Archive for the ‘Facilities Management’ Category
|End of the Year Thoughts Regarding Facilities Management
Thursday, December 15th, 2011
By Jim Ricker, Vice President, Corporate Services
With 2011 coming to a close, this is a good time to reflect on some key points about FM.
Facilities Management is not a commodity.
Some consultants who advise corporations and institutions about outsourcing tend to view FM as a commodity that can be purchased similarly to services such as custodial, grounds, office supplies, and the like. This is a terrible concept and should be resisted by prospective acquirers of FM services. You are entrusting the care of your real estate assets to professionals from a service organization. The right decision hinges on much more than the fee per square foot and the generation of reams of reports. You need a provider who is trustworthy, experienced, innovative, and works well under a performance based contract. Think of this work as you would that performed by your accountants and attorneys—it is that important.
Outsourcing is not a universal panacea.
It works well for some organizations—those that don’t have the internal resources, have a history of outsourcing non-core work, have a culture that accepts the concept, and have an executive management team that is totally committed to the approach. In addition, organizations that are having difficulty keeping pace with rapid growth may be candidates for outsourcing.
For those corporations and institutions that have strong internal groups, outsourcing often has no benefit and may be more expensive. For an internal FM team that effectively manages costs, hires contractors for repetitive services such as custodial and grounds and infrequent, highly skilled services such as elevator maintenance and indoor air quality testing, keeps its team trained and skillful, and provides relevant information to senior management, outsourcing offers little. In fact, there could be a regression if the culture is complex and skeptical of outsiders.
Learn the language of the customer and use it to communicate.
FM teams frequently work for another function—often Finance, Administration or Human Resources. And FM’s key customers are usually senior managers of sales, service, engineering, or manufacturing. These constituencies are typically not fluent in the language of FM. They think in terms of their own functions: time to market, inventory turns, employee turnover, employee productivity, earnings per share, occupancy as a % of sales, and the like. Learn how they think about work, and adapt how you communicate to their way of thinking. You will be much more effective and appreciated and may be viewed as more integral to the success of the company. This is a critical concept for both internal FM teams and external, fee-based providers.
Look for more key points about FM on future blog posts.
Tags: corporate real estate, FM, real estate outsourcing
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So You’re Thinking of Becoming a Facilities Manager
Wednesday, October 12th, 2011
By Jim Ricker, Vice President, Corporate Services
One of the most interesting and rewarding careers in corporate real estate is that of Facilities Manager, either as in-house employee or as an outsourced provider. In this blog post, I’ll offer some compelling reasons for taking the step into FM. If you’re on the fence, this might help you make the move.
Do you like a job that is unpredictable, amazingly diverse, technically challenging, and that requires excellent written and verbal communication skills, leadership abilities, and lots of MBWA (managing by wandering around)? Do you want to manage tangible, physical assets? Do you like to be able to see what you’ve accomplished in a day’s work? If yes, than a career as a Facilities Manager awaits you.
I can vividly remember when, during the early 1980’s, I worked in the Corporate Real Estate group at Digital Equipment Corporation (DEC) as a lease negotiator. When I decided to move into facilities management for one of the international business groups, my CRE associates thought I had lost my mind. “Why would you leave a professional organization, Jim, and become a glorified custodian?” That type of question was one of the reasons I did make the career change. My associates in CRE were isolated from the business units and were perceived as a necessary evil when space was needed. In contrast, I wanted to become more closely aligned with the business of DEC and to have a job that was more challenging and diverse.
In my new job I was able to:
-Go from a pure overhead role to one where I was perceived as an integral part of the business unit;
-Have P&L responsibility for substantial operating and capital expense budgets;
-Become responsible for a broad spectrum of facilities services including space planning, project management, maintenance and operations, office services, cafeteria, travel, security, telecom, EH&S, finance, and reporting;
-Manage a diverse staff of facilities professionals;
-Learn something new several times a day;
-Communicate with other employees (my customers) ranging from administrative assistants to vice presidents;
-Have the opportunity to leave my desk several times during the day to observe, train, and communicate;
-And enjoy the benefits of being close to the physical, tangible real estate assets of the company.
Since I was the first person to leave a perceived lofty role in CRE, many of my former associates stayed in touch to find out how my new job was working out. My enthusiasm obviously rubbed off as I observed several of them making similar moves during the next few years.
Go for it. Reward yourself with an incredibly challenging and exciting career.
