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2 Facilities Asset Management BACKGROUND The field of facilities management is evolving. Once focused on tactical con- cerns, tasks, and functions that were oriented to the operation of individual build- ings, it now focuses on the entire portfolio of facilities and integrated resource management (Figure 2.1). Tasks and Processes and Resource Functions Competencies Management Property Information Property/Estate Management Property Portfolio Repairs and Maintenance Management Asset Management Site Selection, Acquisition Strategic Facilities Planning Facilities Management Guidelines Construction and Handover Corporate Real Estate Workplace Strategies Inventory Control and Management Purchasing Long-term Asset Management Lease Management and Disposal Support Services Management Refurbishment and Refit Optimizing Utilization of Business Resources Tactical Concerns Strategic Concerns FIGURE 2.1 The evolving focus of facilities asset management. SOURCE: Then, 1996; 2003. 30
FACILITIES ASSET MANAGEMENT 31 Cost Factors Management and Customer Perception · Competition · Need to change physical assets from · Energy overhead to resources · Space · Image · Need for operational efficiency · Downsizing · Focus on core competencies Employers' Needs and Expectations · Working conditions Government Policies Facilities · Morale · Public-private Management · Sick Building Syndrome partnerships · Repetitive strain injury · Best value · Liability claims · Health and safety · Security · Physical security · Sustainability Change or Business Re-engineering Factors Need for Flexibility IT Development · Communications · Outsourcing · Intelligent buildings · Responsiveness · Space management · More intense use of facilities · CAFM · Volatile market conditions · Best Value Service · Corporate governance · Innovative Services · Stakeholders' influence · Flexibility · Integrated resource · IT-based management · Added Value · Customer-driven strategies · Environmental Issues · Relationship management · Sustainability · Market information · Physical Security FIGURE 2.2 Factors driving the evolution of facilities management. SOURCE: Adapted from Okoroh et al., 2002; 2003. One driver of this evolution is the emphasis by private-sector organizations on results-driven management strategies for all aspects of their operations. This shift is also indicative of the increasing recognition of facilities as "mission enablers" that support organizational goals, work processes, and productivity. Increased competition, a renewed emphasis on physical security, the outsourcing of business functions, changing expectations and requirements of employees and clients, and emerging information and building technologies are also factors (Fig- ure 2.2). As noted by corporate real estate expert Martha O'Mara, the organizational emphasis of corporate real estate is shifting from a functional project management approach based on how buildings are delivered to one which aligns with the structure of the company and the way work is conducted. This shift is necessitated not only by the strategic perspective but also by the in- creased use of service providers outside of the company that assume many of the routine functions of real estate and facility management (O'Mara, 1999, p. 307).
32 INVESTMENTS IN FEDERAL FACILITIES While many factors are driving the evolution of facilities management, new technologies are enabling it. The development of open platforms and relational databases allows for the integration of data from disparate sources, including financial, facilities, and personnel systems. Large quantities of data from geo- graphically dispersed locations can be gathered and processed quickly to monitor day-to-day operations, costs, and trends. Decision support tools allow for the development and evaluation of large numbers of alternative investment scenarios. The next sections focus on the emerging practice of facilities asset manage- ment, its components, and the additional skills required of facilities asset manag- ers. Chapter 2 concludes with a summary of principles and policies from best- practice organizations. FACILITIES ASSET MANAGEMENT Facilities asset management is an evolving discipline. In this report it is de- fined as "a systematic process of maintaining, upgrading, and operating physical assets cost-effectively. It combines engineering principles with sound business practices and economic theory, and provides tools to facilitate a more organized, logical approach to decision making" (FHWA, 1999, p. 7). A facilities asset man- agement approach allows for both program- or network-level management and project-level management and thereby supports both executive-level and field- level decision making. Program- or network-level management is associated with a systemwide ap- proach that involves structured decision-making practices, including the analysis of trade-offs to identify and execute the best investments for a portfolio of facili- ties. Such management involves a macroscopic view of the assets being managed and makes use of aggregated data. Project-level management decisions, in con- trast, are associated with identifying the best actions to take for specific facilities, and they typically occur at the field level, using more disaggregated data (Figure 2.3). The importance of a facilities asset management approach is that it allows organizations to integrate facilities considerations into corporate decision making and strategic planning processes. This is a significant shift from past practice, whereby facilities-related decisions were often made after the organization's stra- tegic direction had been set. Using a facilities asset management approach allows organizations to forge a direct link between organizational goals, facilities invest- ment decisions, and day-to-day operations (Figure 2.4). COMPONENTS OF A FACILITIES ASSET MANAGEMENT APPROACH Facilities asset management is different from asset management in the finan- cial/legal sense for the following reasons (Tracy, 2001):
FACILITIES ASSET MANAGEMENT 33 PROGRAM/NETWORK/SYSTEMWIDE LEVEL Financing · Data (location, inventory, properties, performance, evaluation, etc.) Budgets · Deficiencies/needs (current and future) Agency Policies · Alternative strategies and life-cycle analyses · Priorities, programs, schedules PROJECT/SECTION LEVEL Standards and · Data (materials, properties, demand, DATA unit costs, etc.) Specifications BASE · Detailed design Budget Limit · Construction Environmental · Maintenance Constraints ONGOING, IN-SERVICE MONITORING AND EVALUATION FIGURE 2.3 Components of a facilities asset management system. SOURCE: Adapted from Hudson et al., 1997. FIGURE 2.4 Linking organizational goals with facilities investment and operations. SOURCE: Adapted from Then, 1996; 2003.
