Click for next page ( 2


The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page 1
Executive Summary Federal facilities investments are matters of public policy. The facilities ac- quired by the federal government provide a means to produce and distribute pub- lic goods and services to 280 million Americans, create jobs, strengthen the na- tional economy, and support the missions of federal departments and agencies, including the defense and security missions. Such investments also support poli- cies for public transportation, urban revitalization, and historic preservation, among others. Hundreds of billions of dollars have been invested in federal facilities and their associated infrastructure. As of September 2000, the federal government owned or leased 3.3 billion square feet of space worldwide, distributed across more than 500,000 facilities, conservatively valued at $328 billion. Annually, it spends upwards of $21 billion for the acquisition and renovation of facilities, approximately $4.5 billion to power, heat, and cool its buildings, and more than $500 million for water and waste disposal. Additional expenditures for facilities maintenance, repair, renewal, demolition, and security upgrades probably amount to billions of dollars per year but are not readily identifiable under the current budget structure. Despite the magnitude of this ongoing investment, federal facilities continue to deteriorate, backlogs of deferred maintenance continue to increase, and excess, underutilized, and obsolete facilities continue to consume limited resources. Many departments and agencies have the wrong facilities, too many or not enough fa- cilities, or facilities that are poorly sited to support their missions. Such facilities constitute a drain on the federal budget in actual costs and in foregone opportuni- ties to invest in other public resources and programs. On January 30, 2003, the U.S. General Accounting Office (GAO) designated 1

OCR for page 1
2 INVESTMENTS IN FEDERAL FACILITIES federal real property as a government-wide high-risk area1 because current trends "have multibillion dollar cost implications and can seriously jeopardize mission accomplishment" and because "federal agencies face many challenges securing real property due to the threat of terrorism." It declared that "current structures and processes may not be adequate to address the problems," so that "a compre- hensive, integrated transformation strategy" may be required. PRINCIPLES AND POLICIES FOR FACILITIES INVESTMENTS AND MANAGEMENT As the committee reviewed the types of analyses, the processes, and the deci- sion-making environments that private-sector and other organizations use for fa- cilities investments and management, it focused on identifying principles and policies used by best-practice organizations, as defined by the committee. The committee found that, in matters of facilities investment and management, best- practice organizations do the following: Principle/Policy 1. Establish a framework of procedures, required in- formation, and valuation criteria that aligns the goals, objectives, and values of their individual decision-making and operating groups to achieve the organization's overall mission; create an effective decision- making environment; and provide a basis for measuring and improving the outcomes of facilities investments. The components of the frame- work are understood and used by all leadership and management levels. Principle/Policy 2. Implement a systematic facilities asset management approach that allows for a broad-based understanding of the condition and functionality of their facilities portfolios--as distinct from their in- dividual projects--in relation to their organizational missions. Best- practice organizations ensure that their facilities and infrastructure managers possess both the technical expertise and the financial analysis skills to implement a portfolio-based approach. Principle/Policy 3. Integrate facilities investment decisions into their or- ganizational strategic planning processes. Best-practice organizations evaluate facilities investment proposals as mission enablers rather than solely as costs. 1GAO's high-risk update is provided at the start of each new Congress. The reports are intended to help the new Congress "focus its attention on the most important issues and challenges facing the federal government." (GAO, 2003f)

