what is building componentization

At HCA, we lead businesses through what is known as Building Componentization, a methodology for financial reporting and Federal overhead (F&A) cost reimbursement calculations. Utilizing this methodology provides the most accurate allocation of costs, and optimizes recovery through segregation of costs to individual components with representative useful life assignment. But you may be wondering, what is building componentization and how did it get its start?

The history behind building componentization:

HCA Asset Management got its start in the late 1970’s in St. Louis, Missouri by Arthur R Hirons after deciding to leave one of the most well-respected appraisal firms in the country. Arthur was working independently and approached Harvard University on a new methodology for depreciating their buildings. This methodology was a more detailed approach to accurately represent individual building component costs and representative component useful lives. 

Upon defending this more detailed approach with Federal auditors, Arthur realized he could bring his idea to other higher education institutions which would more accurately reflect their depreciation recovery at the building component level and in turn, provide a higher overhead cost recovery for the institution. This methodology would later be called “building componentization” and now often is referred to as “cost segregation” and is utilized by institutions across the United States for a more accurate, reflective indirect cost recovery.  

The benefits of building componentization:

Realize your building’s maximum benefit through representative recovery 

Your facilities and your mission are unique. That’s why your solution should be unique as well. At HCA, we customize our services to support your goals for financial, management, reimbursement, and usage through:

  • Property management standards
  • Financial reporting requirements
  • Federal cost reimbursement regulations
  • Financial and federal audit support 
  • Annual perpetuation services

Gain a new appreciation for component depreciation.

The depreciation of building costs over 40 or 50 years of composite life doesn’t take into account that many of the structure’s individual components won’t last that long. Building Componentization is the analysis and examination of capital construction project costs to determine how much of the cost should be allocated to the individual building components.  Building Componentization will provide shorter and more representative component lives, typically a composite life of 26-27 years depending on type of facility and activity within.  

Converting to a “depreciation by component” strategy helps you recover costs as they’re accrued, which can make a big impact on your bottom line. 

We’ll use our expertise in the following to lead you to success: 

  • GASB 34/35 fixed asset reporting
  • FASB fixed asset reporting
  • OMB A-21 and A-110 fixed asset cost reimbursement

Have any questions about building componentization? We’re here to answer all of them and get you the support and accurate data that you need. Get started by reaching out to us here.