34 INVESTMENTS IN FEDERAL FACILITIES · It focuses on a subset of corporate balance sheets that are physical in nature. · It enlarges the scope of assets to extend to noncapitalized assets such as leased space, office equipment, human resources, and the like. · It includes operating assets that require regular maintenance and repair to retain their functionality and avoid catastrophic failure. · It includes operating assets that depreciate and wear out over time but that can also be renewed through investment (renewable assets). · It involves the use and deployment of assets in dispersed locations and over the various operating units of an organization. · It accounts for a return on investment that is often in the form of increased productivity of a facility's occupants, a difficult value to quantify and measure. · It recognizes that the facilities program manager may or may not have authority over the disposition of all or a portion of the assets that he or she man- ages. The literature on facilities asset management identifies several components needed to ensure that investment decisions are aligned with the mission and goals of an organization: · Accurate data for the entire facilities portfolio, not just individual build- ings, to enable life-cycle decision making. · Models for predicting the future condition and performance obtainable from these facilities as a portfolio. · Engineering and economic decision support tools for analyzing trade-offs among competing investment approaches. · Performance measures to evaluate the impacts of different types of ac- tions (e.g., maintenance versus rehabilitation) as well as the timing of invest- ments on the overall goals for service provision. · Continuous feedback procedures. These components are described in greater detail below. Accurate Data Facilities asset management data at a minimum include inventory and at- tribute data. Inventory data describe elements of assets that do not change as a function of time--for example, the number, location, type, and size of facilities and the year of acquisition. Inventory data are gathered in a relatively straightfor- ward manner, even for large portfolios of facilities; once gathered, the time and cost to update them are minimal. Attribute data capture characteristics that do change over time, such as the demand for the facilities, usage, value, age, maintenance history (including treat-
FACILITIES ASSET MANAGEMENT 35 ment types and timing), operating and repair costs, condition, and so forth. At- tribute data are more difficult to gather initially than are inventory data. Updating attribute data may require periodic condition assessment and other programs, which can be costly. Computer-aided facilities management systems are used to store, analyze, and update both inventory and attribute data. Performance-Prediction Models Performance-prediction models predict the deterioration of building compo- nents, measured as a composite condition index, as a function of time.1 They are important because certain components of a facility are particularly prone to dete- rioration or failure and require relatively frequent maintenance or repairs. Some mechanical and electrical systems of a facility tend to have numerous moving parts and are likely to need a great deal of maintenance (they are said to have a high maintenance need probability). Nonperformance of some of these compo- nents can have serious consequences for the serviceability of the facility. Simi- larly, life safety systems generally have interacting parts, such as electrical signal systems or controls, that have both a high maintenance need probability and very serious consequences if they do not perform properly. Building envelopes, for example, may have a relatively high maintenance need probability, and the effects of nonperformance can range from annoying to catastrophic. The envelope's exposure to the weather makes it vulnerable, and hidden deterioration may result if leaks are unknown or neglected. In contrast, the covered structural system of a building tends to remain unaffected for the life of the facility (a low maintenance need probability) unless the loading is signifi- cantly changed, or the structure is modified, or deterioration occurs.2 The conse- quence of nonperformance of a structural element is almost always serious. Hav- ing models that can help to identify the differing maintenance need probabilities of facilities can help facility managers and others determine where resources can be spent to achieve the most significant returns in terms of supporting the organization's operations. Engineering and Economic Decision Support Tools Engineering-economic ranking and optimization methods can help decision makers to evaluate trade-offs among different investment approaches. Ranking 1The BUILDER system developed by the Construction Engineering Research Laboratories of the U.S. Army Corps of Engineers is one example of a performance prediction model; other models have been developed by private-sector software firms. 2One example of an uncovered structural system is a steel bridge, which has a high maintenance need probability.
