Archive for August, 2010
|Is it CM or PM?
Wednesday, August 25th, 2010
By Phillip Infelise
In this edition, I want to clear up the distinction between Construction Management and Project Management. All too often we are referred to as Construction Managers (CMs) even though we call ourselves Project Managers (PMs). I want to be sure that everyone understands what we are, what we aren’t, what we do, and what we don’t do.
As I see it, PMs are not CMs as they do not directly manage construction. Applied today on most corporate projects, CM is simply a derivative form of General Contracting (GC), and often it’s difficult for the layperson to differentiate between them. Traditionally, CMs oversaw a series of subcontractors who were directly contracted with the owner, usually for a specific fee override on direct costs, with our without risk. Today, however, it is more typical that CMs:
-Act in place of GC but generally perform in the same capacity providing pre-construction, providing on-site supervision, overseeing sub-contractors, et al.
-May operate at risk or for a fixed fee at no risk - this is where the roles get cloudy.
-Oversee a GC who acts as a consultant to the owner, often incentivized by derived cost-savings.
-Hold contracts of subcontractors, directly liable and accountable for their performance.
-Pay subcontractors and withhold payments until work is satisfactorily complete.
We are PMs, not CMs. As PMs, overseeing the entire project process—ensuring that construction activities are accomplished in a timely and budget-compliant manner—is only one of our myriad responsibilities. As PMs, our responsibility regarding direct construction is only as follows:
-Direct the process to select GC or CMs through a process detailed in a previous blog entry.
-Oversee GC to assure that quality, cost, and schedule are in compliance.
-Work closely with GC or CMs during the value engineering process.
-Hold no contracts of subcontractors in any circumstance.
-Little or no direct contact with subcontractors other than at OAC (Owner, Architect, Contractor) or GC/sub meetings where specific sub issues may be reviewed and resolved.
-Periodic site and final punch walks with site superintendent to view means, methods, quality, and finish.
-Weekly interaction at project meetings, OAC, working through changes orders, etc.
In sum, PMs do not act as CMs, but oversee their activities to achieve a perfect outcome relating to quality, cost, and schedule. As PMs, our scope entails all aspects of the project from early conception to post-occupancy. Overseeing construction is just one facet of the process, albeit a very important one, considering that more than 50% of the overall costs are embedded therein. Our total Process Management approach suggests that we should be called Process Managers; but articulating that differentiation may call up even more questions.
In my next entry, I will dive into Relocation Planning and Management (RPM) – why it is so critical to our overall Project (Process) Management approach.
Do you agree with my differentiation?
Tags: construction management, corporate real estate, PM, process management
Posted in Project Management | Comments Off
Seven Real Estate Cost Reduction Strategies
Wednesday, August 18th, 2010
By Jack Burns
There are many ways to consider cost savings, but there are seven in particular that you might want to focus on today. You can implement the following cost saving strategies yourself, but you will see quicker results if you utilize your service providers or other consultants.
1) Eliminate Surplus Space – Shadow & Swing Space
Even with reported vacancies through CoStar and other tracking services in the mid teens to low twenties in many areas, the true vacancy rates are often much higher. Typically a company will track a 5% – 10% vacancy to allow for churn. But today, many corporations may have 15% to 30% vacancy in their portfolio. This shadow space tends to be spread throughout a building or portfolio and is not easily assembled to dispose of through a restructure, sale, or lease/sublet. Through a planning exercise, study what it would take to unlock these spaces and dispose of them quickly. It may require spending capital to rework existing spaces to accommodate a consolidation, but many times the payoff will be outstanding.
2) Appeal Property Taxes
Most properties reached record values 4 years ago, and the real market values have now plummeted in many areas. If you own property today you must evaluate the real tax value. Make an effort to seek a reduced value to reduce the tax basis and even seek abatements on current tax bills.
3) Own Instead of Leasing (new FASB Regulations)
When making real estate decisions today you must consider the impacts of impending Financial Accounting Standards Board (FASB) changes. These changes may make the impact of renting the same as owning relative to how the property is placed on a company’s balance sheet. If ownership is a possibility, the payback will be beneficial with both a longer depreciation period and the ability to segregate cost for construction and investments.
4) Renegotiate Leases Early to Take Advantage of Low Rates (Blend & Extend)
This is old news and I am afraid that in many markets the window for this opportunity is closing quickly as vacancies are reduced and landlords become more confident in the market’s ability to recover. However, your advisor needs to test the options by completing a Rent Gap Analysis which will quickly assess if the trade off for additional length in term is worth the potential reduction in rent that could be achieved.
5) Implement Workspace Strategy for Increased Cost and Space Efficiency
Let’s face it: The best way to reduce costs is by owning or leasing lower cost real estate solutions. This is a great strategy, but many times may result in a need to locate in an area that may not be conducive to your business operations. However, using less real estate is the #1 opportunity to reduce costs. Workspaces can only get so small before they serve no functional purpose. However, a mobile worker strategy or a work from home policy will allow most companies to reduce space significantly. Typical work groups that can adapt mobile or work from home solutions include: sales, professional services, consulting, call centers, shared services, accounting, procurement, support HR functions, and other support functions. Development, R&D, engineering, management, and other similar functions many times do not work well in a mobile or work from home basis.
6) Real Estate Cost Allocation through Chargebacks
Within many corporations the true chargeback for use of space is not properly captured. This results in many business units not recognizing the cost of their use of facilities. If true costs are recognized and allocated to business units, P&L statements may allow these units to be more realistic about how they use space when they are hit with the chargeback for the space. This will require the implementation of a good CAFM system and utilization of internal or external resources to properly record who is occupying specific spaces and tracking those consistently.
