Asset Management

Building Types

  • 1.  Building Types

    Posted 26 August 2019 01:57
    I thought I would throw this out there while doing some research. How do you classify building types.

    How do you define a LONG LIFE BUILDING? or a SHORT LIFE BUILDING?
    And what other building 'general' types do you use?-------Temporary, Portable, Fabric, Open, Vehicular, Heritage, Shed?
    At first I thought brick and concrete would be long life and timber short life, but there are some timber buildings out there older than the brick ones!

    Thanks

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    Ashley Bishop
    Asset Management Coordinator
    Benalla Rural City Council
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  • 2.  RE: Building Types

    Posted 26 August 2019 18:43
    Ashley

    The terms Short-Life and Long-Life relate to the AASB's May 2015 decision on Residual Value. Effectively they represent the estimated cost of renewal for the specific component (short-life part) and the balance or recyclable part of each component (long-life part). You need to break the building into the different components and then allocate the split between SL and LL based on the most likely renewal treatment.

    You will also need to develop an asset hierarchy that enables you to allocate both asset level and component level assumptions. This should be detailed enough to enable both asset management planning as well as asset valuation and depreciation. Best guidance is CPA Australia's guide to the valuation and depreciation of public sector assets. If you cannot access it let me know I can send the current updated draft which is planned for publication in early 2020. It is pretty much ready to go but CPA is  awaiting some confirmation from AASB on a couple of key issues. We suspect this guidance will result in major changes to how some local governments deal with asset valuations and in particular those based in Victoria and NSW.

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    David Edgerton. FCPA
    Director APV Valuers and Asset Management
    Director Asset Valuer Pro
    David@assetvaluer.net. David@apv.net
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  • 3.  RE: Building Types

    Posted 27 August 2019 07:11
    Hi Ashley,

    I suspect you may already know the answer to your query . . . it depends.

    If you are referring to a physical life, then the construction materials, the environment in which the building exists and the anticipated future maintenance help determine the expected life of the asset.

    And, if you are referring to the economic life of an asset, then it is a function of the design, anticipated future obsolescence and other external macro economic factors, such as supply and demand.

    In most cases the physical life of an asset will outstrip its economic life. For example, hospitals, prisons, police stations, etc may attract a 40 year economic life due to the ever-changing technical and regulatory occupational requirements which are associated with such property types, whereas their physical life is likely to exceed this. That been said, Government is beginning to recognise the over-capitalisation of specialised assets and are beginning to construct buildings with physical lives which more closely match their intended economic utility.

    For economic lives, we tend to adopt 40 - 60 years for all building types and less for structures such as pergolas', shelters, etc. Again, these assets may have longer physical lives but will only retain a minimal fair value.

    So a short life building could be one defined by its short-lived utility (i.e. hospital) and a long life building as one which has a lesser emphasis on its technical and functional obsolescence (i.e. public toilet). And, just to confuse, this may vary slightly dependent on the construction materials.

    Assets of course can be componentised but a component does not have a short and a long life. Rather a component may might be further split into other components (i.e. the roof component can be split into a roof frame component and cladding component). No part of a component is recycled it is simply treated as another component and depreciated accordingly and the depth of componentisation is a matter of materiality for the reporting entity.

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    Martin Burns
    National Director of Valuations
    Liquid Pacific
    North Sydney NSW
    02 9025 3788
    solutions@liquidpacific.com
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  • 4.  RE: Building Types

    Posted 27 August 2019 07:11
    Ashley,
    An important point.  May I suggest thinking through what the classification achieves?  I don't have the answer and I suspect it should match the organisation's needs.
    Perhaps you should include the purpose of the building?  Is the purpose long-term or for a defined purpose that has a natural end?  (An analogy is water to a domestic house - the need is permanent but the means might be lead, copper, plastic and so on.)
    The other important point is maintainability (and is this the right TOTEX?) and/or the classic broom where the head has been replaced twice and the handle once!
    I think also that understanding the useful life and the consequences of replacement (maybe a cheap structure replaced a few times might be better / and maybe more cost-effective?) - and the carbon or other consequences of what might be seen as waste but recycling might say otherwise.
    At the time, I suspect those creating brick buildings would have thought like you but sometimes the relative lives will only become apparent later.