36 INVESTMENTS IN FEDERAL FACILITIES methods make use of various decision criteria to prioritize competing needs in an overall facility portfolio or infrastructure system. Decision criteria might include the current condition, the predicted condition at some future time, life-cycle costs, cost-effectiveness (i.e., some measure of effectiveness per unit cost of improve- ment), and benefit-cost ratio. The relative sophistication of the decision criteria used for project rankings ultimately impacts the relative value gained per unit investment. Optimization methods such as mathematical programming methods are used to identify the combination of competing investment options that would result in the greatest return on the investment, given budget constraints. Although several attributes of the facility or system investment may be quantifiable as benefits or costs, not all such attributes are quantifiable--for example, the environmental and social impacts of various facility investment decisions. Such attributes may, however, be considered qualitatively in various multiattribute decision frame- works. Performance Measures Performance-prediction models to project what may happen are an important element of a facilities asset management approach. Equally important are perfor- mance measures to gauge what has occurred or is occurring in respect to a facili- ties-related operation or activity. Most organizations, whether private or public, measure the performance of individual projects or buildings. Typical indicators include project completion in relation to the original schedule and budget; energy, utility, or other operating costs per square foot; utilization rate (occupied space as a proportion of usable area); facility condition; and the like. Indicators to measure the performance of an entire portfolio of facilities in relation to organizational goals are less well developed but are fundamental to a program- or network-level management approach. Performance measures in gen- eral and program-level indicators specifically are discussed in greater detail in Chapter 4. Continuous Feedback One of the objectives of implementing a facilities asset management approach is to ensure the alignment of an organization's portfolio of facilities with its mis- sion and operating objectives. Continuous feedback is required to monitor the operating condition of facilities that directly support and impact organizational mission; to identify facilities that are no longer needed due to changing require- ments; and to identify facilities that are obsolete technologically or otherwise. This information, in turn, can be used to determine where investments should be
FACILITIES ASSET MANAGEMENT 37 made to acquire, renew, or dispose of facilities. Continuous feedback and moni- toring are discussed in greater detail in Chapter 4. FACILITIES ASSET MANAGERS The usefulness of a facilities asset management system is closely tied to the extent to which an asset management culture has permeated the organization, the quality of data on the asset portfolio, the linkage between the asset management goals and organizational mission, and the skill level of the people involved in the management system. Implementing a facilities asset management approach also requires that facilities staff at headquarters and in the field have the appropriate background and training to provide strategic information and to make recommen- dations to senior managers. The importance of having a competent workforce with the appropriate skills and training to support an organization's core competencies, goals, and missions cannot be overestimated. A recent study of private-sector organizations that were able to "make the leap from good to great" and to sustain their results for at least 15 years found that: "Who" questions come before "what" decisions--before vision, before strategy, before organizational structure, before tactics. First who, then what--as a rigor- ous discipline, consistently applied . . . . The old adage "People are your most important asset" is wrong. People are not your most important asset. The right people are . . . . Whether someone is the "right person" has more to do with character traits and innate capabilities than with specific knowledge, background or skills. (Collins, 2001, p. 63) Thus, people, like facilities, technologies, and dollars, are mission enablers, assets that must be invested in over time. In a facilities asset management approach, facilities managers can no longer be regarded only as caretakers who bring unwelcome news about deteriorating facilities and the need for investments. As facilities management has evolved from tactical, building-oriented activities to a strategic, portfolio-based approach, the skills required by facilities management organizations have similarly evolved. A facilities asset management approach requires not only the technical skills (e.g., engineering, architecture, mechanical, electrical, contracting) found in traditional facilities engineering organizations but also business acumen and communication skills. A report by the Center for Construction Industry Studies (CCIS) involving 31 private and public sector organizations found that it is fairly well recognized in owner firms that the skill set required to manage and work on projects from the owner's side has changed dramatically and the issue of skill development of owner personnel is perhaps the most difficult one facing owner firms (CCIS, 1999). In business terms, critical owner skills include technical knowledge of the
38 INVESTMENTS IN FEDERAL FACILITIES process, alignment with the business units' goals and objectives, facility defini- tion, stewardship of the overall project process and objectives, and project con- trols (Sloan Program for the Construction Industry, 1998). Skills required by fa- cilities asset managers are outlined in Table 2.1. A newly released study reinforces the CCIS report and lists 27 business skills a facility manager should have to be effective in today's operating environment (Table 2.2). According to the International Facility Management Association (IFMA), only 34 percent of facility managers have business degrees (IFMA, 1998). Thus, [it] is not surprising that facility managers are unsophisticated in applying busi- ness practices to facility management. Most of them have technical education in engineering, architecture, or administrative management. Their education and training did not stress business principles or theory. Many of them have little training in financial management. (Cotts and Rondeau, 2004, p.3) For these reasons, most organizations adopting a facilities asset management approach must have staff who are able to use new methods of analysis, who understand financial concepts and management, and who can communicate ef- TABLE 2.1 Skills Required by Facilities Asset Managers Category Skill Business Writing and managing contracts Negotiation Managing budgets and schedules Communication Coordination/liaison Conflict management Cultivate broad network of relationships Influence Mentoring Motivating Change management Managerial Team building Delegating Politically aware/see big picture Problem solving Continually analyze options/innovation Planning Consider all sides of issues, risk management Technical Understand entire construction process Multidisciplined (knowledge of several areas of engineering) Information technology skills SOURCE: CCIS, 1999.
