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Review of Melbourne TAFEs |
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Paper 3. |
Strategic Analysis of the Melbourne TAFE Institutes |
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Sweetnam, Godfrey & Ord |
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Prepared for the
Ministerial Review on the Provision of Technical and Further
Education in the Melbourne Metropolitan Area
Key Findings
lMetropolitan Melbourne TAFE facilities comprise an improved asset base with a current replacement value of $1.154 billion ? made up of buildings valued at $933 million and equipment valued at $221 million. Existing buildings comprise a total gross floor area of 764,100 square metres. Significant new and replacement facility projects are under way or committed which will increase the portfolio further.lCurrent levels of facility utilisation indicate a notional spare capacity of 5,322 DSC, or some 5 million annual student contact hours. This equates to 122,000 square metres of gross floor area.
lThe cost of ownership of TAFE facilities in the region averages $95 per square metre of gross floor area. This figure includes $61 per square metre of capital costs and $34 of recurrent building operating costs.
lThe replacement of portfolio equipment depreciation is an annual cost 40% higher than building depreciation.
l22 out of the 53 campuses in the region have a significant degree of existing facility obsolescence.
lThe system has high and increasing levels of capital liabilities. Currently these are made up of a maintenance backlog of $156 million, a building standards compliance backlog of $27 million, an obsolete equipment backlog of $10 million and depreciated building value (building obsolescence) of $219 million. These components equate to $504 per square metre of gross floor area.
lLow facility utilisation levels are in part caused by the extent of capital liabilities (low levels suitability and condition of existing facilities).
lThe funding of the annual capital costs of ownership (disregarding capital additions and disposals) through maintenance, replacements and upgrades will cost $46.9 million in 1997 and $48.7 million by the year 2007. At current capital allocation levels, residual funds will not be capable of addressing the accumulation of capital liabilities in the metropolitan area.
lAs a broad indicator, the worst performing of the notional surplus of TAFE facilities (assessed as 122,000 square metres) have a written down building value of $88 million, which could be an indicator as to their sale value (excluding land). Disposal of these assets would reduce the current annual capital costs of ownership by $7.7 million and permit the gradual elimination of the portfolio's capital liabilities over an extended time-frame.
lThere are apparently significant levels of duplication of training provision within individual industries across the region. Most industries are serviced on an average of four campuses per region.
lThere are a significant number of instances of very small scale provision of training in individual industries on many campuses - there are 98 examples in the region of industry-specific training provisions requiring less than 100 square metres of floor space each. Of these, 74 examples are offered in industries requiring specialised facilities and are also offered in more than one location within the individual study areas comprising the metropolitan region.
Introduction
The current structure of the Victorian TAFE institute network has largely been determined by the training system's historical links with technical schools and Higher Education. This has led to a Melbourne metropolitan TAFE Sector accommodated in a variety of inherited old and sub-standard facilities. The obsolescence of equipment also is an ongoing problem within the Sector.
Commonwealth Government policy during the 1980s concentrated on improving access to TAFE provision, mainly in the outer suburbs and rural Victoria. This was achieved through construction of new purpose-built facilities in those areas. Relatively little funding was allocated to upgrade the existing facilities in the metropolitan area. As a result, a number of metropolitan Institutes are still depending on facilities that are aging, poorly matched to current service delivery needs and/or require urgent and expensive maintenance.
In the TAFE Sector the core business of the Victorian Government is to provide high quality vocational education and training to Victorians. An important enabling element in the provision of quality training is the capital resources which supports the training system. In the management of these resources the Government aims to:
lensure effective prioritorisation and allocation of funds provided for publicly funded training,loptimise the efficiency and effectiveness of the use of publicly funded training resources,
lpursue the strategic asset management policies of the State's financial management framework.
This report focuses on the following key measures of efficient and effective use of the system's capital resources:
lutilisation of training spaces,lactual floor space compared to space requirements (determined by service delivery to each industry),
lcost of ownership (annual maintenance, operating costs and depreciation),
lrelative facility obsolescence (a comparative index),
loutstanding asset liabilities (the backlog of deferred maintenance and building standards compliance, obsolete equipment and accumulated unfunded depreciation),
lduplication of specialist facilities within regions and institutes, and
lthe locations and duplication of very small specialist facilities.
