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6 Adapting Principles and Policies from Best-Practice Organizations to the Federal Operating Environment BACKGROUND In Chapters 2 through 5, the committee identified principles and policies used by best-practice organizations for facilities investment and management. The committee found these principles and policies to be largely independent of the size and complexity of the organizations, their form (e.g., corporation, part- nership), their orientation toward goods or services, and their centralization or decentralization. The practices used to implement the principles and policies, however, vary widely and are tailored to an organization's structure, goals, re- sources, and culture. In this chapter, the committee addresses how the identified principles and policies from best-practice organizations could be tailored to the structure of the federal government and to the goals, resources, and cultures of its individual departments and agencies. The chapter first reviews special aspects of the federal operating environ- ment that must be considered in any adaptation of the identified principles and policies. The following section consolidates and reiterates the principles and poli- cies used by best-practice organizations as defined and identified by the commit- tee. Issues and barriers related to adapting these individual precepts for use in the federal operating environment are discussed and one or more recommendations for their adaptation are made. The chapter concludes with the committee's rec- ommended overall strategy for implementation. 89
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90 INVESTMENTS IN FEDERAL FACILITIES SPECIAL ASPECTS OF THE FEDERAL OPERATING ENVIRONMENT Although many have suggested that the federal government adopt principles, policies, and practices used by private-sector organizations to make the govern- ment more "businesslike" in its operations, significant differences in the two en- vironments complicate their direct transfer. Mission As long as profits result, a private-sector organization's mission, values, and leadership can remain relatively unchanged for years. In the federal government, the accepted overall goal is to promote the general welfare of the public; federal departments, independent agencies, corporations, and commissions each have multiple missions and programs intended to help achieve the overall goal. How- ever, the electoral process ensures change in executive and legislative leadership on a regular, relatively short-term basis. As the leadership changes, the emphasis placed on meeting particular missions also changes. The electoral process in the legislative branch and at the top of the executive branch also means that the major participants are acting within a framework of public positions on many of the values and priorities implicit in facilities projects. The time between initial project analysis and decision making and the start of execution can be quite long and span several administrations. Consequently, in the government, accountability for decision making is dispersed among a myriad of stakeholders, some of whom may no longer be with the government by the time decisions for investments are implemented and the facilities are subsequently operated. The Organizational Structure In large private-sector organizations, the chain of command between deci- sion makers and operating groups is relatively short, the size of the decision- making group is relatively small, and there are strong commonalities of goals and values among all those involved. In the federal government the decision-making environment is rather more complex, deriving in part from the separation of powers between the executive and legislative branches and, within the legislative branch, between the Senate and the House of Representatives; the organizing principle of checks and bal- ances at all levels; and the consequently much longer command chains. This sys- tem ensures that the many viewpoints, possible outcomes, and consequences of public policy decisions are identified, considered, and accommodated, which can span several administrations. Rather than operating as a single entity, the federal government operates as a
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 91 network of distinct but interdependent organizations. Federal facilities invest- ment decisions involve multiple stakeholders, decision makers, and operating groups with differing missions, values, goals, and responsibilities, which may sometimes be overlapping and sometimes conflicting. In this network-like struc- ture, responsibility and authority for decision making are spread throughout the executive and legislative branches and frequently are not directly linked. Within the federal structure, departments and agencies are somewhat analo- gous to private-sector organizations. Departments and agencies have specific and varied missions; significant resources at their disposal to achieve those missions; and a variety of decision-making and operating groups--human resources, facili- ties, research, financial, policy-level and program-level units, public relations, etc.--with differing objectives, responsibilities, and technical knowledge. They have some flexibility in establishing processes for the evaluation of facilities in- vestment proposals, although they must all follow the same procedures for fund- ing requests through the annual budget process. The answer to the question, What facilities are required? typically begins to be formulated at the department and agency level. It is here that facilities require- ments to support organizational operations or meet congressional and presiden- tial directives are identified, alternatives are developed, and analyses of facilities investment proposals are conducted. Trade-offs begin to be made among alterna- tives for a specific investment proposal, among a range of proposals, and among investments in facilities and other important organizational activities. Unlike private-sector organizations, federal departments and agencies can- not independently make a final decision to proceed with a significant facility investment or to independently allocate funding for that investment. Instead, they can only recommend that an investment be made and then forward that recom- mendation to the Office of Management and Budget for its review and to Con- gress for a final decision. These reviews and approvals involve a set of stakehold- ers who take a government-wide perspective and whose responsibilities, objectives, and values differ. The Nature of Federal Facilities Investments Another distinction between private-sector organizations and the federal gov- ernment relates to who pays for and who benefits from the facilities and infra- structure in which they invest. Federal facilities investments are funded by the American public and therefore incur costs and confer benefits on a wide spectrum of people and organizations. Such investment decisions must take into account the costs and benefits to the public at large, not just those to a specific agency, department, or organization. The benefits are often qualitative rather than quanti- tative and can be difficult to measure. The costs and benefits may also differ depending on the level--national, state, regional, local, departmental, or agency. The wide range of government roles and missions means that each funding
