In this column I suggest that what is known (or just assumed) about the physical depreciation of facilities has little use in the estimation of recapitalization costs. I then argue that results from the study of economic depreciation provide a much better tool for this purpose.
A key concept in facility management is the physical depreciation of fixed assets over time. Conventional wisdom is that facility condition declines with age as shown in figure 1. Some variation of this graphic is found in many of the facility management textbooks and papers published in the last decade. It is also built into the forecast models used by many facility consultants. It is a plausible concept repeated so often I suspect many of us assume it is demonstrable fact.
However, I think this figure overstates our knowledge of the physical depreciation process, and distracts us from other concepts more useful for determining recapitalizing costs. In the remainder of this paper I will address a number of specific problems with the hypothetical model and introduce an alternative approach.
Figure 1. Physical Depreciation of Facilities (hypothetical)
To use figure 1 as the basis for an actual funding plan-that is, how much need be spent on recapitalization as a facility ages-one would need the following things:
A comprehensive measure of facility condition.
Reducing the results of a condition assessment to a simple ratio, such as the facility condition index (required repair costs divided by total replacement costs) is an oversimplification. For example, an airport with inoperable runway lights can have a "good" condition rating according to this index but be virtually unusable for evening flights. Other measures such as mission relevance and safety must be considered, though to date little or no work has been done for developing a multidimensional index of facility condition.
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