Finance and Business Flashcards

A facility manager is preparing the annual budget and wants to ensure every single expense, from maintenance contracts to utility costs, is justified for the upcoming fiscal year, regardless of previous allocations. Which budgeting method is being employed?

Answer: Zero-Based Budgeting (ZBB)

Zero-Based Budgeting (ZBB) is a method that requires all expenses to be justified for each new period. Unlike traditional incremental budgeting, ZBB starts from a 'zero base,' and every function is analyzed for its needs and costs.

When evaluating the purchase of a new, energy-efficient HVAC system versus repairing the existing one, a facility manager calculates the total cost of ownership, including initial purchase, installation, energy consumption, maintenance, and disposal costs over the asset's entire lifespan. What is this financial analysis technique called?

Answer: Life Cycle Cost Analysis (LCCA)

Life Cycle Cost Analysis (LCCA) is a method used to assess the total cost of an asset over its entire life span. It includes the initial capital investment, operational costs, maintenance expenses, and eventual disposal costs to help managers make informed decisions that minimize total costs and maximize value.

A facility manager is negotiating a contract for janitorial services. The agreement specifies the exact cleaning chemicals to be used, the specific schedule for tasks, and the precise methods for floor polishing. This high level of detail leaves little room for the contractor's discretion. Which type of contract is this?

Answer: Prescriptive Contract

A prescriptive contract specifies the exact requirements, methods, and materials to be used for a service. This type of contract provides less flexibility for the vendor but ensures a high degree of precision and compliance with the facility manager's exact standards.

Which of the following is considered a capital expense in a facility management budget?

Answer: A complete roof replacement project

A capital expense is a significant, one-time cost for purchasing, maintaining, or improving a long-term asset. A complete roof replacement extends the life of the building and is a major investment, thus qualifying as a capital expense. The other options are operational expenses, which are ongoing costs for day-to-day operations.

A facility department provides services like space planning and event setup to other departments within the same organization. To account for these costs, the facility department charges the user departments a fee for the services rendered. What is this internal accounting practice called?

Answer: Chargeback

A chargeback is an accounting practice where the cost of services provided by one department (like facilities) is charged to the departments that use those services. This helps in allocating costs accurately and making departments accountable for their resource consumption.

When developing a strategic sourcing plan for facility services, what is the primary goal of the procurement process?

Answer: To select a provider who offers the best overall value, balancing cost, quality, and reliability

The primary goal of strategic procurement in facility management is to achieve the best overall value. This involves a comprehensive evaluation of vendors based on multiple factors including price, quality of service, reliability, compliance, and their ability to meet the organization's needs over the long term, rather than just selecting the cheapest option.