FACILITIES ASSET MANAGEMENT 39 TABLE 2.2 Business Skills for the Facility Manager Know your business Submit an annual report for the department Know and be able to use the language of Implement strategic facilities business planning business Be able to develop, execute, and evaluate Understand the costs of doing business budgets Become a skilled business communicator Be a skilled contracting officer and procurer of goods and services Identify and use best practices in all functions of facility management Understand how you should manage, track, and report the ongoing performance metrics, stated Focus on cost reduction and on management in financial terms for the success of your improvements that will lead to cost reduction department and service providers and cost avoidance Think of ways to make well-run facilities a Understand, in detail, how you affect the corporate advantage where appropriate business. Be able to translate facility management (FM) needs into FM requirements For major decisions, use life-cycle costing and to show how FM achievements fit business needs Implement a regular program to communicate these metrics and your success to management Make your annual budget your principal facility and to your customers management information tool Understand depreciation and its effects on your Sign favorable leases and get control of your budgets leases Expect to invest in business technologies In your practice and in your communications, stress the importance and benefits of good Understand the importance of being able to facility management project and work to a budget and a schedule Be able to use capital budget evaluation tools Understand ratio analysis Actively manage your real estate portfolio Be able to administer chargebacks and allocations Be capable of making lease-versus-buy decisions Reduce churn SOURCE: D. Cotts and E.P. Rondeau, 2004. fectively with stakeholders and decision makers with differing technical back- grounds and at all management levels. Training of existing staff and the recruit- ment of new staff with such skills is required. Academic institutions are developing facilities and infrastructure manage- ment programs and courses to educate both students and practitioners on ap- proaches and methods for managing facilities and infrastructure as assets. Cornell
40 INVESTMENTS IN FEDERAL FACILITIES University, Eastern Michigan University, Ferris State University (Michigan), the University of Southern Colorado, and Brigham Young University all have programs in facility management (IFMA, 2003). George Mason University of- fers a professional certificate in facility management and the Georgia Institute of Technology offers a master's program in building construction and integrated facility management. Thirteen of 51 civil engineering and related programs sur- veyed had at least one course in or related to civil infrastructure management (Amekudzi et al., 2001). These developments point to a growing demand for formally trained facilities and infrastructure managers with both the technical expertise and business acumen to successfully manage facility portfolios and civil infrastructure systems as assets and to the many resources available nation- wide that offer full- or part-time training. EXAMPLES OF FACILITIES ASSET MANAGEMENT SYSTEMS Included below are two examples of facilities asset management systems in use. The study committee did not evaluate their effectiveness, and their inclusion should not be viewed as an endorsement. However, the examples are indicative of several directions being taken. The first example of a facilities asset management system is found at Brigham Young University (BYU). Implementation of BYU's asset management system began in the early 1980s, after the existing system had resulted in a culture of competition, confusion, and lack of trust among the various stakeholders. The search for a new system resulted in a paradigm shift from being a money-driven system to a requirements-driven system (Campbell, 2000). The database developed to support this new paradigm tracks requirements (Figure 2.5), ensures that all assets are included in the inventory, and updates the assets based on life-cycle costing. Beyond standard maintenance and repair, an annual inspection is made of all assets that have 1 year of remaining life to assess whether their life can be extended or if replacement is warranted. Customer re- quests, one-time projects, and areas experiencing continual maintenance prob- lems are also reviewed. This system has led to a clearer understanding and definition of operating and capital budgets. Operating budgets include operations, maintenance, and re- pairs and must ensure that assets function and are managed properly, users are satisfied, and the environment is stable. Capital budgets include replacements, retrofits, improvements, and new space additions that maximize or extend the useful lives of facilities (Figure 2.6). A partnership has been forged with all key stakeholders wherein an annual funding limit, a 40-year cash flow average of all life-cycle database items, and a 5-year average of all facility master plan items are mutually created. The annual funding limit in each area is reviewed periodically for required changes. Annual inspections and reviews are done to determine requirements. If the requirements