The report also comments on the appropriate future levels of funding required to support the asset base, including funding benchmarks for building maintenance, building refurbishment/replacement and equipment replacement.
Overview of the METROPOLITAN Asset Portfolio
The total portfolio of facilities in the metropolitan region comprises 489 buildings on 53 campuses, with a gross floor area of 764,100 square metres. This area is made up of general purpose and specialist training facilities, as well as administrative support and ancillary spaces. The total standardised capital replacement value of the building stock is estimated as $933 million. The metropolitan TAFE equipment asset base (comprising computers, office equipment, training equipment, library materials and loose furniture) was also estimated pro-rata, on the basis established for Victoria in the Review of National VET System TAFE Capital Assets, at a value of $221 million.
The Figure 1 profiles the age of the building stock by its gross floor area and standardised replacement value:
Figure 1 Metropolitan Melbourne TAFE Building Stock - Overview
The average age of TAFE buildings is 20 years, with 51% of the total floor area age at 20 years and over. The size and value of publicly owned building stock continues to grow annually as does the age and upgrade costs. The value of these assets is impaired by deteriorating conditions and low utilisation, which change facilities into liabilities. Figure 2 has been prepared to quantify the annual level of building maintenance funding required to maintain the asset stock and also the level of depreciation in the value of the portfolio each year. In this context, depreciation is not simply an accounting measure. It is the estimate of the progressive reduction in the value of the asset base due to the influences of changing needs and standards - ie. a measure of the increase of obsolescence with age.
Figure 2 provides a picture of the costs of ownership of the current metropolitan asset base but does not take account of ongoing new capital investments, refurbishment of existing buildings or potential asset disposals.
Figure 2 Annual Costs of Metropolitan TAFE Maintenance and Depreciation (Existing Buildings)
This chart provides a graphic picture of the cost to maintain the asset base over the next ten years (disregarding further portfolio investments and disposals) - starting at $14 million per annum and rising by the year 2007 to over $18 million per annum as the building stock ages. At the same time the asset base will depreciate in value (reflecting its declining functionality as the service demands of the system evolve over time) requiring a reinvestment in the form of replacements and refurbishments averaging some $12 million per annum over the period.
Utilisation OF TRAINING FACILITIES
The aspect of utilisation analysed in this review is the proportion of the Designed Student Capacity actually used. The period of time that the training facility is available for use is taken to be 40 weeks per year * 52 hours per week. DSC utilisation is expressed as a percentage of the theoretical capacity and is calculated as the frequency of student contact hour use of each training area, multiplied by the occupancy rate of student stations within the training area.
DSC utilisation has been calculated for each metropolitan campus and for each metropolitan study area for both contracted and total annual student contact hours. These figures have been compared with a utilisation best practice benchmark derived from a 1994 international study of published tertiary education space utilisation planning targets in the USA, the UK and Australia. These utilisation targets are summarised in the graphs following in Figures 3 and 4.
Best practice has been determined as the band containing the comparative planning targets, after eliminating isolated high or low instances as being outside current or achievable practice. It should be noted that one of the eliminated figures is the implication from the 1992 OTFE Space Guidelines of a student station occupancy rate of 100% - which is not achievable in practice. This may have been an oversight when those guidelines were prepared.
The best practice bands are indicated in grey to either side of each of the graphs.
Figure 3 Comparative Planning Targets for General Learning Spaces - Best Practice Utilisation Factors
Figure 4 Comparative Planning Targets for Specialised Learning Spaces - Best Practice Utilisation Factors
International Best Practice Benchmark
The utilisation benchmark for this review has been identified as the product of the best practice targets, ie. the highest levels, for frequency and occupancy, drawn from this research. These figures are:
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Teaching Room Type |
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General Learning Areas |
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Specialised Learning Areas |
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All Learning Areas |
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The resulting benchmark level of 54.9% assumes a Victorian TAFE mix of general learning to specialised learning spaces of 30:70. Different mixes would vary the benchmark somewhat.
