FMP - Facility Management Professional Facility Financial Management 1 — Questions and Answers
Question 1: A facility manager is comparing two HVAC replacement options: Option A costs $80,000 upfront with low maintenance costs, and Option B costs $50,000 upfront with higher ongoing maintenance. Which financial tool is most appropriate for selecting between them?
- Payback period analysis only
- Life cycle cost analysis (Correct answer)
- Net asset value comparison
- Gross margin calculation
Correct answer: Life cycle cost analysis
Life cycle cost analysis accounts for all costs over the asset's entire lifespan — initial purchase, operation, maintenance, and disposal — making it the appropriate tool when upfront costs and ongoing costs differ significantly between options.
Question 2: Which budgeting approach requires facility managers to justify every expense from zero each budget cycle rather than basing requests on prior-year spending?
- Incremental budgeting
- Activity-based budgeting
- Zero-based budgeting (Correct answer)
- Rolling forecast budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting starts from a 'zero base' each period, requiring managers to justify all expenditures anew rather than simply adjusting prior-year figures, which eliminates automatic baseline increases.
Question 3: When a facility's actual maintenance spending exceeds the approved budget by 12%, what is the most appropriate immediate management action?
- Defer all non-emergency maintenance until the next fiscal year
- Conduct a variance analysis to identify the root cause of the overage (Correct answer)
- Request an across-the-board budget increase for all facility cost centers
- Reduce the preventive maintenance schedule to stay within budget
Correct answer: Conduct a variance analysis to identify the root cause of the overage
Variance analysis identifies whether the overage stems from scope changes, price increases, inefficiencies, or forecasting errors, giving management the information needed to respond appropriately rather than reacting blindly.
Question 4: What does a chargeback system accomplish in a multi-tenant or corporate facility environment?
- It transfers ownership of facility assets to individual business units
- It allocates facility costs to the departments or tenants that consume the services (Correct answer)
- It establishes depreciation schedules for shared equipment
- It creates reserves for future capital replacement projects
Correct answer: It allocates facility costs to the departments or tenants that consume the services
A chargeback system assigns facility costs — such as utilities, cleaning, or maintenance — directly to the business units or tenants that generate them, promoting accountability and accurate cost visibility across the organization.
Question 5: A facility manager proposes replacing aging lighting with LED fixtures at a cost of $120,000, projecting annual energy savings of $30,000. What is the simple payback period for this investment?
- 2 years
- 3 years
- 4 years (Correct answer)
- 5 years
Correct answer: 4 years
Simple payback period = Initial cost ÷ Annual savings = $120,000 ÷ $30,000 = 4 years. This metric tells management how long until the investment recoups its upfront cost through ongoing savings.
Question 6: Which financial metric expresses the ratio of net benefit gained from a facility investment relative to its total cost, and is commonly used to rank competing capital projects?
- Internal rate of return (IRR)
- Return on investment (ROI) (Correct answer)
- Debt service coverage ratio (DSCR)
- Operating expense ratio (OER)
Correct answer: Return on investment (ROI)
Return on investment (ROI) = (Net Benefit ÷ Total Cost) × 100, expressing profitability as a percentage. It allows facility managers to compare projects of different sizes and types on a common scale to prioritize capital spending.
FMP - Facility Management Professional Facility Financial Management 1
A facility manager is comparing two HVAC replacement options: Option A costs $80,000 upfront with low maintenance costs, and Option B costs $50,000 upfront with higher ongoing maintenance.
Which financial tool is most appropriate for selecting between them?