequately met. School Management, under BoT guidance and support, is tasked with fulfilling this duty.

3. Why is Capital Planning so Important? Funding maintains value and functionality of the physical plant. Involves massive investment of resources Issues are not easily reversible Have long-term implications for the Organization Involve uncertainty and risk for the Organization

4. Objectives of Capital Planning Inclusion of funding in the annual budget (in the tuition price or a special purpose “capital fee”) accomplishes several important goals. 1. It ensures that annual funds are available to meet needs; 2. It allows for an orderly and planned approach (efficiency in operational management and preferred pricing); 3. it provides a source of funds for the immediate correction of system failures when they occur unexpectedly, and; 4. It removes from operational expenses the costs of major facility work.

5. What are we trying to avoid…? A long list of deferred maintenance which could negatively impact student safety and the learning environment. Funding needs from operations (which could impact program funding). In worst case scenarios, increasing debt.

6. CAPITAL PLANNING REQUIRES BUDGETING DISCIPLINE! It is often the first area where funds can/may/will be diverted to cover other budgeting shortfalls (low hanging fruit) because the impact is often not seen in the immediate future).

7. Funding Options: Funds collected from Tuition, or through a Capital Fee, can be designated using the following methods:  MSR (Maintenance Cash reserves)  PPRRSM (Physical Plant Replacement, Repair and Special Maintenance) Balance Sheet vs. Income Statement

8. How are Capital Needs Assessed? Conduct a facilities audit to determine both the condition and the functional performance of existing facilities. The audit should include buildings (and their systems) as well as supporting exterior infrastructure. (this process needs to be repeated at appropriate intervals). The audit will identify needs and issues that will need to be addressed to restore and/or maintain the plant to good condition and to ensure effective facilities support for the achievement of the school mission. All tasks should be assigned a level of importance to determine prioritization of (scare) resources. A program of annual “reinvestment” in facilities maintenance and upgrades should then be mounted.

9. What is the Appropriate Fund Balance? Annual funding to maintain facilities in good condition has been estimated at about 3% of plant replacement cost. ◦facility renewal estimated at 1.5%-2.5% of replacement cost based on facility subsystem lifecycles; ◦facility adaption/changes at 0.5%-1.5% of plant replacement cost). Estimates of the “catch-up” costs to retire the deferred maintenance backlog are specific to each institution.

10. Metrics, Data, and Analytical methods –  What data, tools, planning metrics, and analytical processes are being used for strategic facilities planning and management at your school?  What are the new tools, models, and methods for assessing the needs?

11. What is Happening at Your School? Working at your tables, discuss the approach taken at your school toward capital budgeting. Identify: Your current approach, or “tools”, Challenges, Opportunities, and, Possible Solutions. What can you learn from the approaches taken at other schools?