OCR for page 1
EXECUTIVE SUMMARY 3 Principle/Policy 4. Use business case analyses to rigorously evaluate major facilities investment proposals and to make transparent a proposal's underlying assumptions; the alternatives considered; a full range of costs and benefits; and the potential consequences for their or- ganizations. Principle/Policy 5. Analyze the life-cycle costs of proposed facilities, the life-cycle costs of staffing and equipment inherent to the proposal, and the life-cycle costs of the required funding. Principle/Policy 6. Evaluate ways to disengage from, or exit, facilities investments as part of the business case analysis and include disposal costs in the facilities life-cycle cost to help select the best solution to meet the requirement. Principle/Policy 7. Base decisions to own or lease facilities on the level of control required and the planning horizon for the function, which may or may not be the same as the life of the facility. Principle/Policy 8. Use performance measures in conjunction with both periodic and continuous long-term feedback to evaluate the results of facilities investments and to improve the decision-making process itself. Principle/Policy 9. Link accountability, responsibility, and authority when making and implementing facilities investment decisions. Principle/Policy 10. Motivate employees as individuals and as groups to meet or exceed accepted levels of performance by establishing incentives that encourage effective decision making and reward extraordinary per- formance. ADAPTING THE PRINCIPLES AND POLICIES TO THE FEDERAL OPERATING ENVIRONMENT Adapting the aforementioned principles and policies for facilities investments for use by the federal government requires consideration of and compensation for a number of special aspects of the federal operating environment. These aspects include the goals and missions of the federal government, its departments, and agencies; the organizational structure and decision-making environment; the na- ture of federal facilities investments; and the annual budget process and its atten- dant procedures. They are described more fully in Chapters 1 and 6. Despite the inherent differences, the committee's overall conclusion is that aspects of all of the identified principles and policies used by best-practice orga-

OCR for page 1
4 INVESTMENTS IN FEDERAL FACILITIES nizations can be adapted in varying form to the federal operating environment. It has therefore made recommendations to aid in developing an overall framework based on suitable adaptations of the identified principles and policies. The committee also concluded that there is no single solution from the pri- vate sector that can be applied to all issues related to federal facilities investment and management, nor should there be an expectation that one will be found. The committee points to the number of missions and the variation in size, resources, culture, and political support of the many federal agencies with facilities-related responsibilities and urges all involved not to attempt to create one-size-fits-all solutions to different problems. Instead, the committee recommends that efforts be made to concurrently and collaboratively develop top-down and bottom-up approaches while keeping in mind differences among various agency missions and cultures as well as similari- ties in many specifics of facility investment and management. Varying practices within common principles and policies should be expected. RECOMMENDATION 1. The federal government should adopt a framework of procedures, required information, and valuation crite- ria for federal facilities investment decision making and management that incorporates all of the principles and policies enumerated by this committee. Implementation of a framework that incorporates the identified principles and policies will align the goals, objectives, and values of individual federal deci- sion-making and operating groups with overall missions; create an effective deci- sion-making environment; and provide a basis for measuring and improving the outcomes of federal facilities investments. Because such a framework represents a significant departure from current operating procedures, it may be advisable to establish one or more pilot projects. A small government agency with a diverse portfolio of facilities might provide the environment in which to test the applica- tion of the committee's recommendations. RECOMMENDATION 2(a). Each federal department and agency should update its facilities asset management program to enable it to make investment and management decisions about individual projects relative to its entire portfolio of facilities. Federal departments and agencies have begun implementing facilities asset management approaches that allow for a broad-based understanding of the condi- tion and functionality of their facilities portfolios. An updated approach should incorporate life-cycle decision making that accounts for all the inherent operating costs (i.e., facilities, staffing, equipment, and information technologies); accurate databases; condition assessments; performance measures; feedback processes; and appropriately adapted business practices.