Tags: corporate real estate, FM
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More Thoughts on FM Outsourcing
Wednesday, June 15th, 2011
By Jim Ricker, Vice President, Corporate Services
In last September’s blog post entitled “Is Outsourcing Facilities Management a Solution for my Business,” I wrote about the pros and cons of outsourcing this critical CRE function. Based on a recent study I worked on for a major institution, this discussion is more relevant than ever.
The study focused on a portfolio of 1,000,000 SF of space in multiple locations within a 50 mile radius. At the onset of the study, Facilities Management (FM) was managed internally with some activities provided by third party vendors (commonly referred to as out-tasking as opposed to outsourcing). In order to determine if this approach was cost-effective for the institution and supportive of the business units, the study considered costs, customer satisfaction, processes, and FM employee knowledge. Given the size of the portfolio, this would logically be a mid-sized outsourcing opportunity that would attract several service providers.
As I mentioned in last September’s entry, to be successful, FM outsourcing depends upon several factors:
-Clearly stated goals that are achievable
-Client commitment from the executive offices
-Performance-based contracts with rewards and penalties
-Single points of contact for both client and service provider
-Constant communication – informal and formal
-Flexibility as scope of work and economic climate changes occur
-Technology applications that provide relevant information for decision-making
When this institution was considering outsourcing, it was clear that all of these factors could be met or already existed. But there were also two other considerations that affected the institution’s decision:
-A unique culture within the client company that was extremely difficult to replicate; therefore it would take a service provider several years to fit in and become productive; and,
-The need for reduced operating expenses by subcontracting high volume, low cost services such as custodial and low volume, and high cost services such as elevator maintenance.
And missing from the institution were the following actions:
-Reorganization to eliminate redundancy and poor performance
-Implementation of performance-based review system for employees
-Consolidation of services to take advantage of bulk purchasing
-Institution of a training program to maintain and enhance staff knowledge
While it might appear that the logical outcome would be for the institution to outsource its FM function, the study reached a different conclusion—recommending that the work continue to be performed internally provided that several changes were made. One major reason given for this recommendation was the unique culture of the institution: a culture that would make outsourcing a time-consuming, lengthy process involving significant management attention with disruption to several critical business operations.
The other major reason for this somehat surprising recommendation was that senior management was willing to implement the changes necessary for a successful in-sourcing. They were willing to eliminate senior positions that were redundant and added little value—and were sometimes even counter-productive. The organization was therefore simplified with fewer layers and improved communications. Performance-based reviews for employees were adopted, consolidated purchasing was improved, and training was increased.
As a result of these changes, the institution realized savings (based on benchmarking) equal to or greater than what an outsourcing contract would yield, employee morale and performance increased, and customer satisfaction improved—all achieved with virtually no disruption.
Although outsourcing works well for many organizations, it is not always the best solution. The decision is much more than a financial exercise and needs to account for the culture of an organization.
Tags: corporate real estate, cost savings, FM, real estate outsourcing
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CRE Gets Lucky, Inherits FM
Wednesday, April 6th, 2011
By Jim Ricker, Vice President, Corporate Services
In many companies, Facilities Management is a decentralized function reporting to local site management. This is especially true in manufacturing, where it has long been a practice for the Facilities Manager to report to the Plant Manager. In other companies, Facilities Managers for field sites (sales offices, service centers, etc.) often report to the regional business managers. However, we are seeing a continuing trend in many companies of consolidating all facilities management activities under the corporate real estate (CRE) department. This change in reporting structure is often met with groans in the CRE department. Instead, that CRE team should view this organizational change as a lucky break and a genuine opportunity. Why?
- CRE is often isolated from the business units and user groups, stemming from the fact that it is a corporate function and not part of the mainstream business. Finance often views CRE as overhead and has difficulty in valuing its contributions. This is partly due to procurement and various consultants preaching that most CRE functions should be treated as a commodity (which is wrong and counter-productive).
In order to be successful, Facilities Managers should be closely aligned with the business units that they serve. The work is performed and managed close to the customer. CRE can take advantage of these relationships and leverage them into stronger relationships with business units’ senior managers.