The calculated overall metropolitan DSC utilisation for contracted hours is 37% while for total hours is 45%. The total hours utilisation rate notionally indicates a spare capacity in the metropolitan portfolio of 5,322 DSC or some 5 million annual student contact hours - representing an indicative surplus gross floor area of 122,000 square metres.
Under-utilisation may be caused by:
lpoor reporting of facility usage data,lpoor management practice in room scheduling,
lsmall training group sizes,
lthe existence of facilities which are surplus to need, and/or,
lpoor facility design characteristics, suitability of standards or physical condition of buildings (ie. facility obsolescence and poor maintenance).
In practice - as indicated elsewhere in this analysis - it is likely that a most of the under-utilisation assessed in metropolitan Melbourne is due to the last three dot points listed above.
Figure 5 shows the metropolitan portfolio overview for DSC utilisation. The attached charts show the same analysis for the individual campuses within each of the five study areas.
Figure 5 Actual versus Benchmarked DSC Utilisation - Melbourne Metropolitan Area
Actual utilisation rates may in fact be marginally higher than those shown due to the use of 1996 student contact hours and 1997 DSC levels in the analysis.
Also, in current practice, developments in alternative training delivery methods may in fact be generating higher effective utilisation levels than those measured in cases where non-contact training is employed, eg. increased reliance on self-paced or non-timetabled course components which may not be reflected in student contact hour figures.
Further analysis of DSC utilisation is required. Results are highly sensitive to the quality of the data - particularly the recorded physical capacity of each campus.
ACTUAL SPACE AND SPACE REQUIRED - based on training delivery needs
The total effective utilisation of space at TAFE institutes can be assessed at a number of levels. Training departments are generally made up of individual training spaces (or suites of related training rooms) and associated ancillary rooms, teacher accommodation and support spaces. Training departments are, in turn, supported by campus or institute-wide facilities including libraries, amenity/recreational areas, institute administration, services and ancillaries. Over-arching these space uses is the ratio of the useable floor area to the gross floor area of the buildings.
Useable Floor Area : Gross Floor Area Ratio
Taking these factors in reverse order, the ratio of useable to gross floor areas is normally a function of the design of individual buildings, and is seldom able to be improved by retro-fitting. Buildings of different configurations, eg. multi-storeyed versus industrial barn may have characteristic UFA:GFA ratios. Older buildings designed for different uses or possessing heritage values may have a poorer performance than well designed newer buildings - however there are also numerous examples of inefficient newer buildings in the TAFE system.
Actual UFA:GFA statistics have not as yet been analysed for the Victorian TAFE system. In this review, in estimating space requirements, the ratio of 65 square metres useable floor area to each 100 square metres of gross floor area has been adopted as a generally accepted tertiary education planning benchmark.
Training Department : Institute Space Ratio
Statistics recording actual departmental and central institute support spaces have not as yet been analysed for the Victorian TAFE system. In this review, in estimating space requirements, for each 100 square metres of training department floor area an additional 23 square metres of central institute support space has been employed, as a typical TAFE system planning benchmark.
Training Department Space Utilisation
Statistics recording the actual distribution of internal departmental training, staff and support spaces have not as yet been analysed for the Victorian TAFE system. In this review, in estimating space requirements, the OTFE Space Guidelines have been used to provide, for each of the 21 ITB related groupings, the appropriate departmental planning area per Designed Student Capacity (DSC).
Training Room DSC Utilisation
Individual institutes are responsible for reporting the number of DSC at each campus. No data is available to facilitate a review of the relative effectiveness of the use of space per DSC at any campus or for any ITB training category. OTFE metropolitan data shows a maximum average gross floor area per DSC, for any campus, of 200 square metres and a minimum of 4 square metres - whereas OTFE Space Guidelines and the other space planning factors described above would indicate a range varying from 6 to 54 square metres as being appropriate, depending on the industry or training area. Never-the-less in this review, in estimating space requirements, the stated DSC data has been used.