OCR for page 1
EXECUTIVE SUMMARY 5 RECOMMENDATION 2(b). Each federal department and agency should ensure it has the requisite technical and business skills to imple- ment a facilities asset management approach by providing specialized training for its incumbent facilities asset management staff and by re- cruiting individuals with these skills. Most federal departments and agencies currently have staff with the requisite technical skills to implement asset management approaches. Less likely to be found are facilities management staff also versed in financial theory, practices, and management. Departments and agencies should provide their incumbent fa- cilities asset management staff with training in business concepts such as finan- cial theory and analysis. Training can be in the form of coursework, seminars, rotational assignments, and other appropriate methods. As job vacancies occur in facilities management operating groups, departments and agencies should seek to recruit and hire staff with the requisite technical and business skills. RECOMMENDATION 2(c). To facilitate the alignment of each department's and agency's existing facilities portfolios with its missions, Congress and the administration should jointly lead an effort to consoli- date and streamline government-wide policies, regulations, and pro- cesses related to facilities disposal, which would encourage routine dis- posal of excess facilities in a timely manner. Eighty-one separate policies applicable to the disposal of federal facilities have been identified. These include agency-specific legislative mandates and directives and government-wide socioeconomic and environmental policies. The number of policies related to facilities disposal hinders government-wide efforts to expeditiously dispose of unneeded facilities in response to changing require- ments. RECOMMENDATION 2(d). For departments and agencies with many more facilities than are needed for their missions--the Departments of Defense, Energy, State, and Veterans Affairs, the General Services Ad- ministration, and possibly others--Congress and the administration should jointly consider implementing extraordinary measures like the process used for military base realignment and closure (BRAC), modi- fied as required to reflect actual experience with BRAC. Federal agencies are incurring significant costs by operating and maintaining facilities they no longer need to support today's missions. The Department of Defense (DoD) alone estimates it spends $3 to $4 billion each year maintaining excess facilities. The lack of alignment between a department's or agency's mis- sion and its facilities portfolio, coupled with the cost of operating and maintain- ing excess facilities, may require extraordinary measures to effect improvement, such as the BRAC process used for closing DoD facilities. The government as a

OCR for page 1
6 INVESTMENTS IN FEDERAL FACILITIES whole and the DoD in particular have 15 years of experience and lessons from BRAC. Such lessons can be used to make adjustments to the process to improve it and adapt it to other departments and agencies, as appropriate. RECOMMENDATION 3. Each federal department and agency should use its organizational mission as guidance for facilities investment deci- sions and should then integrate facilities investments into its organiza- tional strategic planning processes. Facilities investments should be evaluated as mission enablers, not solely as costs. Organizational strategic planning that does not include facilities consider- ations up front fails to account for a potentially substantial portion of the total cost of a program or initiative. Integrating facilities considerations into evalua- tions of strategic planning alternatives will provide decision makers with better information about the total long-term costs, considerations, and consequences of a particular course of action. To this end, the senior facilities program manager for a department or agency should be directly and continuously involved in the organization's strategic planning processes. This person should be responsible for providing the translation between the agency's mission and its physical as- sets; identifying alternatives for meeting the mission; identifying the costs, ben- efits, and potential consequences of the alternatives; and suggesting facilities in- vestments that will reduce overall--that is, portfolio--costs. RECOMMENDATION 4(a). Each federal department and agency should develop and use a business case analysis for all significant facili- ties investment proposals to make clear the underlying assumptions, the alternatives considered, the full range of costs and benefits, and poten- tial consequences for the organization and its missions. There is no standard format for a business case analysis that can be readily adapted directly for use by all federal departments and agencies. However, the committee believes that such an analysis can and should be developed by each federal department and agency and refined over time through repeated, consistent use by the relevant stakeholders and decision makers. At a minimum, a federally adapted business case analysis should explicitly include and clearly state the fol- lowing: (1) the organization's mission; (2) the basis for the facility requirement; (3) the objectives to be met by the facility investment and its potential effect on the entire facilities portfolio; (4) performance measures for each objective to indi- cate how well objectives have been met; (5) identification and analysis of a full range of alternatives to meet the objectives, including the alternative of no action; (6) descriptions of the data, information, and judgments necessary to measure the anticipated performance of the alternatives; (7) a list of the value judgments (i.e., value trade-offs) made to balance achievement on competing objectives; (8) a rationale for the overall evaluation of the alternatives using the information above;