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92 INVESTMENTS IN FEDERAL FACILITIES proposal for facilities must compete with many more alternatives for public in- vestment, each with quite different measures of social utility. Federal facilities that support public services do not generally operate under easily quantifiable dollar measures of costs, operating margins, and market performance, further complicating simple metrics for making decisions. The commitment of public funds also requires far more transparency in the process than does that of private- sector funds. Decision-Making Environment In the federal government, as in many private-sector organizations, requests for funding of particular programs, projects, and initiatives typically exceed avail- able resources. Decision makers in Congress and federal departments and agen- cies are asked to balance the competing demands of very different programs: Funding for facilities investments must be weighed against funding for medical research, weapons systems, homeland security, education, and numerous other public programs. The knowledge that resources are limited and trade-offs will be made contributes to a competitive rather than a collaborative environment for facilities investment decision making at all steps in the process. The current fed- eral operating environment may be characterized by guarded communication about facilities investments, adversarial relationships, and gamesmanship. The Annual Budget Process and Procedures It is standard practice for private-sector organizations to make decisions about operating and capital expenditures (e.g., facilities) and to budget for them sepa- rately; the two are linked through an overall management plan. In the federal government, expenditures for operating and capital expenditures are considered concurrently, and decision making for facilities investments is driven in large part by the annual budget process. The budget scorekeeping rules mandated as part of the Budget Enforcement Act of 1990 (for which there is no private-sector analogue) also influence decisions related to the acquisition or leasing of facili- ties and the use of alternative financing approaches. The budget process and scorekeeping procedures reinforce a focus on the short term and on the first costs of facilities investments, typically only 5-10 percent of the total life-cycle costs. An additional complication is that [n]early every federal agency oversees some capital spending. . . . As a result, decisions on infrastructure are largely ad hoc in that they are aligned with agen- cies' programs, which have differing goals. Even within agencies with signifi- cant infrastructure budgets like the Department of Transportation, infrastructure investment strategies for different programs like transit and aviation may be developed separately. Because the federal government does not have an overall plan for its capital investments, the challenge of selecting the most important or
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 93 cost-effective projects is even more difficult across federal agencies (GAO, 2000b, p. 44). Procedures In the federal government, activities typically related to facilities investment and management, such as budgeting, acquisition, and modifying a project's scope or direction to account for changes in requirements, are procedurally encumbered. The Federal Property and Administrative Services Act of 1949 governs the ad- ministration of facilities in all federal civilian and military departments and agen- cies. More recent legislation, including the Government Performance and Results Act of 1993, the Federal Acquisition Streamlining Act of 1995, and the Clinger- Cohen Act of 1996, applies to facilities management but also to a wide range of other federal activities.1 The inherent differences between nongovernmental and governmental orga- nizations, then, are significant. Nonetheless these differences do not fundamen- tally change the need to apply best practice principles and policies to foster suc- cessful investment in and management of federal facilities portfolios. They do, however, impact the particular lessons that might be transferred from one domain to the other. The next section focuses on answering the question, How can the principles and policies used by best-practice organizations be applied to the fed- eral operating environment? ADAPTING BEST-PRACTICE PRINCIPLES AND POLICIES TO THE FEDERAL ENVIRONMENT Principle/Policy 1. Best-practice organizations establish a framework of procedures, required information, and valuation criteria that aligns the 1These include the Government Performance and Results Act (GPRA) of 1993 (P.L. 103-62), which requires federal agencies to develop mission statements, long-range strategic goals and ob- jectives, and annual performance plans and to identify and measure the "outcomes" or results of federal programs. Related legislation includes the Chief Financial Officers Act of 1990; the Federal Acquisition Streamlining Act of 1994, Title V; the Government Management Reform Act of 1994; and the Federal Financial Improvement Act of 1996. Executive initiatives and directives that spe- cifically pertain to federal facilities and infrastructure include Executive Order No. 12893, "Prin- ciples for Federal Infrastructure Investments" (January 26, 1994); Office of Management and Bud- get (OMB) Bulletin No. 9416, Guidance on Executive Order No. 12893, "Principles for Federal Infrastructure Investments"; OMB Circular A11: Part 3: "Planning, Budgeting, and Acquisition of Capital Assets"; OMB's Capital Programming Guide, a Supplement to Part 3; and Executive Order No. 13327, "Federal Real Property Asset Management," signed February 4, 2004. The President's Management Agenda, issued in the summer of 2001, focuses on improving the management and performance of the federal government.
