Sustainability | June 14, 2023

The hidden costs of a run-to-fail approach — and what to do about it

This blog is the last in a three-part series exploring how investing in sustainability now will help protect your business from mounting facility-centric risks: the rise of building performance regulations, volatile energy prices, and now, the high costs of a run-to-fail approach to operations.

Run-to-fail happens. Tight budgets, understaffing, lack of executive support — all too often, these and other common headaches force facilities teams into reactive mode. But the organizational risks run deeper than meets the eye when much of the equipment in your portfolio is past its useful life. 

At a minimum, a reactive approach to managing facilities means deferred maintenance/replacement costs are stacking up as we speak. 

Example distribution of HVAC equipment age

It also means any given piece of equipment, in any given facility, is vulnerable to failure, which leads to business downtime AND missed opportunities for efficiency incentives, which can cover as much as 50% of the total cost. By planning ahead, you can use federal and local incentives to provide a portion of your capital plan. 

And the impacts of climate change, including increasingly stringent federal and local regulations, and supply chain issues are only compounding the risk.

Why reactive facilities strategy puts your business at risk

Run-to-fail operations have always come with associated costs and performance risks. But today, the risks are more pronounced than ever. 

  1. Business disruption from downtime — Building components like HVAC and other materials often have long lead times of up to 10 months, due to a variety of supply chain issues. 

    These delays disrupt business and extend disruption in multiple ways, even when temporary heating and cooling is used

  2. Higher and more volatile replacement costsCompanies pay 15% more when they execute and transact at a property level rather than taking advantage of bulk purchasing. A lack of portfolio-level planning also leaves your business more vulnerable to the ebb and flow of high and low annual expenditures, which can derail a planned capital budget.

  3. Poor performance “lock-in” Emergency replacement of equipment offers little time for design, so “like-for-like” replacements are the default rather than smaller, cheaper, more efficient, and easier-to-maintain options.

  4. Frankenstein portfoliosA lack of portfolio-wide planning typically means facility leaders are working with many different manufacturer types and operations practices, which can make it difficult to optimize operations.

The issue is exacerbated by M&A activity, with even more facilities being integrated into the mix and no opportunity for standardized training or performance to uphold.

All told, a run-to-fail approach that considers each facility — and indeed each piece of equipment — in a silo compromises your business, from disrupting operations and racking up unnecessary costs, to preventing you from tapping into more efficient options that support regulatory compliance, financial incentives capture, and achieving carbon reduction targets.

Solution: Five steps to proactive portfolio-wide facility planning 

Unlike a reactive approach, proactive facility management fuels success not just from an environmental perspective, but from economic, regulatory, reputational, and resilience perspectives, too.

A strategic approach to facility asset management includes:

  1. Strategy and program development — Start by identifying asset risk and liabilities associated with end of useful life, efficiency compliance, and other issues like refrigerant phase-out. Then create informed carbon reduction and net-zero scenarios, including highly efficient designs, to engage key stakeholders and begin making decisions about investments.

  2. Capital planning — Prioritize units for replacement using the key value factors and requirements you’ve identified in your strategy. Then develop a scope of work for preferred new assets/designs that deliver most value.

  3. Financing and incentives — From there, you’ll want to apply for rebates and incentives at the local and federal levels and evaluate available financing options. For example, the Inflation Reduction Act expanded opportunities to capture the Federal 179D tax deduction for energy efficiency, up to $5 per square foot (previous maximum was $1.88) for 25%+ reductions in energy usage. Local financing options like PACE (property-assessed clean energy) are also growing in popularity.

  4. Design-build services — The next step is to finalize the scope of work, procure materials and installation, and ultimately oversee project implementation. 

  5. Reporting and monitoring — Over time, it’s critical to capture and report energy savings and GHG emissions reductions, using convenient dashboards to track program KPIs and ensure ongoing success.

With these proactive steps, your team can achieve several key benefits, including reducing costs through planned replacements for consistently lower expenditures over time. You’ll also be better equipped to select easier-to-maintain and right-sized equipment, manage refrigerant risk exposure, and achieve building performance required by current as well as future local laws.

The single most effective way to decarbonize your real estate portfolio is to tie your efforts to creating core business value. By exposing the many hidden costs of run-to-fail operations, you can supercharge facility performance and create business value in one fell swoop. 

Ready to get started? Learn how a Mantis Innovation pro can help your business avert operational and other facility risks.