3 Questions Business Officers Need to Answer About Proposed Construction

It’s no secret that many colleges are struggling financially right now, especially campuses with fewer than 3,000 students. Demographic shifts have reduced the number of high school graduates seeking admission, and many institutions have taken to offering discounts to applicants in order to increase the number of accepted students who choose to attend. In this environment, administrations are evaluating campus buildings and infrastructure with an eye toward making their institutions more attractive to potential students.

These discussions demand a thorough analysis from the business officer of current campus needs and the financial impact of any new building or renovations going forward. In order to make these assessments, the business officer needs to answer three critical questions. The first two are actually questions for the facilities manager, and they provide the critical input necessary for the business officer to answer the third.

1. What’s our facility profile?

Understanding this answer requires asking the facilities manager a few important questions. At a basic level, do we have enough space now to accommodate projected enrollment? Is there existing space that’s underutilized and could be repurposed? This discussion could also include an analysis of resources on the academic and student life side to figure out how existing facilities could more effectively meet the needs of students and faculty.

2. What’s our deferred maintenance situation?

3 Questions Business Officers Need to Answer About Proposed Construction 1

In a recent survey at one of our member institutions, over 80% of respondents felt that the condition of campus is important or very important. Respondents were asked to rate building condition, cleanliness, comfort, and grounds condition. On this campus, many respondents spoke to the age of buildings, noting the difficulty in maintaining the appearance of buildings from the 1960s.

When you report back to the college administration about resources available for renovations or new construction, you must have a clear picture of what maintenance has been deferred and the urgency of each deferred project. No high school student on a campus tour is going to be impressed by a shiny new science building if the dorm next to it is unoccupied because the plumbing or the heat has malfunctioned. The facilities manager can tell you what projects are urgent fixes right now and the timeline over which other deferred projects will grow into critical problems or potential system failures. Acknowledging these problems and setting a multi-year timeline to address them is a critical step toward answering the third question.

3. What’s our debt profile and what can we afford?

This question falls to the business officer to answer after gathering input from the facilities manager and other groups about the needs and wants of the various interested parties on campus. It’s a safe bet that the institution will not be able to afford everything that the various groups want at the same time. A key element of this step is to remember that every building, whether new or old, comes with a cost of maintenance. The average operating costs for campus facilities is $5 per square foot in maintenance and $2 per square foot in utilities every year (see our 2015 State of Facilities report). If administrators want to add new space without tearing down old buildings, they need to account not only for the investment necessary to build but the ongoing budget impact of increasing the school’s square footage. Big name donors may want to make a sizable contribution to add a flagship building to the campus, but their generosity rarely extends to the ongoing costs of maintaining the building and keeping it supplied with electricity, water and climate controls.

It’s never easy to be the one who dampens the enthusiasm of an excited group of executives and directors who are fired up at the idea of improving a campus. Campus leadership may even have significant donors lined up to contribute to a new building, but the budget projections are likely to show that when construction is complete the school can’t afford to maintain all of its square footage. When your analysis indicates that a project should not go forward, consider offering alternatives, such as building renovations/facelifts or additions instead of new construction. In some cases, these alternatives can also serve to address maintenance backlogs in certain areas of the campus.

The key to successfully balancing an institution’s maintenance requirements with the ever-present push for new and nicer facilities is to involve the appropriate parties in the discussion. Executives look to the business officer to advise them on how to use the institution’s resources to achieve the goals that they set. When the numbers don’t support the current dreams of the leadership, it’s critical to deliver a clear and well-documented analysis of how your institution can still use the money it dedicates to facilities construction, improvement and maintenance in a manner that will make it more attractive to prospective students. (Check out this video about how the University of Denver plans to leave a legacy of funding, not a legacy of deferred maintenance).

 

 

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