Finance and Business
The Finance and Business domain tests budget construction, capital justification, cost benchmarking, and the language used to defend facility spend to finance.
Budget structure
Operating budget items recur and are expensed in-year: utilities, janitorial, repairs, staff. Capital items have multi-year life and are depreciated. Benchmarks are only meaningful with a defined cost scope and a defined peer set: cost per square foot or square metre, cost per occupant, cost per work order.
Investment appraisal
Simple payback ignores the time value of money; it screens, it does not decide. NPV discounts all cash flows at the hurdle rate and is accepted when positive. IRR is the discount rate where NPV equals zero and is accepted when it beats the hurdle rate. Life-cycle costing compares alternatives on total cost of ownership rather than first cost.
Worked example
A $100,000 chiller replacement saves $30,000 a year for five years; the hurdle rate is 10%. The annuity factor for 10% over five years is 3.791, so the present value of savings is $30,000 × 3.791 = $113,730. NPV = $113,730 − $100,000 = +$13,730, so fund it. Simple payback is 3.3 years. The payback is the headline; the NPV is what justifies the decision, because it accounts for the cost of capital.
Variance analysis
Compare actual to budget monthly and separate rate variance from volume variance. A utility overrun during an unusually cold month is a volume story, not a procurement failure.
Traps
- Treating IRR and ROI as the same measure.
- Comparing cost per square foot across different measurement standards.
- Omitting soft costs (design, project management, moves) from a capital request.
- Presenting one option with no do-nothing baseline.