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94 INVESTMENTS IN FEDERAL FACILITIES 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 mea- suring and improving the outcomes of facilities investments. The com- ponents of the framework are understood and used by all leadership and management levels. Discussion 1. The components of this framework include terminology that is agreed upon by the relevant decision-making and operating groups; a business case analysis; evaluation processes that are clearly defined and incor- porate multiple decision points; performance measures; continuous feedback processes; methods for establishing accountability; and incentives for groups and individuals. In the federal government, decisions about federal facilities investments in- volve multiple stakeholders: Congress and its various committees, the adminis- tration, federal departments and agencies that own facilities, operating groups that manage facilities portfolios, the OMB, agencies that use facilities provided by others, special interest constituencies, the GAO, and others. These stakeholder groups have differing terminologies, responsibilities, objectives, and values. For example, groups that manage facilities portfolios are responsible for en- suring that facilities perform well enough to support their department's or agency's missions and programs without undue disruption. They have limited authority to determine what investments are made within the funding allotted to them. Their objectives and values may be to build the highest-quality facilities within the available budget in order to minimize long-term building operating costs. Senior-level executives, in contrast, are responsible for the overall perfor- mance of the organization in meeting its mission and for using resources effec- tively and efficiently. They must balance the competing demands of a variety of programs and initiatives: Funding for facilities investments must be weighed against funding for personnel, information technologies, research, other physical assets such as vehicles, ships, planes, and so forth. Their objectives and values may support building a less costly facility of sufficient quality to meet only the immediate need so that investments in other programs can also be made. Personnel at OMB are responsible for reviewing the budgets submitted by agencies and recommending resource allocations, although they do not make fi- nal decisions. Their objectives may include helping to reduce the budget by limit- ing funding levels for various programs or services. They may not support allo- cating any funding for building a specific facility. Decision makers in Congress and the President are asked to balance the com- peting demands of very different programs across a wide spectrum of agencies and other federal entities: Funding for facilities investments must be weighed against funding for medical research, weapons systems, homeland security, edu-
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 95 cation, or any of a myriad of other public services. At this level, specific facilities investment decisions may be subsumed entirely by policy decisions. The lack of alignment in goals and objectives among these stakeholders is exacerbated by the federal budget process. The knowledge that resources are lim- ited and trade-offs will be made contributes to a competitive rather than a coop- erative decision-making environment. Agencies may overstate a need in their budget requests based on an expectation that the budget will be cut; then, when cuts are made, there may still be enough funding to proceed. Reviewing authori- ties, in turn, may suspect that budget requests are always inflated and that cuts can safely be made. A history of such gamesmanship sows elements of doubt and mistrust be- tween the managers providing information and the decision makers using it: Can decision makers believe what is being communicated? Will people do what they promise? Agency managers may believe that decision makers are unable to ac- knowledge the legitimacy of the needs being set forth in the face of pressure (such as to maintain a certain level of budget request). Or, based on their objec- tives and values, decision makers may recognize the needs but believe that other investments have a higher priority. For these reasons and others, the environment for decision making about federal facilities investments can presently be characterized as one of adversarial relationships, gamesmanship, miscommunication, and mistrust. The committee believes that a framework of procedures, required informa- tion, and valuation criteria based on the principles and policies used by best- practice organizations for facilities investment and management should be adopted. The individual missions, goals, cultures, and organizational structures of federal departments and agencies can be expected to result in varying practices within this to-be-adapted government-wide framework of principles and policies. Because such a framework represents a significant departure from current operating procedures, it might be advisable to establish one or more pilot projects. A small government agency with a diverse portfolio of facilities might provide a good environment in which to test the framework. 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. ****** Principle/Policy 2. Best-practice organizations implement a systematic facilities asset management approach that allows for a broad-based un- derstanding of the condition and functionality of their facilities portfo- lios--as distinct from their individual projects--in relation to their or-
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96 INVESTMENTS IN FEDERAL FACILITIES ganizational missions. Best-practice organizations ensure that their fa- cilities and infrastructure managers possess both the technical expertise and the financial analysis skills to implement a portfolio-based approach. Discussion 2(a). Facilities portfolio managers within federal agencies face many challenges, including the following: 1. Finding ways to manage portfolios comprising a few hundred to several hundred thousand individual structures of various types, ages, and conditions without having the authority or budget necessary for proper management. Such portfolios typically are dispersed throughout the United States and sometimes across the world. 2. Coordinating and monitoring several hundred to several thousand ongo- ing projects for new construction, renovation, repair, and renewal. These projects are in various phases of development and their total costs range from several million to several billion dollars. 3. Adapting 20- to 100-year-old facilities to accommodate new information technologies and new physical security measures. 