FMP Facility Financial Management 2 — Questions and Answers
Question 1: What is the difference between operating expenses and capital expenditures in facility management?
- There is no difference between the terms
- Operating expenses cover day-to-day running costs while capital expenditures involve long-term asset investments (Correct answer)
- Operating expenses are always larger
- Capital expenditures only apply to new construction
Correct answer: Operating expenses cover day-to-day running costs while capital expenditures involve long-term asset investments
Operating expenses cover recurring daily costs while capital expenditures fund long-term investments that improve or extend asset life.
Operating expenses include utilities, maintenance, and cleaning. Capital expenditures fund major improvements like HVAC upgrades or roof replacement. Understanding this distinction affects budgeting, tax treatment, and financial reporting.
Question 2: Which financial analysis method considers the time value of money when evaluating facility investments?
- Simple payback period
- Net Present Value analysis (Correct answer)
- Straight-line depreciation
- Annual budget variance analysis
Correct answer: Net Present Value analysis
NPV discounts future cash flows to present value, providing a more accurate investment evaluation.
Net Present Value analysis discounts all future cash flows back to present value using a discount rate that reflects cost of capital. Unlike simple payback, NPV provides a comprehensive view of an investment's true economic value over its entire lifecycle.
Question 3: What is the primary purpose of a facility condition assessment in financial planning?
- To determine the aesthetic appeal of the building
- To identify current condition and remaining useful life of building systems for capital planning (Correct answer)
- To count the number of occupants
- To evaluate employee performance
Correct answer: To identify current condition and remaining useful life of building systems for capital planning
FCAs systematically evaluate building component conditions and remaining useful life to inform capital planning decisions.
Facility Condition Assessments provide objective data about building component conditions and remaining useful life. The resulting Facility Condition Index helps prioritize capital investments across a portfolio.
Question 4: How should a facility manager justify a request for increased maintenance funding?
- By stating the current budget is insufficient without data
- By presenting data showing the correlation between maintenance investment and reduced lifecycle costs (Correct answer)
- By threatening to resign if the budget is not approved
- By comparing the facility budget to unrelated benchmarks
Correct answer: By presenting data showing the correlation between maintenance investment and reduced lifecycle costs
Data-driven presentations showing how maintenance investment reduces total lifecycle costs are most persuasive.
Studies show that every dollar spent on preventive maintenance saves three to five dollars in reactive costs. Presenting this data with facility-specific examples builds a compelling case for increased investment.
Question 5: What is total cost of ownership in the context of facility equipment procurement?
- Only the initial purchase price
- The complete lifecycle cost including acquisition, operation, maintenance, and disposal (Correct answer)
- The cost of the manufacturer warranty
- The installation cost only
Correct answer: The complete lifecycle cost including acquisition, operation, maintenance, and disposal
TCO encompasses all costs throughout an asset lifecycle, providing a complete picture for informed procurement decisions.
For most building systems, the initial purchase price represents only 10-20 percent of total lifecycle cost. TCO analysis prevents the false economy of choosing the lowest purchase price when operating costs will be significantly higher.
Question 6: What is the purpose of a reserve fund in facility financial management?
- To pay employee bonuses
- To accumulate funds for anticipated future capital replacements and major repairs (Correct answer)
- To cover monthly utility bills
- To invest in stock market opportunities
Correct answer: To accumulate funds for anticipated future capital replacements and major repairs
Reserve funds set aside money for planned future capital expenditures.
Reserve funds systematically accumulate money for anticipated capital expenditures. A reserve study analyzes building components, estimates remaining useful life and replacement costs, and calculates annual contributions needed to fund replacements.
FMP Facility Financial Management 2
What is the difference between operating expenses and capital expenditures in facility management?