The existing gross floor area of the metropolitan portfolio is 764,100 square metres. The calculated overall metropolitan gross floor area required for contracted hours is 538,483 square metres, and for total hours is 641,985 square metres. These overall figures represent a nominal surplus or unsuitable gross floor area of 122,000 square metres, as discussed in the previous section - Utilisation of Training Facilities.
Figure 6 shows the metropolitan portfolio overview for existing and required floor area. The attached charts show the same analysis for the individual campuses within each of the five study areas.
Figure 6 Existing versus Required Gross Floor Area - Melbourne Metropolitan Area
COSTS OF OWNERSHIP OF TAFE BUILDINGS AND EQUIPMENT
The various components of the annual cost of ownership of buildings and equipment have been identified and estimated, where possible, for the portfolio. These cost components are:
Maintenance:
lbuilding maintenancelgrounds maintenance
lequipment maintenance
Operating Costs:
lenergylcleaning
lswitchboards
lrates
Depreciation:
lbuilding depreciationlequipment depreciation
Maintenance:
Building maintenance funding level estimates have been based on national research into TAFE maintenance needs. The maintenance cost for each campus was computed based on the age and current replacement value of each building. The recent history of building rehabilitation and upgrades was taken into account in determining future maintenance needs for the existing asst base, over the next decade. New buildings, upgrades and disposals will of course modify these estimates.
Building maintenance increases with building age, generally over the first 30 years of building life as more building components reach the end of their economic life and are replaced, and this is reflected in the calculated maintenance cost of $13.7 million for 1998 (1.5% of current replacement value) rising to $17.7 million for 2007 (1.9% of current replacement value). Refer also to Figure 2 above.
These estimates contrast with the recent initial data collection from the OTFE Building Standards and Condition Assessment Project which identified a forward maintenance requirement of less than 50% of the estimates. As the Building Standards and Condition Assessment results are very inconsistent between institutes and between facilities similar in nature and are well below what would be expected from national indicators and theoretical models, they have not been used in this analysis.
Grounds maintenance costs were based on the benchmark of $2.00 per square metre of gross floor area, determined as part of the recent national report on TAFE facility operating costs.
There is no readily available data or benchmark relating to the cost of maintenance of training and related equipment. Accordingly this item has not been included in the analysis.
Operating Costs:
Operating costs were also based on the benchmarks determined as part of the above national report on TAFE facility operating costs. The energy cost benchmark is $10.00 per square metre of gross floor area. The cleaning cost benchmark is $15.00 per square metre of gross floor area. The switchboards cost benchmark is $6.00 per square metre of gross floor area. The rates cost benchmark is $3.00 per square metre of gross floor area.
Depreciation:
TAFE building and equipment depreciation estimates have been separately determined, based on the depreciation rates adopted for the Review of National VET System TAFE Capital Assets. In this way, depreciation is intended to measure, as accurately as possible, the consumption of capital asset value due to the progressive onset of obsolescence.
Buildings have been depreciated based on their standardised capital replacement values and their effective age. Effective age takes into account both the original building construction date and also the dates and the scope of recorded facility upgrade projects. The depreciation rate used for buildings was 2.0% per annum (diminishing). This depreciation basis assumes the consumption of 70% of the current replacement value by the expiration of the average anticipated useful life of TAFE buildings in Australia (66 years as determined in the national review of assets).
Building depreciation for the current asset base was calculated for each of the next ten years and will reduce with increasing building age due to the diminishing basis adopted. This is reflected in calculated annual depreciation of $13.3 million for 1998 (1.4% of current replacement value) declining to $11.1 million for 2007 (1.2% of current replacement value). Refer also to Figure 2 above. New buildings, upgrades and disposals will modify these estimates.
Equipment has been depreciated based on its standardised replacement value and its average age. The depreciation rate used for TAFE equipment was 8.3% per annum (straight line). This depreciation basis assumes the consumption of 100% of standardised replacement value by the expiration of the average anticipated useful life of TAFE equipment in Australia (12 years as also determined in the national review).