4. The continued deterioration of facilities as indicated by the growing back- log of maintenance and repair. 5. The acquisition of new facilities without adequate annual resources com- mitted to properly maintain them. 6. Excess and obsolete facilities that consume resources needed for mission- critical facilities or other programs. In recent years, federal departments and agencies, including but not limited to the Department of Transportation, the Coast Guard, and the GSA, have begun to implement facilities asset management programs that consider both the port- folio and individual investments. Portfolio-based approaches should be imple- mented in every department and agency with responsibility for facilities man- agement. 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. Discussion 2(b). A concern in implementing new approaches to facilities asset management is the availability of federal staff with the full range of skills now required. Most federal facilities management organizations currently have facility professionals and staff with expertise in managing contracts, budgets, and schedules related to their specialty. The best of these have also taught themselves communication skills and techniques of financial analysis and information tech-
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 97 nologies. They have largely done a remarkable job with the resources available to them. Departments and agencies will need to give their facilities asset managers training in the business tools and financial theories and concepts required to imple- ment a portfolio-based approach. Mirroring this, departments and agencies, in- cluding the OMB and the GAO, should ensure that financial, budget, and pro- gram analysts receive some basic training on the physical aspects, not merely the financial aspects, of facilities investment and management. Training can occur through coursework, seminars in conjunction with the various operating units at the headquarters of an organization, and with operating units in the field. Rotational assignments should be encouraged to provide more in-depth training and understanding. As job vacancies occur in facilities manage- ment operating groups, departments and agencies should seek to recruit and hire staff not only with the traditional technical competencies but also with the requi- site business-related training.2 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. Discussion 2(c). One of the objectives to be met by implementing a facili- ties asset management approach is to ensure the alignment of an organization's portfolio of facilities with its missions and operating objectives. Continual moni- toring is required to identify facilities that are no longer needed due to changing requirements and those that are obsolete technologically or otherwise. Private- sector organizations have a direct incentive to dispose of unneeded facilities as soon as possible because they are a drain on organizational resources and are readily identifiable on their balance sheets. They dispose of excess facilities through sales, nonrenewal or breaking of leases, or demolition to free up resources that can be used for other requirements. The federal government, in contrast, has continuously acquired facilities over several centuries but placed relatively little emphasis on disposing of facilities that have become obsolete, too costly to maintain, or that do not support current missions and requirements.3 In some cases, considerable pressure has been placed 2In Chapter 2 the committee identified numerous institutions that offer the recommended coursework. 3 There are, of course, federal facilities that are excess but present significant challenges for dispo- sition, such as former nuclear sites and their associated facilities. Clearly such properties must remain under government ownership. Decommissioning such sites will cost billions of dollars; the decom- missioning of former uranium enrichment facilities, for example, will cost between $9 billion and $20 billion (NRC, 1996b).
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98 INVESTMENTS IN FEDERAL FACILITIES on elected officials by local constituencies to obstruct the closing of local federal facilities, even when it is not economically efficient to continue their use. Federal policies, practices, and procedures present other obstacles for facili- ties disposition. Eighty-one separate policies applicable to the disposal of federal facilities have been identified (GSA, 1997). These policies include legislative mandates or directives that are agency-specific as well as government-wide so- cioeconomic and environmental policies such as the Land and Water Conserva- tion Fund Act of 1965, the Stewart B. McKinney Homeless Assistance Act of 1987, and various historic preservation statutes. The budget structure also weighs against disposal of unneeded facilities. The budget appropriation line item Operations is used to fund the maintenance, repair, and disposal of facilities for most departments and agencies. Disposal of some excess facilities can occur through transfer of ownership or demolition; in both cases, an up-front investment is required before disposition can occur. Transfer- ring the ownership of a federal facility to a nonfederal entity brings with it the responsibility to meet environmental and other regulations. Depending on the age, materials, and former use of a facility, it may or may not be cost-effective to make the repairs necessary to comply with regulations in order to dispose of it. Similarly, it can be expensive to demolish facilities in the short term even if the long-term benefits may be significant. The military services estimate that demoli- tion costs for facilities range from $8 to $12 per square foot. For the Army alone, demolition of excess facilities could cost more than $1.3 billion (GAO, 1997). Faced with the trade-off of using the available funds to invest in facilities that support current missions or to dispose of excess ones, managers typically choose the first alternative (NRC, 1998). Finally, there are few incentives for departments and agencies to invest the time and effort to sell excess properties. Proceeds realized through such sales will go to the general treasury, not back to the organization unless it has been given authority under special legislation to retain some portion of them.4 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. Discussion 2(d). Some federal departments and agencies are incurring sig- nificant costs for operating and maintaining facilities that they no longer need to support today's missions. The Department of Defense (DoD) estimates it spends 4Legislation has, in fact, been enacted to allow the U.S. State Department to sell some of its excess properties at fair market value and to retain the proceeds for investment in mission-critical facilities.