OCR for page 1
EXECUTIVE SUMMARY 7 (9) strategies for exiting the investment; and (10) the names of the individuals and operating units responsible for the analysis and accountable for the proposed facility's subsequent performance. The business case format to be used by the department or agency should be agreed to by the pertinent oversight constituen- cies in Congress, the Office of Management and Budget, and the GAO. RECOMMENDATION 4(b). To promote more effective communica- tion and understanding, each federal department and agency should develop a common terminology agreed upon with its oversight constitu- encies for use in facilities investment deliberations. In addition, each should train its asset management staff to effectively communicate with groups such as congressional committees having widely different sets of objectives and values. Mirroring this, oversight constituencies should have the capacity and skills to understand the physical aspects of facili- ties management as practiced in the field. Engineers, lawyers, accountants, economists, technologists, military person- nel, senior executives, and elected officials lack a common vocabulary and style of interaction and do not necessarily share a common set of interests or time frames they consider important. To improve communications among the various stakeholders in facilities investments, each federal department or agency, in col- laboration with the appropriate program examiners and congressional representa- tives, should develop and consistently use a common terminology for the con- cepts routinely used in facilities investment decision making and applicable to its organizational culture. With the wide variety of missions, cultures, and proce- dures that exist among federal departments and agencies, a standard set of gov- ernment-wide definitions is not to be expected. Training is necessary to ensure that the concepts underlying the terms have meaning and are understood by all. Facilities asset management staff should have the capacity and skills to understand the relationship of facilities to the big picture of an organization's overall mission and to communicate that understanding to others. They should also be able to solve problems by considering all sides of issues and to negotiate a solution that will best meet the organizational require- ment. Financial, budget, and program analysts should receive some basic training in facilities investment and management. RECOMMENDATION 5(a). Each federal department and agency should use life-cycle costing for all significant facilities investment deci- sions to better inform decision makers about the full costs of a proposed investment. A life-cycle cost analysis should be completed for (1) a full range of facilities investment alternatives, (2) the staff, equipment, and technologies inherent to the alternatives, and (3) the costs of the required funding.

OCR for page 1
8 INVESTMENTS IN FEDERAL FACILITIES For some very expensive project proposals, federal departments and agen- cies conduct life-cycle analyses internally to understand the total costs and ben- efits of the facility itself over the long term and to prioritize their requests for funding. However, in its research and interviews, the committee was not made aware of any instance in which a department or agency also conducted a life- cycle analysis for the staffing, equipment, and technologies inherent to the pro- posal, or for the life-cycle costs of the required funding. RECOMMENDATION 5(b). Congress and the administration should jointly lead an effort to revise the budget scorekeeping rules to support facilities investments that are cost-effective in the long term and recog- nize a full range of costs and benefits, both quantitative and qualitative. Under federal budget scorekeeping procedures, the budget authority associ- ated with requests to design and construct a new facility, to fund the major reno- vation of an existing facility, to purchase a facility outright, or to fund operating and capital leases is "scored" up front in the year requested, even though the actual costs may be incurred over several years. Scoring facilities' costs up front is intended to provide the transparency needed for effective congressional and public oversight. However, implementa- tion of the budget scorekeeping procedures as they relate to facilities investments has resulted in some unintended consequences, including disincentives for cost- effective, long-term decision making and some gamesmanship. Amending the scorekeeping rules such that they meet congressional over- sight objectives for transparency and take into account the long-term interests of departments, agencies, and the public will not be easy. Amending them specifi- cally to account only for life-cycle costs would probably create an even greater disincentive for facilities investments. The committee believes that a collabora- tive effort that encompasses a wide range of objectives, goals, and values is re- quired. Some possible revisions to the rules could be tested through pilot projects. RECOMMENDATION 6. Every major facility proposal should include the strategy and costs for exiting the investment as part of its business case analysis. The development and evaluation of exit strategies during the programming process will provide insight into the potential long- term consequences for the organization, help to identify ways to mitigate the consequences, and help to reduce life-cycle costs. The development of exit strategies for facilities investment alternatives as part of a business case analysis will help federal decision makers to better under- stand the potential consequences of the alternative approaches. Evaluation of exit strategies can provide a basis for determining whether it is best to own or lease the required space in a particular situation and whether specialized or more ge- neric "flexible" space is the best solution to meet the requirement. For those in- vestment proposals in which the only exit strategy is demolition and cleanup,

OCR for page 1
EXECUTIVE SUMMARY 9 evaluating the costs of disposal may lead to better decisions about the design of the facility, its location, and the choice of materials, resulting in lower life-cycle costs. RECOMMENDATION 7. Each federal department and agency should base its decisions to own or lease facilities on the level of control desired and on the planning horizon for the function, which may not be the same as the life of the facility. Based on the committee's interviews and research activities, the criteria that departments and agencies use to determine if it is more cost-effective to own or lease facilities to support a given function are not clear or uniform. The commit- tee believes that federal departments and agencies should base the "own" versus "lease" decision on a clearly stated rationale linked to support of the organiza- tional mission, the level of control desired, and the planning horizon for the func- tion to be supported. RECOMMENDATION 8. Each federal department and agency should use performance measures in conjunction with both periodic and con- tinuous long-term feedback and evaluation of investment decisions to monitor and control investments, measure the outcomes of facilities in- vestment decisions, improve decision-making processes, and enhance organizational accountability. Because the results of many federal programs or services are qualitative and occur over long periods of time, measuring them can be challenging. However, efforts are under way in various departments and agencies to develop indices and measures that can be applied to evaluate various aspects of facilities portfolios. Some or all of these indices could be adapted for use by other federal departments and agencies and used in combination with other metrics to measure the perfor- mance of their facilities' portfolios. Short-term feedback procedures for facility projects are commonly used. However, to the committee's knowledge, no federal department or agency col- lected long-term feedback to determine if facilities investments met overall orga- nizational objectives, solved operational problems, or reduced long-term operat- ing costs. Long-term feedback is essential if the outcomes of facilities investments and management processes are to be measured and the decision-making process itself is to be improved. RECOMMENDATION 9. To increase the transparency of its decision- making process and to enhance accountability, each federal department and agency should develop a decision process diagram that illustrates the many interfaces and points at which decisions about facilities invest- ments are made and the parties responsible for those decisions. Imple- mentation of facilities asset management approaches and consistent use

OCR for page 1
10 INVESTMENTS IN FEDERAL FACILITIES of business case analyses will further enhance organizational account- ability. In the federal government, responsibility and authority for making decisions and executing programs often are not directly linked. Instead, decision-making authority and decision-making responsibility are spread throughout the executive and legislative branches, leading to lack of clear-cut accountability for facilities investment outcomes. A diagram that illustrates the many interfaces and decision points among the various federal decision-making and operating groups involved in facilities in- vestment decision making can serve as a first step toward increasing the transpar- ency of the process and enhancing accountability. Implementation of a facilities asset management approach, the use of performance measures and feedback pro- cesses, and the consistent use of business case analyses will further enhance orga- nizational accountability for federal facilities investments. RECOMMENDATION 10. Congress and the administration and fed- eral departments and agencies should institute appropriate incentives to reward operating units and individuals who develop and use innovative and cost-effective strategies, procedures, or programs for facilities asset management. In the federal system, the multiple-objective nature of laws and policies and the sheer volume of procedures sometimes result in unintended consequences, sometimes creating disincentives for good decision making and cost-effective behavior. Potential incentives to support more cost-effective decision making and management by facilities asset management groups could include programs that allow savings from one area of operations to be applied to needs in another area, if the savings are carefully documented; allow the carryover of unobligated funds from one fiscal year to the next for capital improvements, if doing so can be shown to be cost-effective; and establish meaningful awards for operating units with high levels of performance. RECOMMENDATION 11 (from Chapter 5). In order to leverage fund- ing, Congress and the administration should encourage and allow more widespread use of alternative approaches for acquiring facilities, such as public-private partnerships and capital acquisition funds. A number of alternative approaches for acquiring facilities are being used by federal departments and agencies, on a case-by-case basis under agency-specific legislation. Each approach has advantages and disadvantages for particular types of organizations and types of facilities. None of the identified alternative ap- proaches can guarantee effective management absent agreed-upon performance measures, feedback procedures, and well-trained staff. Allowing the use of alternative approaches on a government-wide basis raises

OCR for page 1
EXECUTIVE SUMMARY 11 concerns about the transparency of funding relationships and concerns about whether the approaches sufficiently account for the perspectives of state and local governments and constituencies. Despite these concerns the committee supports more widespread use of alternative approaches to leverage funding and supports using pilot programs to test the effectiveness of various approaches and to evalu- ate their outcomes from national, state, and local perspectives. If changes to the budget scorekeeping rules are required to expand the range of alternative ap- proaches, such changes should be tested through the pilot programs. AN OVERALL STRATEGY FOR IMPLEMENTATION Transforming decision-making processes, outcomes, and the decision-mak- ing environment for federal facilities investments will require sponsorship, lead- ership, and a commitment of time and resources from many people at all levels of government and from some people outside the government. Implementation of some of the committee's recommendations can begin immediately within federal departments and agencies that invest in and manage significant portfolios of fa- cilities. However, implementing an overall framework of principles and policies will require collaborative, continuing, and concerted efforts among the various legislative and executive branch decision makers and operating groups. These include the President and Congress, senior departmental and agency executives, facilities program managers, operations staff, and budget and management ana- lysts within departments and agencies and from the Congressional Budget Office, the Office of Management and Budget, and the GAO. Having noted this, the committee is well aware that similar recommenda- tions made by other learned panels advocating long-term, life-cycle stewardship of facilities and infrastructure have achieved only limited success and have failed to move all of the involved stakeholders to action. The committee believes that a new dynamic can and must be instituted and recommends herewith a program it believes practicable. RECOMMENDED IMPLEMENTATION STRATEGY: The commit- tee recommends that legislation be enacted and executive orders be is- sued that would do two things: (1) Establish an executive-level commission with representatives from the private sector, academia, and the federal government to determine how the identified principles and policies can be applied in the federal govern- ment to improve the outcomes of decision-making and management pro- cesses for federal facilities investments within a time certain. The executive- level commission should include representatives from nonfederal organizations acknowledged as leaders in managing large organizations, finance, engineering, facilities asset management, and other appropriate areas. The commission should also include representatives of Congress, federal agencies with large portfolios of

OCR for page 1
12 INVESTMENTS IN FEDERAL FACILITIES facilities, oversight agencies, and others as appropriate. The commission should be tasked to gather relevant information from inside and outside the federal gov- ernment; hold public hearings; and submit a report to the President and Congress outlining its recommendations for change, an implementation plan, a timetable, and a feedback process for measuring, monitoring, and reporting on the results; all within a time certain. (2) Concurrently establish department and agency working groups to collaborate with and provide recommendations to the executive-level com- mission for use in its deliberations. The working groups within each depart- ment and agency should collaborate with the executive-level commission. Staff in the departments and agencies are in the best position to communicate their organizational culture and identify practices for implementing the principles and policies that will work for their organization. In addition, they can provide the commission with information related to the characteristics of their facilities port- folios; issues related to aligning their portfolios with their missions; facilities investment trends; good or best practices for facilities investment and manage- ment; performance measures for monitoring and measuring the results of invest- ments; and other relevant information. The committee believes that such sponsorship, leadership, and commitment to this effort will result in Improved alignment between federal facilities portfolios and missions, to better support our nation's goals. Responsible stewardship of federal facilities and federal funds. Substantial savings in facilities investments and life-cycle costs. Better use of available resources--people, facilities, and funding. Creation of a collaborative environment for federal facilities investment decision making.