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    Best wishes,
    David
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  • 5.  RE: Building Types

    Posted 28 August 2019 22:18
    Thanks everyone, other discussions I have had talk about the same ideas. I remember doing a parks and gardens program where asset life was defined by the life of the park, where some assets may last 20 years the park would most likely be redeveloped in 10. Just adds to the confusion but if you know how long you will have it do you adopt that s the useful life? Does the asset type make it long/short life or is it the material or the use?


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    Ashley Bishop
    Asset Management Coordinator
    Benalla Rural City Council
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  • 6.  RE: Building Types

    Posted 29 August 2019 17:45
    Ashley,

    David and Martin have given more expert answers.

    But your point about your parks made me think I would finish by comparing this thinking with railways.  The formation has a different life to ballast, sleepers, rails, catenary, signalling etc. It may be worth developing different approaches according to categories - and many years ago these were also unrelated departments doing their own 'specialism'.  However, from the service provision point of view, this is repeated and annoying interruptions at frequent intervals (and wasteful interaction because changing rails may mean work for the signalling department).

    Sometimes it will be worth replacing some asset classes before they reach true end of life (and potentially life extend others) in order to minimise service interruption (and potentially income or whatever your organisational goals are) by having everyone use the same work time to deal appropriately with their classes of asset.

    This means too much disaggregation of components is not always helpful or worthwhile?  In the end, the value achieved 'from' assets matters just as much as the value 'of' those assets - and sometimes those assets deliver that value only if the whole is delivering value / service.

    As Martin said: it all depends.  Only you and your organisation can determine what is right for you and your stakeholders.
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  • 7.  RE: Building Types

    Posted 01 September 2019 18:54
    Hi Ashley,

    The long and the short of it (pun fully intended) is the characteristics of the primary asset dictate the secondary asset (components). The useful life of an asset's components are restricted to the maximum useful life of the primary asset. Where useful life equates to an economic life except* when the entity intends to dispose of the asset prior to the end of its economic life.

    For example, a building (primary asset) has a remaining economic life of 10 years and new cooling towers with economic lives of 20 years are installed. Despite being new, the remaining useful life of the cooling towers (secondary asset/component) is 10 years and the fair value of the cooling towers is immediately written down to a value far less than their cost when new.

    However, the replacement of some component(s) may enhance or extend the remaining economic life of the primary asset and this needs to be considered on a case by case basis.

    This is why the bottom up approach to valuation is flawed as it attempts to sum the values of the components (secondary) to derive a value for the asset (primary). By disaggregating a primary asset into its components, reporting entities inadvertently destroy the economic relationship which exists between these secondary assets. It is common in our work as valuers to see components of a primary asset have useful lives longer than the primary asset itself, which of course is incorrect.

    We also see this economic disaggregation at a higher level, when clients (Government in particular) disaggregate land, buildings, plant and equipment for valuation purposes.

    *As an asset manager/engineer you may be feel nauseated by references to accounting standards and you wouldn't be alone in that regard, however, accounting standards define 'useful life' as:

    (a) the period over which an asset is expected to be available for use by an entity; or
    (b) the number of production or similar units expected to be obtained from the asset by an entity.

    And further,

    The useful life of an asset is defined in terms of the asset's expected utility to the entity

    It should be noted the definitions of useful  life are entity specific and may not necessarily reflect economic lives.



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    Martin Burns
    National Director - Valuation
    Liquid Pacific
    North Sydney NSW 2060
    www.liquidpacific.com
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  • 8.  RE: Building Types

    Posted 03 September 2019 18:53
    Martin
    Nicely put - I agree.
    In my more positive moods I recognise some increasing alignment with the accountancy profession but it doesn't deal with all the aspects of value. (A particular hobby horse of mine at the moment is value 'from' as distinct from value 'of' - and I'm not sure that the accounts valuation always reflects this.)
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  • 9.  RE: Building Types

    Posted 01 September 2019 18:55
    Hi Ashley
    I have considered park redevelopments when doing the impairment test as the asset life is planned to be materially reduced compared with an ongoing lifecycle plan.

    Kind regards.

    Ross McPherson
    Asset & Facilities Management Consulting Pty Ltd.
    0417 033 711
    ross.mcpherson@afmconsulting.com.au


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