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 99 $3 billion to $4 billion each year maintaining excess facilities (GAO, 2003f). The Departments of Energy, State, and Veterans Affairs, the GSA, and the U.S. Postal Service own considerable numbers of properties that are no longer needed but continue to require investment of resources (GAO, 2003f). These agencies and possibly others are incurring significant costs for staff time spent managing the properties and on maintenance, utilities, security, and other building needs . . . [and] the govern- ment is needlessly incurring unknown opportunity costs, because these build- ings and land could be put to more cost-beneficial uses, exchanged for other needed property, or sold to generate revenue for the government . . . . [Holding excess properties] presents an image of waste and inefficiency that erodes tax- payers' confidence (GAO, 2003f, p. 11). The lack of alignment between a department's or agency's missions and its facilities portfolio, coupled with the cost of operating and maintaining excess facilities, can require extraordinary measures to effect some improvement, par- ticularly when the goals, objectives, and values of the President, Congress, de- partments, and agencies may be so different that a compromise cannot be reached in the traditional operating environment. One such extraordinary measure was the base realignment and closure (BRAC) process used to divest facilities owned by DoD. As early as 1964, the Secretary of Defense announced the need for a major military base closing. Legislative and executive decision-making groups were unable to reach a compromise on such closures for the next 25 years. Following the end of the Cold War, it became clear again that certain facilities and infra- structure designed to support a specific type of military force were no longer needed or financially supportable. In the 1980s, the report of the Grace Commis- sion concluded that closing unnecessary military bases could produce savings of $2 billion annually. Decision makers in the legislative and executive branches agreed that some infrastructure could be closed down without affecting the ca- pacity of the government to provide for national defense. However, neither branch could close down military bases without the approval of the other. Both branches were reluctant to support the closing of specific bases because of the impacts on local economies, employment, the objections of the local electorate, and the im- plications for individual members of Congress (Goldfein, 1994). To resolve this impasse, the Base Realignment and Closure Act was enacted in 1988, establishing a decision-making process outside the traditional operating environment. The Act established an independent commission to make the final recommendations for closures and set ground rules for both executive and legis- lative agencies in terms of their input and its timing. The Act required elected officials to approve or reject a recommended package of base closings as a whole--elected officials were not allowed to remove individual bases from the list or to otherwise amend it. Time for debate was limited and filibusters in Con-
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 107 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. ****** Principle/Policy 7. Best-practice organizations base decisions to own or lease facilities on the level of control required and on the planning hori- zon for the function, which may or may not be the same as the life of the facility. Discussion 7. As do private-sector organizations, federal departments and agencies acquire the use of space and equipment through ownership and through operating and capital leases. Based on the committee's interviews and research activities, the criteria 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. What is clear is that the decision is complicated by the budget scorekeeping rules. As with budget requests to design and construct facilities, requests to fund operating and capital leases are scored up front.8 Leases typically will have lower costs over the given lease period than the design and construction of a facility, even if the long-term costs might be higher. Consequently, leasing the required space may appear to have less impact on an organization's overall budget. In this case, the scorekeeping rules may provide an incentive for a department or agency to game the system and request approval to lease space even if it is not cost- effective in the long term. The committee believes that a more effective approach for deciding whether it is best to own or lease the required space is to base the decision on the level of control desired and the planning horizon for the function. Departments and agen- cies should determine whether the required space will support functions that are critical to the organizational mission (core functions), functions that support the mission, or functions that are mission neutral (noncore) and then determine the level of control desired. An additional decision factor should be the length of time the function must be supported. For long-term, mission-critical functions, a de- partment or agency may wish to exert maximum control through ownership. For short-term, noncore functions, leasing may be the most cost-effective option. Whatever the decision, the committee believes it should be based on a clearly stated rationale linked to support of the organizational mission and the life of the function. 8The criteria used to distinguish among the different categories of leases are to some extent arbi- trary (CBO, 2003), leading to some variation in the ways leases are scored by the OMB and the CBO.