FACILITIES ASSET MANAGEMENT 41 Growth Needs Asset Expansion User Needs Utilization Space Use Programming Planning Design Construction Construction Operations Assets Existing Planned Maintenance Operations User-Requested Maintenance Total Asset Repairs Management Retrofits/Upgrades Improvements Capital Replacements FIGURE 2.5 A facilities asset management structure (BYU). do not exceed the limit, the difference goes into the "bank" for future use on that asset. If requirements exceed the annual fund limit, then those funds come out of the bank. A second example of a facilities asset management system is being imple- mented at the University of North Carolina (UNC). UNC has a repairs and reno-
42 INVESTMENTS IN FEDERAL FACILITIES Capital Needs Analysis Database Permanent Facility File Facility Master Building Life Cycle Plan Room File File File File (replacements) Process Annual Database Needs Fund Inspection/Review · Inspect 1 year remaining life · Review trouble areas Permanent Facility · Review customer requests File Adjustments · Propose retrofits · Propose improvements ual Other Project Approvals Adjustments Management Ann · List Needs "0" · Additions · Set Up Projects · Coordinate Items · Missed · Manage · Determine Funding · Delete · Close · Bottom-up Review · Audits · Open Invitation to Challenge · Corrections · Secure Funding · Inspections · Inflation Defer/Cancel · Other FIGURE 2.6 A facilities asset management framework (BYU). vations reserve fund that provides an annual allocation for repairs and mainte- nance. To ensure that these funds are effectively spent, the university has devel- oped a method for measuring the cost of work needed to bring a facility up to some baseline level of quality. This incorporates data kept by UNC's Facilities Condition Assessment Program (FCSP) and also goes beyond it. The FCSP iden- tifies only the work required to bring a facility back to its original condition, as well as to correct life safety code deficiencies, while the recently developed Fa- cility Condition and Quality Index (FCQI) also measures the cost to address func- tional and qualitative obsolescence relative to a desired baseline. This index di- vides the amount it would cost to bring a facility up to the desired functional level over the replacement value of that facility. For example, if a facility has a replace- ment value of $25 million and a cost of $2.5 million to bring it to the desired
FACILITIES ASSET MANAGEMENT 43 performance level, the FCQI would be 0.1 (Klein et al., 2002). An FCQI exceed- ing unity indicates that it would cost more to upgrade and modernize the facility in question than it would to build a new one. Where this occurs, the university automatically substitutes a replacement building into the 10-year capital needs plan. In such a case the existing building is not necessarily torn down but might be modernized to meet less demanding requirements. To arrive at the FCQI, UNC has a uniform method of compiling facilities condition data using an online questionnaire about the characteristics of each building (e.g., structural condition, accessibility, maintainability). The database that results is also maintained and manipulated online. Beyond quality data, project implementation data are also entered and tracked via the Web, with access available to relevant stakeholders. PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS Based on a consolidation of research, interviews, briefings, and the commit- tee members' individual and collective experience, the committee found that best- practice organizations operate under a number of principles and policies (all 10 principles/policies are repeated in Chapter 6). In matters of facilities manage- ment, Principle/Policy. Best-practice organizations implement a systematic fa- cilities 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 organizational missions. Best-practice organizations ensure that their facilities and infrastructure managers possess both the technical exper- tise and the financial analysis skills to implement a portfolio-based ap- proach. Facilities asset management is an evolving approach that helps to ensure that an organization's facilities portfolio is aligned with its mission. Required ele- ments include accurate data about the facilities' portfolio; models for predicting the future condition of these facilities and the performance obtainable from them; engineering and economic decision support tools for trade-off analyses among competing investment alternatives; performance measures to evaluate the impacts of different types of actions (e.g., maintenance versus rehabilitation) and the tim- ing of investments on the overall goals for facility provision; and short- and long- term feedback procedures. Implementation of a facilities asset management approach requires facilities and infrastructure managers with the technical expertise found in traditional fa- cilities management organizations (e.g., engineering, architecture, mechanical, electrical, contracting) as well as an understanding of financial concepts and management.