7) Internal and External Benchmarking
How do you know you are doing well? Benchmark against outside firms and internally between business operations or divisions. Competitive advantages always drive good behavior. Good measures for benchmarking include total cost of facilities as a percentage of revenue or as a percentage of SG&A, total cost per employee (include contractors), total cost per seat, or cost per cubic foot in storage. Get involved with smaller focused groups to compare metrics, or look to larger organizations like CoreNet Global, IFMA, or REEB to compare your cost and space metrics against others. Make sure to compare yourself to more progressive industries and not just those in your area of business practice.
Do you agree with this list of seven cost reduction strategies? What other strategies would you add to the list?
Tags: corporate real estate, cost savings, real estate portfolio
Posted in Corporate Services | 1 Comment »
The Value of Access to Transportation
Wednesday, August 11th, 2010
By Rob Wheeler
Location is obviously the most important aspect in real estate. Being in the right location to achieve maximum efficiency for an organization is the goal of every supply chain manager. One of the key factors of the right location is access – to customer markets, to vendors, and to transportation. Access should be part of every supply chain related real estate decision.
For this post I want to concentrate on access to transportation. I have worked in the transportation industry for several years, advising companies on all things supply chain. Often when I took out all of the variables, the main goal of companies I worked with was to find additional time and flexibility at the end of the day when there was none to spare. In my opinion, deciding where to place a warehouse is the most important factor in gaining flexibility, because its placement will determine what flexibility a transportation provider may have when working with the company.
All transportation companies—air parcel, ground parcel, and trucking companies—have hard schedules which are built into their network in order to adhere to published service standards. What many organizations don’t realize is that there are things a company can do to create some flexibility in this schedule. In one example, an air parcel operation had a company load containers directly to an aircraft versus having it be sorted at intermediate point. In another example, a ground parcel operation asked a company to load around sort points to cut days from service. This flexibility is geared toward gaining time at the end of the day so a company can push more product out the door during that day.
There is, of course, a caveat to this flexibility. This flexibility only works when companies are in the right location with access to the transportation networks of the service providers. If a company isn’t located close enough to major hubs of air and ground transportation providers, then there really isn’t anything the transportation provider can do within their networks to help. Yes, there is a tradeoff of rental cost as you move into more urban areas. Rent will go up, but rent is only 5% of your supply chain cost. This increase in rent cost can be more than offset by working with transportation providers to decrease transportation costs.
How has access to transportation or location in general impacted your business?
Tags: Supply Chain, transportation
Posted in Supply Chain | Comments Off
Is it Property Management or Facilities Management?
Wednesday, August 4th, 2010
By Jim Ricker
I’m often asked, “What are the differences between Property Management and Facilities Management?” or “Aren’t they really the same thing?” Although many use the terms interchangeably, most professionals view them as different service lines.
The confusion arises from the great similarity in type of work as both professions involve the management of real estate. However, by not recognizing the differences we do a disservice to the individuals working in these professions – many of whom have spent considerable time and energy earning the right to be called a Certified Property Manager (CPM) by the Institute of Real Estate Management (IREM) or a Certified Facility Manager (CFM) by the International Facilities Management Association (IFMA).
In this entry, I’ll discuss what I consider to be the important differentiators.
The Client
Property Managers work for investors who own real estate for the cash flow from operating income and for the gain in value during their ownership term. Owners may consist of individuals, developers, private equity funds, REITs, or a variety of trusts.
Facility Managers work for the users of real estate who either own or lease their properties. Users typically consist of corporations, educational institutions, healthcare institutions, and governments. While many of these entities want to maintain and increase value, most of them own and lease properties to support the primary functions of their organizations.
Client Goals
Investors prioritize their goals as follows:
- Income – maximize income from operations
- Value – increase the value of the property
- Customer relations – maintain tenant relations to help maximize occupancy and cash
flow - Operations – efficiently maintain the property in order to achieve the first three goals
Users prioritize their goals in almost the reverse order of investors:
- Operations – maintain the property in support of the resident business units, with an
emphasis on ensuring that assets reach their useful lives and that interruptions to the business units are eliminated - Customer relations – ensure that services are cost-effective and geared toward
supporting the business units - Value – maintain the value of the property in the event that it becomes surplus and
available for disposition - Income – not a priority, unless subletting of surplus space is involved
The Work
Property Managers manage all aspects of income and expense for their investor clients, including budgeting, forecasting, and reporting. On the income side, they work closely with leasing agents and brokers to ensure that their properties are fully leased at market rents. They collect rents, compute and collect additional rent and CAM charges, and compute and collect real estate tax escalation payments.
On the expense side, Property Managers contract for and pay for all operating expenses such as repairs and maintenance, taxes, and insurance (sometimes). Expenses are deducted from the collected rents, and the surplus is credited to the client.
Facility Managers manage the expense side of the ledger with a focus on ensuring that the assets are in prime condition to support the business unit operations. They also manage the optimization of space utilization – ensuring that metrics such as square feet per employee and number of employees per office are met. Unlike Property Managers, Facility Managers also provide several services to the employees working in their sites. Often classified as office services, these support services may include cafeteria management, receptionists, copiers and copy centers, mail, and shipping/receiving.
Conclusion
While there are many similarities in the day to day work of Property Managers and Facility Managers, I encourage all readers to recognize the significant differences in who their clients are and what their goals are – and to use the correct terms for these two very important real estate service lines.
Do you agree with my viewpoint that Facilities Management and Property Management should be differentiated?
Tags: corporate real estate, facility manager, property manager
Posted in Facilities Management | 1 Comment »
