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CapEx or OpEx? How should you pay for your FCA?

Michael Hardy
Asset Management Leader | Bureau Veritas - Buildings & Infrastructure Group

A Facility Condition Assessment (FCA) is a comprehensive evaluation of the physical condition of a facility or building, including its structural components, systems, and infrastructure. It helps in identifying any deficiencies, maintenance needs, or potential risks associated with the facility.

Is the cost of an FCA a capital expense or an operations expense?

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Always consult with your facilities' financial professional before making business decisions, but I believe the cost incurred for conducting an FCA can be justified as a capital expense for several reasons, supported by the following examples:

  1. Long-term planning and budgeting: A Facility Condition Assessment provides critical insights into the current condition of a facility and its components. It helps in estimating the useful life of various assets, identifying necessary repairs or replacements, and developing a long-term maintenance plan. This information enables organizations to make informed capital investment decisions and allocate funds for major repairs or replacements over an extended period. As such, the cost of an FCA becomes part of the capital budget, which focuses on strategic and long-term asset management.
  2. Asset valuation and financial reporting: Conducting an FCA contributes to accurate asset valuation for financial reporting purposes. Facilities are often considered significant assets on the balance sheets of organizations, and their condition and value impact financial statements and disclosures. By assessing the condition of the facility, an FCA provides vital data that aids in determining the fair value or depreciation of assets. As this information directly affects the financial reporting of an organization, the cost of an FCA is considered a capital expense.
  3. Capital project prioritization: The findings of a Facility Condition Assessment help organizations prioritize capital projects based on the urgency and severity of identified issues. It allows them to determine which repairs or replacements are critical for maintaining the facility's functionality and safety. By identifying and addressing high-priority capital projects, organizations can mitigate potential risks, avoid costly emergency repairs, and enhance the overall performance of their facilities. Therefore, the cost of an FCA becomes an essential investment in the decision-making process for capital project prioritization.
  4. Asset management and compliance: A Facility Condition Assessment plays a vital role in ensuring compliance with regulatory requirements, industry standards, and safety codes. By assessing the condition of a facility and its components, organizations can identify any non-compliance issues and take appropriate actions to rectify them. This proactive approach helps in avoiding penalties, legal liabilities, or disruptions to operations that may arise due to non-compliance. As compliance is an integral part of asset management, the cost of an FCA is considered a necessary capital expenditure.
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There are always two sides of an argument, and one could be made for classifying the cost of a Facility Condition Assessment under operations and maintenance, but I think the better case is made in favor of an FCA being a capital expense due to its long-term planning and budgeting implications, contribution to accurate asset valuation and financial reporting, role in capital project prioritization, and its importance in asset management and compliance. By investing in an FCA, organizations can make informed decisions, improve their financial reporting accuracy, prioritize capital projects effectively, and ensure compliance with regulations and standards, and that sounds like a CAPITAL idea to me!

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