Traditional HVAC budgeting is costing you tenants and destroying your bottom line

Replacing and upgrading HVAC has been traditionally based on outdated methods that could be hurting tenants and your bottom line!

Strategies for investments in HVAC like maintenance, upgrades and replacements are evolving beyond visual inspection and estimated industry life.

By: Zach Denning

We’ve all been told that once your car odometer flips 200k it’s time to start looking for a new car. Based on industry research, large parts like engines and transmissions begin to wear down and the risk of catastrophic failure increases exponentially – Or at least that’s what you believe.

We live in a world of information, yet traditionally, most has been inaccessible or lacked actionable-intelligence until now. Think about how investments in our car would transform if next time you went in for an oil change your mechanic told you the total operating cost savings of replacing air filters or changing belts? You’d probably be more inclined to dip into your piggy bank knowing there was a 2-3 month timeline for return.

What if instead of just real-time MPG, cars showed you MPG degradation over time? Even more, cars tracked maintenance and gas bills to show your total cost of ownership and how efficiently you operated and maintained the vehicle? You would begin thinkinng about replacing your car based on metrics like Return on Investment (ROI) and risk of parts failures (Excluding the leasing crowd) rather than industry averages and routine inspections.

Like cars, HVAC wears down over time. But the difference is HVAC equipment contains the data necessary to establish operating degradation and deliver actionable-intelligence on when, how, and why you should invest. Owners and managers have traditionally relied on tenant complaints, energy bills and industry standards as actionable metrics to drive HVAC upgrades and replacements. All of which amounts to less-than-educated guesses and utilizes risk aversion as a basis for investment – And nobody like spending money on insurance!

So how do you accurately budget equipment replacements without risking tenant comfort or usable life? Start by evaluating investments based on the two most commonly used metrics – Risk and return. If you pair real-time equipment forecasting and tracking to traditional replacement methodologies you can increase equipment life 12-15%, mitigate risk of failure, and guarantee savings.

Understanding HVAC operating costs starts with tracking and forecasting operating costs over time, yielding operating degradation.

Example – 1: As your equipment ages over time it begins to degrade in total operating costs like maintenance and energy. Degradation forces operating costs to exceed equipment value over time, inducing owners to upgrade units and measure impact on how it curbs operating costs.

In Example – 1 we see that as equipment ages over time it degrades to the point were operating costs like maintenance and energy surpass Replacement Asset Value (RAV). When managers can see degradation in real-time, they can decide when to proactively invest in upgrading units and measure success based on how much operating cost degradation is curbed post-project.

Example – 2: As operating cost degradation exceeds asset value over time we find that a replacement Return on Investment (ROI) can be tracked. If we invest in equipment and see no change to the ROI we know the next actionable step is to replace the equipment.

What happens when you upgrade a unit with a VFD, or replace a valve, and there is no measurable effect to degradation? Further exploring equipment degradation in Example – 2 shows us that once operating costs surpass Replacement Asset Value (RAV) a Replacement Return on Investment (RROI) is revealed. If real-time ROI isn’t impacted by equipment upgrades, it’s a good indication the unit has aged should be replaced.

Forecasting and tracking equipment costs like energy and maintenance are essential to understanding how effectively you invest in HVAC – From basic maintenance to capital replacements. Without adequate risk and return data you could be replacing equipment too early and upgrading too late, all of which is impacting your bottom line and tenants! 

My name is Zach Denning and I’m the CEO and owner of EnerDapt, Inc. We’re an HVAC engineering firm that utilizes cloud-based technology to bridge the technical and financial gaps commonly found in HVAC management. Our OCMS EnerVise platform keeps customers knowledgeable about their building including HVAC life-cycle costs, forecasted maintenance & upgrades, and equipment replacements.   You can reach me at zdenning@enerdapt.com or visit our website at www.enerdapt.com