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108 INVESTMENTS IN FEDERAL FACILITIES 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. ****** Principle/Policy 8. Best-practice organizations use performance mea- sures in conjunction with both periodic and continuous long-term feed- back to evaluate the results of facilities investments and to improve the decision-making process itself. Discussion 8. The Government Performance and Results Act of 1993 re- quires all federal departments and agencies to develop performance measures in order to evaluate the effectiveness of their programs and investments in providing goods and services to the American public and to report the results annually. Some federal organizations have used the Balanced Scorecard concept to develop measures for determining how well strategic objectives are being met. However, because the results of many federal programs or services are qualitative in nature and occur over long periods of time--for example, the regulation of air quality-- measuring them can be challenging. Federal organizations are faced with several issues when they develop per- formance measures to capture the outcomes of facilities investments and manage- ment as they apply to portfolios of facilities. One is the lack of adequate baseline data about facilities portfolios: their condition, value, functionality, and operating costs. When Congress appropriates the annual operations and maintenance bud- get back to the agencies, the agencies themselves then allocate this funding to investments in facilities maintenance, repair, alteration, and renewal. (Planning, design, and construction of projects are typically funded through separate line items.) Departments and agencies do not systematically separate and track actual expenditures for maintenance, repair, and operations of buildings, making it diffi- cult to develop accurate baseline data. A second issue is the structure of current accounting systems, which are driven by the federal budget process and do not typically disaggregate facilities operations and maintenance costs. An example of one further complicating factor is that many federal buildings are not metered, making it difficult to track utility costs or usage. Despite these and other difficulties, efforts are under way to develop mea- sures that apply to facilities portfolios. Many agencies use a facilities condition index (FCI) to monitor the overall condition of their facilities inventories. The Navy has developed the Mission Dependency Index (MDI), which uses opera- tional risk management techniques of probability and severity and applies them to facilities in terms of interruptability, relocatability, and replaceability. The MDI also takes mission intradependencies (those that reside within a command) and
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 109 mission interdependencies (those that reside between commands) into account through a structured interview process with command representatives of indi- vidual units that cover a finite geographical area. The DoD has developed a facili- ties sustainment model and recapitalization metric to determine the rate of resto- ration and modernization relative to the average expected service life of the inventory. The Coast Guard is developing (1) a space utilization index (SUI) to measure compliance with organizational space standards to ensure equitable dis- tribution of space and funding across the organizations and (2) a systems critical- ity index based on functional importance, health and safety, repair cost factors, interdependencies with other systems, and other factors (Dempsey et al., 2003). NASA has developed a parametric model for tracking deferred maintenance across its inventory. 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 performance of federal facilities portfolios. An approach like that of the Balanced Scorecard could be applied hierarchically, with successively more detailed objectives and metrics at lower levels. The department or agency level would be the starting point since it is the focus of resource allocation and estab- lishment of management objectives. Department objectives would flow down to agencies and thence to regions and facilities. The effective use of performance measures for facilities investment and man- agement requires the continuous monitoring of projects, processes, and facilities portfolios through short- and long-term feedback. Monitoring the progress of fa- cility projects to measure whether they are on time and within budget is a com- mon practice in federal organizations. The GSA, the U.S. Postal Service, the State Department, and other agencies receive feedback on customer satisfaction with newly occupied buildings through postoccupancy evaluations. Such evalua- tions provide a basis for lessons-learned programs, which in turn are used to improve processes and design standards. However, most of the feedback proce- dures are short term. To the committee's knowledge, no federal department or agency gathers consistent, organized, long-term feedback to determine if facili- ties investments met organizational objectives, solved operational problems, or reduced long-term operating costs. This type of feedback is essential if the out- comes of facilities investments and management processes are to be measured and improved. 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. ******
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110 INVESTMENTS IN FEDERAL FACILITIES Principle/Policy 9. Best-practice organizations link accountability, re- sponsibility, and authority when making and implementing facilities in- vestment decisions. Discussion 9. As noted in Stewardship of Federal Facilities: A Proactive Strategy for Managing the Nation's Public Assets, the responsible ownership of facilities by the federal government is an obligation that requires not only money, but also the vision, resolve, experi- ence, and expertise to ensure that resources are allocated effectively to sustain the public's investment. The recognition and acceptance of this obligation is the essence of stewardship. Public officials and employees at all levels are respon- sible for decisions that affect the stewardship of facilities. (NRC, 1998, p. 62) 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 a lack of clear-cut accountability for facilities investment outcomes. In the instance of facilities management and maintenance, the linkages be- tween responsibility, authority, and accountability are lacking at several levels. First, for most facilities projects, one operating unit may be responsible for the planning of a facility, another for designing and constructing it, and a third for maintaining, preserving, and operating it. When these functions are separate, there is no strong incentive for those designing a facility to consider its life-cycle costs or to evaluate alternative materials, systems, or other components in terms of their impact on long-term operations and management, repair, and disposal costs. The groups responsible for design are rarely held accountable for the subsequent total operating costs of the facility. The group overseeing construction is respon- sible for and held accountable for completing the facility on time and on budget but not necessarily for ensuring that the facility will operate economically and satisfy user requirements. Second, those who use a facility often are not responsible for its maintenance and care. Their budget allocation is usually separate from that for facilities main- tenance, so to them, the facility does not have a direct cost. They operate within the facility but are not accountable for how their operations affect the facility or the cost of maintaining it. Third, those responsible for managing facilities portfolios may be held ac- countable for the quantity and quality of services being provided to the organiza- tion. However, they are not always given the resources and authority necessary to maintain the facility's functionality or condition at the level needed to effectively support the required services. Fourth, to help balance the budget, budget and program analysts may be responsible for limiting the resources to be invested. However, they are not held accountable for the consequences of their recommendations, which may include the worsening condition of facilities over time through lack of investment.