- CRE often deals with activities that are difficult to successfully measure and communicate. For example, senior management often judges Transaction Management success in terms of its rents versus the so-called market. We’ve all had the experience of receiving a call from a senior manager who recently met with a broker. The broker tossed out some “market” rents that seemed lower than some recently negotiated by CRE. The senior manager has already made a negative judgment and wants an explanation. Of course, the broker didn’t mention the generous TI allowance, the months of free rent, and the lease negotiations that minimized the company’s risks. So, the CRE is forced to reconstruct the deal and try to equate it to the market. Meanwhile, the senior manager has moved on to other business issues and may not be available.
Facilities Management offers CRE a menu of activities that are easily measured and benchmarked—operating expenses being the obvious ones along with business interruption events (or the lack thereof), etc.
- CRE work is often invisible to the rest of the company, fostering the notion that it is overhead and not terribly important. After negotiating what I thought was a terrific lease and financial deal for 200,000 SF, the General Manager of the business unit thanked me and then mentioned that his communication costs exceeded the rent. So much for being invaluable.
Facilities Management work is highly visible and impacts customers in dozens of ways on a daily basis. FM can be responsible for maintenance and repairs, grounds, trash, recycling, utilities, cleaning, safety, security, reception, sustainability, moves/adds/changes, Project Management, cafeterias, copiers and printers, mail, shipping/receiving, fleet vehicles, and some IT functions. Performed well (remember, you can easily measure and document these activities), facilities services can bring visibility and kudos to CRE.
Tags: corporate real estate, CRE, Facility Managers, FM
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Facilities Management and Energy Conservation
Wednesday, February 2nd, 2011
By Jim Ricker, Vice President, Corporate Services
For the past few years, we have all read vast amounts of literature about the need to conserve energy. During this time, energy conservation became known as “going green” or “sustainability.” Regardless of the names and definitions, they all are geared toward the same end—improved utilization of our finite resources to the point that we rely only upon renewable energy sources and reduce or even eliminate the waste stream.
While the terminology may change, professional Facilities Managers have long been striving to reach the goals of sustainability. These initiatives originated from the budget process – reducing operating expenses in order to free-up capital for research & development, marketing, and sales. During the Carter administration and the OPEC-generated oil crisis in the mid-‘70s, Facilities Managers responded to the national mandate to reduce energy consumption and the dependence upon foreign oil. Many readers will remember the gas lines, thermostats set in the low 60s, the emergence of the solar energy industry, and a national speed limit of 55 miles per hours.
As OPEC loosened its grip in the late ‘70s and oil started to flow again, these conservation initiatives were set aside by the Reagan administration. However, the majority of Facilities Managers continued their energy-savings efforts – even when the nation returned to 75 miles per hour on its highways. Budgets had to be tightly managed since the calls for capital did not change. So the enterprising Facilities Managers and their suppliers continued to innovate as before:
-Lighting energy usage continued to drop as electronic ballasts and more efficient lamps emerged. Foot candle measurements came into vogue as a means of determining the proper amount of lighting required for the tasks performed at the desktop.
-Paper products in the restroom migrated from all new content to primarily recycled content.
-Cleaning supplies went from chemicals that polluted our water supply to those that are essentially harmless to the environment.
-Motors were switched to more efficient models using substantially less electricity.
-HVAC systems were changed to heat pumps and central systems using highly efficient chillers circulating chilled water to remote units.
-Low-flow and battery-operated fixtures were installed in restrooms.
-Control systems were replaced with those that more efficiently matched up-time with usage requirements.
Today, Facilities Managers are in the lead in pushing for more innovations for solar systems, wind systems, and even tidal power in certain localities. They recognize it is the only way to further reduce energy costs and also the way to eliminate dependence on finite resources by utilizing renewable alternatives.
Tags: corporate real estate, FM, green, OPEC, renewable energy, sustainable
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The Role of FM in Renovations and New Construction
Wednesday, December 1st, 2010
By Jim Ricker
Two areas in which Facilities Management (FM) can add substantial value are the construction of new facilities and the renovation of existing facilities. Unfortunately, many organizations leave this work solely to design and construction groups, assisted by external planning and design firms. Yet those corporate real estate (CRE) organizations that do incorporate FM in renovations and new construction often end up with lower costs, better functionality, and higher customer satisfaction than those CREs that segregate FM from the process.
If involving FM brings favorable results, why isn’t it a universal practice? I’ve heard many reasons over the years:
-FM professionals do not have the educational credentials found in the architectural and Mechincal Electrical and Plumbing (MEP) engineering professions.
-Only highly credentialed professionals should represent the organization when meeting with the external resources.
-FM professionals are good at maintaining but are not qualified to build new space or manage substantial renovations.
-“They can’t be trusted to maintain the corporate standards.”
-Costs and risks associated with this work are beyond the capabilities of many FMs.
-“They’re glorified janitors. They just don’t get it.”
Most of the above reasons for not including the FM professionals are based on biases related to education and the knowledge and sophistication that comes with a degree. While no one doubts the value of a good education, this mentality fails to account for the on-the-job knowledge possessed by many veteran Facility Managers. In my experience, I’ve seen FM professionals correct many planning and design errors—usually after the fact since they were not included in the planning and implementation phases—resulting in cost overruns, occupancy delays, business interruption, and dissatisfaction from the user groups. Some of these errors have included:
-Inadequate power and cooling in an expanded data center,
-Exceeding floor loading limits,
-Adding full-height offices without adequate cooling,
-Specifying extremely slippery roof membranes for a pitched roof,
-Failing to comply with all relevant codes,
-Delays due to improper scheduling, and
-Failing to plan for critical user needs.
While the inclusion of FM in the planning and design process will not guarantee the elimination of the above problems, my experience is that most of them will not become an issue. Why?
-FM professionals are responsible for maintaining assets for their useful lives, developing invaluable knowledge about equipment, materials, installation processes, etc. They know what works and what doesn’t.
-FM professionals know their customers; they know what they really require to conduct business and what they can live without.
-FM professionals communicate with user groups every day and are more experienced than remote organizations in upholding corporate standards due to the level of trust they have developed with their customers.
-FM professionals have to incorporate new and renovated space into their annual operating budgets. As a result, they know about cost and how to minimize it and can offer beneficial insights into the planning and design processes.
So the next time your organization is about to invest capital into a renovation or new development, take advantage of the experience of your FM team—and expect a better scope of work, lower costs, and more satisfied customers.
Tags: construction, corporate real estate, FM, renovation
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Is Outsourcing Facilities Management a Solution for my Business?
Wednesday, September 29th, 2010
By Jim Ricker
Outsourcing of various services has been around for decades—payroll, cafeteria operations, custodial, copy services, and guard services to name a few. In the late 1980s, outsourcing of real estate was added to the list— Transaction Management, Project Management, Lease Administration, and Facilities Management.
Entering its third decade, Facilities Management (FM) outsourcing has proven its value to corporations and institutions; often resulting in cost reductions of 10% or more, improved services, and better information for client decision-making. Of course, there are also examples of failure when the clients’ expectations were not met, and contracts were thus canceled.
So, is outsourcing the right solution for you and your firm?
To be successful, FM outsourcing depends upon several factors, with the absence of any one often leading to failure:
- Client commitment from the executive offices
- Clearly stated goals that are achievable
- Performance-based contracts with rewards and penalties
- Single points of contact for both client and service provider
- Constant communication – informal and formal
- Flexibility as scope of work and economic climate changes occur
- Technology applications that provide relevant information for decision-making
Even assuming that you are confident that all of the above factors can be met, is a successful outsourcing of your FM services a foregone conclusion? Not necessarily, if you have:
- A unique culture that is extremely difficult to replicate and would thus take a service provider several years to fit in and become productive,
- Successfully reduced operating expenses by subcontracting high volume, low cost services such as custodial and low volume, high cost services such as elevator maintenance,
- Reorganized to eliminate redundancy and poor performance,
- Implemented a performance-based review system for the employees,
- Consolidated services to take advantage of bulk purchasing, and
- Instituted a training program to maintain and enhance staff knowledge.
The decision to outsource is not a simple one. It requires a commitment at all levels within the organization and a tolerance for the disruption caused by a transition to a service provider. If your benchmarking efforts indicate that your costs are competitive, your customers are happy, and you have a well-trained, highly-motivated staff, then you might only outsource those services (custodial, elevators, pest control, etc.) that can be performed better and more cost-effectively by others.
Tags: corporate real estate, cost savings, FM, real estate outsourcing
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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
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The Added Value of Professional Facilities Management
Wednesday, April 14th, 2010
By Jim Ricker
In my last blog entry, I wrote about the critical role a Facilities Management (FM) team plays in the daily life of a corporation. Today, I am delving into the financial value a professionally managed facilities group brings to a company or institution.
The financial contributions of an FM organization are numerous:
- Protecting the revenue stream by eliminating business interruptions due to
infrastructure failure;
- Managing a substantial operating expense budget; and,
- Planning for and managing capital expenditures.
Business Interruption
When a manufacturing line goes down or a research project is interrupted or lost due to building-systems failures, the financial losses can be staggering. A professional FM group insures against these losses by implementing preventive maintenance programs that include regular inspections and servicing, in accordance with manufacturers’ specifications and industry standards.
Operating Expenses
The FM function manages a significant portion of what is often the second largest corporate expense: real estate. While other corporate real estate departments are usually responsible for rents, escalation charges, real estate taxes, and insurance, the FM group manages the remaining costs of occupancy—including utilities, repairs and maintenance, custodial, grounds, guard services, administration, and the like. These costs can reach $10/SF. In a million SF portfolio, for example, one dollar of operating expense savings results in a total savings of $1 million. Stated in other terms, a typical corporation would have to increase sales by $10 to $20 million to generate the same bottom line impact as the $1/SF expense reduction.
Capital Planning
A professionally managed FM group will develop and update a rolling comprehensive capital plan that often looks ahead five years. The financial benefits of this kind of planning are substantial. It forces the FM team to review its assets annually and adjust the five year plan where needed. The planning process identifies future capital replacements, enabling the corporations’ money managers to plan ahead for these capital expenditures and to fund them in the most beneficial manner.
Whether you need assistance in capital planning, overseeing your operating expenses, avoiding business interruptions, or all of the above, a professionally managed FM group will have a positive effect on your bottom line. Do you outsource your FM services? What added value does it bring to your business?
Tags: business interruption, capital planning, infrastructure, operating expense, opex
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A View from the Boiler Room
Wednesday, February 17th, 2010
By Jim Ricker
Probably the least glamorous of the various corporate real estate functions, Facilities Management has long been viewed as the stepsister of the sexier disciplines – such as Transaction Management, Project Management, and Site Selection. Or as one of my friends once asked, “Aren’t they the folks who empty the trash and stop the leaks?” True – but there’s more to the story.
Having been involved at some point in my career with the entire spectrum of corporate real estate services, I developed a strong appreciation for the critical role of a Facilities Management team when I managed the headquarters site for the former Digital Equipment Corporation, now part of HP. So how did that change my perspective?
The Site
Digital’s headquarters was a former woolen mill constructed on the shores of the Assabet River in Maynard, MA. Built between 1833 and 1910, the 1.1 million square feet site consisted of 23 buildings connected by bridges and tunnels. It had been painstakingly converted from manufacturing wool blankets for the Union army (and the Confederate army according to folklore) into a high-tech facility containing manufacturing lines, board shops, model shops, offices, labs, and the executive suite and boardroom. It even had its own hydro plant creating 1.5% of the site’s electricity as the water flowed from the mill pond back to the river.
The Customers
Housing about 2,500 employees, the site was home to several critical business lines, 35 vice presidents, and the executive committee. All of these constituencies had strong opinions of how the site should be run in order for them to be successful. Along with the inevitable politics of a major corporation, we were forced to juggle the often conflicting demands of the constituents while focusing on our asset management goals of improving services, reducing costs, and developing a long-range capital plan.
The Services
In addition to contending with the physical and political complexities noted above, our team delivered the following services: HVAC, electrical, plumbing, carpentry, engineering, design, project management, energy conservation, environmental health and safety (including groundwater remediation), security, cafeteria, mail, copiers, supplies, grounds, custodial, recycling, space planning, audio-visual, and customer tours. It’s easier, however, to appreciate the breadth and depth of the services when looking at just one in greater detail; e.g. electrical. One of our key measurements was the prevention of business interruption due to infrastructure failures – especially electricity. To insure uninterruptible power without the benefit of UPS and generators, we conducted an annual 3-day shutdown for high voltage testing. And as one of the major power users on the metropolitan Boston grid, we were networked to the utility in the event they needed us to reduce consumption during brownouts – an interesting proposition when trying to be good citizens without affecting the manufacturing and engineering activities – but our engineers developed a satisfactory solution for all.
The Conclusion
Facilities Management may still be considered the stepsister, but it is nevertheless a valuable member of the corporate real estate family. A Corporate Real Estate group, often with responsibility for 25 to 35% of its company’s assets, cannot succeed without valuing the contributions of the Facilities Management teams – the deliverers of essential services and the maintainers of critical infrastructure.
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