Current Replacement Value – the forgotten half of the FCI
Many organizations struggle to develop a consistent, defensible and stable methodology for calculating the Current Replacement Value (CRV) for the buildings within their portfolio. Organizations tend to focus on a clear understanding of their Renewal Needs (numerator of the Facility Condition Index (FCI) calculation – see below). However, as the denominator of the calculation CRV has an equal impact on an organization’s ability to use and leverage FCIs.
FCI = Sum or Renewal Needs in a Given Period of Time x100
Current Replacement Value
The most important factor that organizations should focus on is to be consistent in how they calculate FCI. In fact within a single portfolio, it is more important to be consistent than accurate.
CRVs that are lower than “real world” replacement costs will result in artificially higher FCIs and the opposite is also true. However, within your portfolio, if all your CRVs are consistently low, you can still use FCI as a benchmark for comparison since they are all “off” by the same amount.
An issue could arise if you try to compare your information to another organization that uses a different methodology for CRV calculation. In that case your artificially high FCIs would not be comparable.
Upcoming blogs in this series will focus on commonly used methods for calculating CRVs, as well as the benefits and draw back of each