When measured on this basis, depreciation approximates to the investment required in replacements (and/or upgrades in the case of buildings) in order to maintain the service potential (functionality and value) of the asset base. That is, only when depreciation is fully funded in the works and equipment programs will the service potential of the portfolio be maintained.
It is of significance to note that for the whole metropolitan portfolio, the depreciation (and thus the reinvestment requirement) for equipment, which has been estimated as $24 per square metre of gross floor area, is 40% greater than for the total building stock, which averages $17 per square metre. This ratio differential will increase with time if buildings are allowed to age further.
The average annual cost of ownership of TAFE facilities in the Melbourne area has been estimated as $95 per square metre of gross floor area. This equates to a total annual cost of $72.9 million in 1998, increasing to $74.7 million by the year 2007.
Figure 7 shows the metropolitan portfolio overview for the annual cost of ownership of buildings and equipment. The attached charts show the same analysis for the individual campuses within each of the five study areas.
Figure 7 Annual Cost of TAFE Facility Ownership - Melbourne Metropolitan Area
RELATIVE FACILITY OBSOLESCENCE
The relative level of current obsolescence of TAFE buildings has been assessed using an index measure. This measure takes account of the accumulated backlog in maintenance expenditure (as calculated using national benchmarks) the immediate and critical priorities surveyed for building standards upgrading in the OTFE Building Standards and Condition Assessment, and the net degree to which the building has been depreciated, ie. taking account of recorded facility rehabilitations and upgrades. The facility obsolescence index has been calculated using the formula:
maintenance backlog + urgently required standards compliance upgrades to facilities standardised written down replacement value
The index focuses attention on a short list of seven campuses with apparently highly obsolete facilities (index levels below -50%) and a longer list of fifteen campuses requiring further examination (index levels between -25% and -50%).
The average metropolitan portfolio facility obsolescence index has been computed as -23%, indicating that the portfolio as a whole is verging on the threshold of obsolescence. The index varies widely across the metropolitan area with a range of -19% to -27% between the five study areas and on a campus basis, from 0% (Peninsula: Rosebud and VUT: St. Albans) to -80% (MIT: Pascoe Vale).
Figure 8 shows the metropolitan portfolio overview for the facility obsolescence index. The attached charts show the same analysis for the individual campuses within each of the five study areas.
Figure 8 Facility Obsolescence Index - Melbourne Metropolitan Area
OUTSTANDING CAPITAL ITEMS ASSOCIATED WITH TAFE BUILDINGS AND EQUIPMENT
A number of categories of accumulated unfunded capital liabilities are associated with TAFE facilities generally throughout Australia. These are:
laccumulated building depreciationlobsolete equipment backlog
lbuilding standards compliance backlog, and
lbacklog of deferred building maintenance.
Each of these has been estimated for the metropolitan TAFE portfolio and expressed as a rate per square metre of gross floor area, as follows. These factors will be a significant contributors to the low facility utilisation levels being achieved within the system.
Accumulated building depreciation
Each building has been depreciated using the diminishing basis described above, based on its standardised capital replacement value, its history of upgrades and its effective age. The accumulated building depreciation has been computed as the standardised replacement value minus the 1997 standardised written down replacement value. When expressed as a rate per square metre, these figures are an indicator of the rehabilitation or upgrade costs per square metre required to bring a well-maintained campus or portfolio up to its full functionality and value. The average Melbourne accumulated building depreciation is $252 per square metre and varies between campuses from zero to $588 per square metre.
Obsolete equipment backlog
The Review of National VET System TAFE Capital Assets identified that approximately 4.4% of the Victorian TAFE equipment base was already obsolete in 1995 (against a national average of 11.1%) having already exceeded its estimated useful life. This benchmark has been applied to the estimated metropolitan equipment asset inventory to establish a nominal common rate for obsolete equipment, applied to all campuses, of $13 per square metre.
Building standards compliance backlog
The building standards compliance backlog is the total of surveyed standards compliance priorities derived from the OTFE Building Standards and Condition Assessment. The average Melbourne figure is $35 per square metre and varies between campuses from zero to $223 per square metre.
Backlog of deferred building maintenance.
The building maintenance backlog was computed pro-rata on the basis determined in the national TAFE assets review and the recent follow-up review of TAFE maintenance funding requirements. Calculation of this liability was in proportion to the effective construction date of buildings, ie. taking account of upgrades over the years. The average Melbourne figure is $204 per square metre and varies between campuses from zero to $492 per square metre.
Taken together, the overall average metropolitan portfolio capital backlog has been estimated as $504 per square metre of gross floor area. This equates to a total portfolio capital liability of $385 million and means that in order to address the maintenance backlog and bring all TAFE facilities up to their full service potential and functionality, the portfolio, on average, requires refurbishment at a rate of $504 per square metre. This rate is 40% of the full cost of building replacement.
These estimates contrast with the recent initial data collection from the OTFE Building Standards and Condition Assessment Project which identified a maintenance backlog of less than 1% of the estimates. As the Building Standards and Condition Assessment results are very inconsistent between institutes and between facilities similar in nature and are well below what would be expected from national indicators and theoretical models, they have not been used in this analysis.
Figure 9 shows the metropolitan portfolio overview for the backlog of capital liabilities. The attached charts show the same analysis for the individual campuses within each of the five study areas.
Figure 9 Backlog of Capital Liabilities - Melbourne Metropolitan Area
DUPLICATION AND ECONOMIES OF SCALE OF TRAINING PROVISION
Duplication of facilities
Both the contracted and total training effort, in terms of annual student contact hours, were analysed for each ITB and for Further Education. From this data, the degree of nominal duplication of training in each industry was determined (ie. instances within a region where training in a particular industry is offered at more than one campus). Over all industries, regional duplication of training effort on this basis is commonplace - occurring in over 80% of the 20 industrial training categories. However, since often there are individually more specialised areas of training within a particular industry, this pattern of duplication is an indicator only, and requires further analysis to identify unnecessary duplications within the system.
Figure 10 shows the portfolio overview of the degree of duplication across the metropolitan study areas, of training for the same industry. The attached charts show the same analysis for each individual industry training area.
Figure 10 Duplication of Training for the same Industry - Melbourne Metropolitan Area
Instances of very small industry training provision at campuses
Departmental training space requirements were computed for each metropolitan campus and for each ITB. Of these, those instances were determined where the required floor area for training and associated departmental facilities in a particular industry at a campus was less than a specified threshold value. For a very low threshold of 100 square metres of useable floor area per industry per campus there is a total of 98 cases of very small industry-specific facilities required throughout Melbourne under current arrangements, varying between regions from 10 in the central area to 25 in the eastern suburbs. This factor is likely to be a strong indicator of both facility-related and training provision diseconomies in the system.
Figure 11 shows the metropolitan portfolio overview for the frequency of requirements for very small industry-specific training facilities. The attached charts show the same analysis for the individual campuses within each of the five study areas.
Figure 11 Frequency of Industry-Specific Training Facility Requirements of less than 100 sqm UFA each - Melbourne Metropolitan Area
Instances of duplication of very small industry training provision
The above analysis was extended to determine duplication of very small facility needs within regions of cases of industry-specific training provision where specialised facilities are normally required. When the threshold of facility size is again set at 100 square metres of useable floor area per industry per campus there is a total of 74 cases of duplicated very small specialised industry-specific facilities across Melbourne. These vary from 2instances in the central area to much higher levels, up to 21 instances each, in the outer suburbs. This distribution of highly specialised training provision, away from Melbourne's accessible central area, would not appear to be the most effective allocation of specialised system resources and is likely to be a strong indicator of higher cost specialist facility-related diseconomies.
Figure 12 shows the metropolitan portfolio overview for the number of instances of duplicated very small industry-specific training facilities. The attached charts show the same analysis for the individual campuses within each of the five study areas.
Figure 12 Instances of Duplicated Industry-Specific Specialist Training Facility Requirements of less than 100 sqm UFA each - Melbourne Metropolitan Area
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