Last week we began by making the case that you must understand the nature and basis of the costs that you are getting from your Facility Condition Assessments (FCAs) in order to speak with confidence as you tell your asset management story.  We left off with the importance of understanding the units costs and units of measure used to develop your costs.  This is where cost guides come into the equation.  Cost guides such as R.S. Means and Marshall & Swift will provide unit costs, adjusted for different markets, that are a great starting point for developing costs.  However, we do not recommend that you stop with the cost guides.  These costs guides represent average costs for a particular market, based on aggregated construction data.  As such, they will get you close to a value that you should expect to pay.

Additionally, the accuracy of the costs are based on the number of projects from each market that were reported.  For larger markets, there is typically more data available, and because of this it should be more accurate.  For smaller markets, if there are far fewer data points, the statistical accuracy of the values will naturally be lower.  This is not a fault of the cost guides, but just a limit to the available data.

When we look at these cost guides as averages, the challenge is that very few organizations will pay the average within their market.  The very nature of the average is that many costs will be above, while other costs will be below, and it all averages out.  The important question that you should ask is how close to “average” are we within a market.  The answer to that question should determine how much you rely on cost guides.

There can be many different reasons why you might not pay the average cost within your market(s). You may pay more than the average price in a market if you have special project requirements (e.g. K-12 schools do a lot of work during summer months and therefore the demand is higher, which can drive costs up), collective bargaining agreements, etc.  You may pay lower than the average if you have preferred contracts negotiated with suppliers or are leveraging collaborative procurement contracts that have preferred pricing.

We are not saying that you shouldn’t use the cost guides as a starting point, just that you adjust them where you have data/information that is unique and relevant to your organization. Why would you use market averages as opposed to costs that are aligned with your actual business context?   We recommend that you review and adjust the unit costs (and units of measure) that are used in your FCAs to make them as real-world as you can, again given that you are doing a planning exercise to build a “List of Needs” and not executing actual construction projects at this stage.   If you pay $22/sq.ft. for roofing based on a preferred contract that you have with a vendor, how would it make sense to use a unit cost of $25 just because a cost guide says that is the value in your market?

This approach does require an additional investment of time at the outset of any project.  However, if you are investing hundreds of thousands (or more) of dollars in getting consistent and defensible data, we believe that the investment will pay significant dividends in terms of getting you more accurate costs.

The clearer the understanding and higher the level of confidence that you have in the costs that are used as the basis of your Deferred Capital Renewal and Maintenance (DCRM) backlog and Facility Condition Indices (FCIs), the more confident you can be when you are telling your asset management story and making your case for additional funding.

Know your numbers is a key tenet of owning any business.  I would also recommend that it should be your mantra for your asset management program as well!