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 111 Fifth, senior managers and elected officials are responsible for broad levels of services and for balancing needs with available resources. At this level, trade- offs are made among a wide range of programs and services, and decisions are made by consensus. Faced with these trade-offs, senior managers and public offi- cials may decide that there will be no serious consequences if facility mainte- nance and repair is deferred another year in favor of more urgent operations or programs with greater visibility. Only if there is a catastrophic failure, such as a roof falling in or a bridge collapsing, are senior managers likely to be held ac- countable for the condition of facilities in any given year (NRC, 1998). Within the federal government, private-sector methods for linking responsi- bility, authority, and accountability for facilities investment-related activities are most easily applied at the project level. Given adequate resources and the author- ity to allocate those resources, a facility project manager can be held accountable for delivering a project on time and within budget. As one moves up within a department or agency to the facility program level, accountability for the out- comes of investments is more difficult to establish owing to the typical separation of planning, design, construction, and operations functions and, more importantly, to an inability to control adequate resources to manage existing facilities portfo- lios over the long term. Several elements of the framework of principles and policies recommended in this report will enhance accountability for the outcomes of federal facilities investments. Implementation of facilities asset management approaches, coupled with adequate resources and authority for allocating those resources, will en- hance accountability for outcomes within facilities management organizations. A facilities asset management approach allows linking the performance of the fa- cilities portfolio to the organization's mission and measuring how well opera- tional and strategic objectives are being met over both the short and long terms. The development and consistent use of a business case analysis that docu- ments decisions, value trade-offs, the quality and depth of the alternatives ana- lyzed, and those responsible for the analysis will enhance accountability for in- vestment proposals and their outcomes. More integrated approaches to the design, construction, and operation of individual buildings could result in lower life-cycle costs and could also serve to make planners, designers, constructors, and opera- tors of facilities more accountable for the performance and functionality of the facility. Some design-build-operate-maintain project delivery strategies have been developed on these premises. The Departments of Defense and State are now conducting pilot studies to determine if this type of project delivery strategy could be widely used to achieve better facilities and greater accountability. As a first step toward making the decision-making process itself more trans- parent, and to enhance accountability at all levels, each federal department and agency should develop a decision tree or diagram that illustrates the many inter- faces among the decision-making and operating groups involved in the process, identifies the points at which decisions are made, and identifies the groups mak- ing the decisions at each point.
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112 INVESTMENTS IN FEDERAL FACILITIES 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 of business case analyses will further enhance organizational account- ability. ****** Principle/Policy 10. Best-practice organizations motivate employees as individuals and as groups to meet or exceed accepted levels of perfor- mance by establishing incentives that encourage effective decision mak- ing and reward extraordinary performance. Discussion 10. The federal government, unlike private-sector organizations, does not operate on a risk-reward basis, nor does it seek to make a profit. Using public dollars to create financial incentives to motivate individuals to meet orga- nizational objectives sometimes raises concerns; however, such incentives are already used on a limited basis by federal departments and agencies. Incentives come in many forms. Identifying and implementing incentives to support good decision making on the part of individuals and operating groups is as important for federal organizations as it is for the private sector. In the federal system, the multiple-objective nature of laws and policies and the sheer volume of procedures sometimes result in unintended consequences, including disincentives for good decision making and cost-effective behavior. The budget scorekeeping rules are one example; they are intended to provide transparency in the budget and to help control spending, but they also engender gamesmanship that discourages long-term, cost-effective behavior in favor of behavior that satisfies short-term needs. The separation of planning, design, con- struction, and operations functions within departments and agencies creates dis- incentives for life-cycle costing in favor of driving down the first costs of facili- ties. The federal budget process creates additional disincentives for cost-effective actions. For example, in most circumstances, the carryover of unobligated funds from one fiscal year to the next is not allowed even if a facilities program man- ager can demonstrate that carryover of funding for a capital investment is the most cost-effective approach. Funds that are not expended in the current fiscal year are routinely taken back from departments and agencies, and the next fiscal year's funding may be reduced on the premise that money not spent is money not needed. Thus, admitting to savings is not in a federal manager's interest or that of his organization (NRC, 1998). Examples of incentives that would support more cost-effective decision mak-
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 113 ing and management by facilities asset management groups include these: (1) allow savings from one area of operations to be applied to needs in another area if the savings are carefully documented; (2) 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; or (3) establish awards for operating units with high levels of performance. A major issue in the implementation of such programs is to find ways to militate against the common practice of reducing a department's or agency's budget in future fiscal years if the agency appears to have funds available at the end of the current year. GSA's Public Buildings Service (PBS) has instituted a program for linking budget to performance that provides one example of how financial incentives can be applied in the federal government to motivate operating groups to better meet organizational goals on a national and regional level. In 1998, PBS began using a limited number of performance metrics and targets, coupled with funds from its annual budget, to precipitate changes in employee performance. The funds for the program are set aside at the beginning of each fiscal year. For each of the nine performance measures, which are organized around business performance and customer satisfaction, PBS leadership sets a national goal. It then negotiates tar- gets for each of its 11 regions, taking into account the characteristics of the real estate markets in each region. At the end of the fiscal year, the funds are distrib- uted to those regions that meet or exceed the national goal; the regions that do not meet goals do not share in the bonus pool. Regions have discretion in how the money is used. Of $75 million distributed as of 2001, approximately two-thirds was used for repairs and alterations of PBS space to improve long-term perfor- mance of regional facilities inventories and about one-third for salary, training, workspace, and team awards (Dunham and Beard, 2001). The PBS also reports improved collaboration among the regions and significant improvements in their performance as additional outcomes of the program. 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. 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-
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114 INVESTMENTS IN FEDERAL FACILITIES 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 CBO, the OMB, 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 (see, for ex- ample, NCPWI, 1988; NRC, 1990, 1991, 1998) and have failed to motivate those outside the professional facilities community to action. The committee believes that a new dynamic can and must be instituted. An illustrative model of sociotechnical systems (Figure 6.1) is useful for visualizing the interactions that occur during a complex decision-making process (Linstone, 1984). If the committee's recommendations for improved decision making for federal facilities investments are to be implemented successfully, these interactions must be understood and enabled by all the participants in federal facilities investments and management. Facility managers will not be successful if they limit themselves to narrow technical analyses or if interactions with senior ORGANIZATIONAL ASPECTS PRIMARY ORGANIZATIONAL ACTORS SECONDARY SOCIO-TECHNICAL ORGANIZATIONS SETTING PHYSICAL (Environmental) DECISION POLITICAL SETTING ACTIVITY TECHNOLOGY TECHNO-PERSONAL INDIVIDUAL SETTING ACTORS TECHNICAL ASPECTS PERSONAL ASPECTS FIGURE 6.1 A sociotechnical system view for decision making. SOURCE: Linstone, 1984
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 115 SCIENTIFIC SCIENTIFIC VALUE SOCIAL DATA JUDGMENTS JUDGMENTS JUDGMENTS x1 w1 y1 x2 w2 Overall y2 Worth x3 w3 ¥ ¥ ¥ y3 xn FIGURE 6.2 A model for integrating scientific and social values in decision making. SOURCE: Hammond, 1996. agency management, program and financial staff, and OMB occur just once a year as part of the budget cycle. Building a case for proactive facility investments requires that dialogue be initiated and sustained between and among the various stakeholders using terms of reference that all can relate to and act upon. Kenneth Hammond has researched the issue of integrating scientific and so- cial values into the decision-making process and applied the results in practical ways (Hammond, 1996). He found that in public decision-making settings, an impasse may occur despite numerous meetings and discussions between govern- ment officials and community leaders. Often, the root cause of the impasse is the fact some stakeholders are concentrating solely on technical factors, while com- munity leaders are primarily concerned with the potential effects on the citizenry. Figure 6.2 is a diagram Dr. Hammond developed to demonstrate that the various stakeholders often address related but distinct problems: the technical requirements involved in solving a specific issue and the social values of the community. Once such differences are recognized, discussions can be shaped to address a full range of issues and to develop trust and understanding among the stakeholders. The committee believes that all too often, the facilities management commu- nity, whether in the public or private sector, presents an analysis designed to convince those who already believe in good facility practices. Factors from the left side of Figure 6.2 are developed and honed to a keen edge. However, this information often fails to sway the decision makers, who count facilities as only
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116 INVESTMENTS IN FEDERAL FACILITIES one area among many competing for resources and attention. Demonstrating that proactive facility investment supports the broader values of the organization or government entity will allow for integrated decision making that is more compel- ling to all stakeholders. Implementing a framework of expectations, processes, information, and cri- teria based on the principles and policies identified by the committee will require broad sponsorship, focused leadership, and deep commitment on the part of all stakeholders. To this end, the committee recommends that legislation be enacted and executive orders be issued that would do two things: (1) Establish an executive-level commission with representatives from the private sector, academia, and the ranks of the federal government to determine how the identified principles and policies can be applied in the federal government to improve the outcomes of decision-making and man- agement processes 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 com- mission should also include representatives of Congress, federal agencies with large portfolios of facilities, oversight agencies, and others as appropriate. It should be tasked to gather relevant information from inside and outside the fed- eral government; hold public hearings; submit a report to the President and Con- gress outlining its recommendations for change; an implementation plan; 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 provide recommendations to the executive-level commission for use in its deliberations. The working groups within each department and agency should work collaboratively with the executive-level commission. Staff in the depart- ments 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 on the characteristics of their facilities portfolios; issues related to aligning their portfolios with their missions; facilities investment trends; good or best practices for facilities investment and management; performance mea- sures for monitoring and measuring the results of investments; and other relevant information. The committee believes that such sponsorship, leadership, and commitment to this effort will result in
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 117 · 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.
Representative terms from entire chapter: