A Facilities Management Resource Consumption Model

Transcription

1 600 CIB World Building Congress 2007 CIB A Facilities Management Resource Consumption Model THEN Danny Shiem-shin and McEwan Andrew ABSTRACT In more than two decades of its evolution, facilities management is still struggling to establish an identity and relevance amongst broader management disciplines This paper argues that one key factor is that the business management dimension is weak or missing entirely. The current practice of facilities management remains entrenched in technical and transaction management. Its focus is on the operational management of maintenance, leasing, engineering services, design, fit-out and refurbishment, and construction - to name a few facilities support services. Most facilities management models are internalised operational models based essentially on supply management, whereas demand management is the motivators of organisational dynamics. Through the use of a Facilities Management Business Resource Consumption Model, this paper advocates that the business-facility interface is the current missing dimension in facilities management. Some suggested elements of the business-facility relationship will be discussed to elaborate on the key business management dimensions that facility managers must understand to be able to demonstrate the true value add that a business strategy can realise from more efficient and effective utility of its facility and facility management services. Most importantly, unless there is a sound theoretical conceptual model that places the context of facilities management in business clearly, it would be difficult to address the demand-supply imbalance. The inclusion of basic economic concepts provides a robust basis for clearly establishing the relationships between the business and its market; the business and the facility; and the facility and facility services.

2 CIB World Building Congress The proposed model takes account of how a facility can contribute to maximising the wealth and value of a business (including shareholders wealth) through the tangible and intangible benefits that it can be derived through effective facilities management. KEYWORDS: Facilities Management, Resource Consumption Model, FM Training 1. INTRODUCTION To express in 2005 the notion that facilities management is an evolving discipline (Committee on Business Strategies for Public Capital Investment, National Research Council. 2004) is quite extraordinary, given that this discipline has seemingly been continually evolving since the early 1980s. This would seem to imply that facilities management is still struggling to establish an identity and relevance amongst broader management disciplines. This paper argues that facilities management, in fact, remains entrenched in technical management. Its focus is not on business management but, predominantly on matters in operational management relating to maintenance, leasing, engineering services, design, fit-out and refurbishment, and construction - to name a few facilities supply management services. In essence, the business management dimension is weak or missing entirely. Most practice models of facilities management are internalised operational models with the concept of customer simply being the internal or external facilities management services client. In an effort to raise the central importance of the basic economics principles of demand and supply in facility-related decisions, a postgraduate module entitled Economics for Facility Management was introduced as part of a graduate programme in Facility Management at the Hong Kong Polytechnic University. The core philosophy of the module, first introduced in semester one of academic year , is to clearly illustrate the economic relationships between business demands, facility supply and associated facility services through the use of a Facilities Management Business Resource Consumption Model. This paper supports the view that the business-facility relationship is the current missing dimension in facilities management practice and training. Some suggested elements of the business-facility relationship will be discussed to elaborate on the key business management dimensions that facility managers must understand to be able to demonstrate the true value add that a business strategy can realise from more efficient and effective utility of its facility and facility services through closer alignment to meeting business needs.

3 602 CIB World Building Congress FACILITIES MANAGEMENT AND THE BUSINESS Numerous articles and papers have advocated that businesses need to embrace facilities management to integrate facilities considerations into corporate decision-making and strategic planning processes (Mount, 1990; Nourse & Roulac, 1993; Klein, 2003; Then, 2003; Osgood, 2004). In part there has been a focus by businesses on facilities management, but more in terms of outsourcing of the relevant facilities services functions. The downsizing epidemic commenced in the early 1990s, sparked by a view that cutting costs to improve the market s perception of the business value and to be able to better compete with other businesses would provide immediate results to the bottom line. It could be argued that this downsizing epidemic reinforced the need for facility managers to fully understand the business dimensions driving these decisions. It also needs to be remembered that the generally unstructured downsizing of businesses also brought with it a significant loss of corporate knowledge and this contributed to it being regarded as the most pervasive yet unsuccessful change effort in the business world (Then & McEwan, 2004) However, these business dimensions remain the arena of the boardroom, the Executive Management Team and the Chief Executive Officer rather than the traditional backroom arena of the facility manager. This is where the challenge still remains for facilities management to be seen as a value-adding function to a business. It is the management dimension of facilities management that remains, arguably, undeveloped. In the main, the facility-facility services relationship is well understood by facility engineers/technicians, however the business-facility relationship which requires management knowledge and skills is poorly developed. The nature of why business decisions are being made, how do costs relating to the management of the facility impact on the operating performance of the business, what are the drivers causing these costs and what costs did a facility manager have the ability to either control or influence to achieve greater efficiencies are all important questions for the facility manager to understand and answer. These are business management questions, not technical facility services questions. It is in understanding and answering these questions that a facility manager will be able to demonstrate their strategic value to the business Business Performance and Facilities Management The key business driver, or primary goal or objective of a business, is to maximise the wealth or value of the business. This also relates to shareholder wealth. In simplistic terms, facility services costs are always referred to as an expense to the business. There is no revenue directly flowing into the business from internal facility service support functions. This is, however, a very superficial and one dimensional view that negates

4 CIB World Building Congress and undervalues the real role of facilities management in a business management context. The facility manager must operate at three levels: 1. the strategic level; 2. the tactical level; and 3. the operational level. Generally the facility manager may be trapped into operating only at the operational level, whether by choice, organisational culture, reacting to business demands or combinations of these factors. This is fundamentally driven by the view expressed above that facility costs are seen as operating expenses and these operating expenses place pressure on the overall bottom line performance of the business. However, at a strategic level, if the facility manager is able to understand and interpret financial statements, is able to engage in dialog with the Chief Finance Officer, is able to understand the notion of the time value of money and return on investment, and financial and economic evaluation methodologies for facility-related projects; this will present greater opportunities to develop strategies that not only focus on short term cost efficiencies measures but also on long term initiatives that demonstrate value for money and return on investment to the business. It is here that the need to understand the business-facility relationship starts to emerge as a key element of the management dimension of facilities management that is currently undeveloped or under developed. While there are a number of recent texts and publications (e.g. Cotts & Rondeau, 2004) focusing on budgeting, financial management and accounting terms and concepts for the facility technician to learn, there has not been an overarching model or concept that places these aspects of business management into a facilities management context. There is no argument that being able to intelligently discuss elements of financial management and accounting with key executive managers provides the facility manager with an opportunity to demonstrate a broader knowledge base than the technical facility services function, but the credibility of discussing some quite basic terms and concepts with qualified accountants and business managers is questionable. A facility technician with some knowledge of accounting and financial management terms and concepts does not fill the full management dimension gap for the facility technician to be regarded as a facility manager. Facility managers must be able to influence and reshape the thinking of business leaders on the crucial supporting role of the facility manager in interpreting and defining facility demands, provision of appropriate facilities and delivery of facilities services. This is reflected in current trend and call for the development of integrated facilities management and services delivery by service providers in the property and facilities management market. (Chase, 2006, Jenkinson, 2006)

5 604 CIB World Building Congress 2007 The concept of integrated resources management encompassing the management of human resource, technology and property/facilities as a holistic process with a business focus has also be advocated in recent years. (Jorroff, M.,et al 1993, Nutt,2000,Then, 1999, 2004, CoreNet Global, 2004) 2. THE FACILITIES MANAGEMENT RESOURCE CONSUMPTION CONCEPTUAL MODEL As described above, the facility-facility services relationship is well understood by facility technicians, but the business-facility relationship requires business management knowledge and skills. Simply understanding some financial management and accounting terms and concepts does not fill that knowledge and skills gap. Most importantly, unless there is a sound theoretical conceptual model that places the business and facilities management context clearly, it would be difficult to ever fill this management knowledge and skills gap. In order to establish what these relationships mean in a business management context, there is a need to use some financial management concepts. However these alone do not clearly establish these relationships. The addition on economic concepts provides the basis for clearly establishing the relationships between the business and its market; the business and the facility; and the facility and its services. The experience and results of the delivery of the postgraduate module of Economics for Facilities Management over the last five academic years have provided the authors with clear evidence of the need for such training.

6 CIB World Building Congress The Business-Facility & Facility-FM Goods & Services Relationships. Market Demand Supply Management e.g procurement and supply chain optimisation Supply of space and function Supply of goods and services Business Return (ROI) Costs (Invest) Facility Value (Quality) Costs (Procure) FM Goods and Services Demand for operating capacity and capability Demand for Goods and Services Demand Management e.g. minimise operating and occupancy costs l< Alignment > l < Rate of Asset Consumption >l McEwan & Then, 2004, Rev2007 Figure 1.1 A Facilities Management Resource Consumption Model Figure 1.1 proposed a Resource Consumption Model that places the business context of Supply and Demand Management at the heart of understanding the economics of facilities management. The model illustrates the context and relationship between business and facilities needs, and between a functional facility and its required services. Thus the model consists of two key relationships: 1. The Business Facility Relationship; and 2. The Facility Facility Services Relationship It is important to stress the demand-supply cycle between each of three components (i.e, Business - Facility FM Goods & Services). It is the demand for operating capacity and capability that leads to the supply of space and function. Correspondingly, it is as a result of the utilisation of the facility by the business that generated the demand for goods and services within the functional facility, which leads to their supply. In term of business resource management the focus of Demand Management is to minimise operating and occupancy costs, while the focus of Supply Management is effective procurement and supply chain optimisation.

7 606 CIB World Building Congress 2007 Business - Facility Relationship Table 1.1 Business-Facility Relationships Business - Facility Financial Performance Relationship Demand Supply Business Cost Business Benefit Operating capability and capacity Space and function Financial Cost (Investments) Strategic Facility Planning Return on Investment Table 1.1 above outlines the Business - Facility Relationships element of the model. The main focus of this relationship from a business management viewpoint is the strategic alignment of resources (including facilities) to achieve the objectives of the prevailing business strategy/plan. In essence, it is the alignment of facility requirements to business needs (through strategic facility planning) as reflected by the Cost-Return Loop between Business and Facility in figure 1.1 above. Table 1.2 Facility-Facility Services Relationships. Facility - Facility Services Relationship Business - Facility Services Financial Performance Relationship Demand Supply Business Cost Business Benefit Goods and Services Goods and Services Financial Cost (Delivery costs in providing facilities & services) Asset Management & Maintenance and Service Delivery Value for Money (Quality of facilities & services received) Table 1.2 above outlines the Facility Facility Goods & Services Relationships element of the model. The focus of this relationship is the rate of asset consumption which is directly related to the quality of asset management and maintenance, and service delivery. This relationship is reflected by the Cost-Value Loop between Facility and FM Goods and Services in figure 1.1 above. These tables also illustrate the relationship of these elements to overall business performance. 2.2 The Demand-Supply Relationships Further to the above higher level relationships, there are particular demand and supply attributes that form part of these two distinct elements of the model that are integral to the business contextual concept that the model postulates. These can be grouped into external and internal to the business attributes relating to these elements.

8 CIB World Building Congress It is argued at this point that traditionally, as suggested previously, the focus on facilities management has been internalised, which contributes to the management dimension of facilities management remaining, arguably, undeveloped. These are outlined in the tables 1.3 and 1.4 below. Table 1.3 Externally driven (market related/business demand) attributes to support maximising the wealth or value of the business (including shareholder wealth) Demand for Capability and Capacity (Externally-driven business performance requirements) Revenue generation (market demand / market share) Customer loyalty Strength of Brand/Reputation Adaptability Regulatory compliance Corporate social responsibility Supply of Space and Function (Facility response) Overall performance of facility Quality (aesthetic and physical) and reliability of facility Business relationship to customers facility relationship to brand and reputation e.g. quality, reliability, performance Responding to changes in market demand Litigation and public vilification avoidance Environmental management Table 1.3 illustrates the demand and supply interfaces between the Business and Facility elements. The left-hand column of the table lists the market-driven business drivers under Demand for Capability and Capacity. The right-hand column of the table lists the corresponding facility responses under Supply of Space and Function. Table 1.4 Internally driven (productivity/business supply) attributes to support maximising the wealth or value of the business (including shareholder wealth) Demand for Capability and Capacity (Internally-driven business performance requirements) Output generation Business process efficiency Enabling Technologies Structural efficiency Risk management effectiveness Operating efficiency Sustainable development effectiveness Supply of Space and Function (Facility response) Quality of facility, quality of working environment Quality of facility, function of facility State of the art, efficient, modern Facility flexibility for corporate restructuring (e.g. minimise churn) Compliant facility Quality of facility design and management-in-use Quality of facility strategies to manage or reduce economic, social and environmental impacts

9 608 CIB World Building Congress 2007 Table 1.4 illustrates the demand and supply interfaces between the Business and Facility elements, but from an FM organisational (i.e. internal) viewpoint. The left-hand column of the table lists the internallydriven FM focuses that are required to response to the business drivers under Demand for Capability and Capacity. The right-hand column of the table lists the corresponding outcome deliverables that are required as part of facility responses under Supply of Space and Function. Table 1.5: Internally driven (facility supply) attributes to support maximising the wealth or value of the business (including shareholder wealth) Demand for Goods and Services (Internally-driven business performance requirements) Maximise facility value (as assets) Optimise LCC (Asset Management) Facility Sustainability Facilities Management Support Services Ecologically sustainable facility Service Reliability and Consistency Supply of Goods and Services (Facility response) Return on Investment Value for Money (in asset ownership / utilisation) Return on Investment and Value for Money FM knowledge (intangible value) Increased market share and profitability (intangible value) Customer Service Evaluations Table 1.5 illustrates the demand and supply interfaces between the Facility and FM Goods and Services elements. As mentioned above, this is essentially the domain of operational facility management where the facility technicians or engineers prevailed with a preoccupation on driving efficiencies rather than overall effectiveness. The attributes listed in the table suggests that the focus of attention of a facility manager is considerably wider that just process efficiencies. In order to support maximising the wealth or value of the business, the effective management of the Facility FM Goods and Services interface must embrace appropriate asset management and service delivery competencies. The above model therefore, takes into account how a facility can contribute to maximising the wealth and value of a business (including shareholder wealth) through the tangible and intangible benefits that it can derive through prudent facilities management. 3. IMPLICATIONS ON FACILITIES MANAGEMENT TRAINING The Facility Management Resource Consumption Model provides the contextual setting within which facilities management sits in the market environment. The proposed model clearly defines the underlying business demand for facility and services and how facilities management, as a

10 CIB World Building Congress function, role or discipline, must response (not merely react) to cater for continuous business needs. Understanding and applying the concepts outlined in this model will enable facilities management to be regarded as a true management disciple that is able to significantly contribute to improving the performance of a business. However this can only be achieved through a major shift in mindset from being a facility technician/engineer to a real facility manager through active application of business management knowledge and skills. The realisation of this goal will require a comprehensive understanding of the business that facilities management is to support in a dynamic environment. Only with such an enhanced view of facilities management, the various facilities management functions can be analysed having regard to their respective relationships to the economic consumption model illustrated above in Figure 1.1. More importantly, only with such an approach can facility managers identify where there maybe gaps in terms of adding value to the overall performance of the business. The Facilities Management Resource Consumption Model formed the basis of the design and subsequent introduction of a new module of the Graduate Programme in Facility Management at the Hong Kong Polytechnic University. This compulsory Facility Management core compulsory module has been delivered at least once each academic year since its introduction in September 2003 to good review and feedback from students. 4. CONCLUSION This paper has provided a conceptual model which underpins the development and delivery of a postgraduate subject in Facilities Management. The objective is to share the experience of the development and implementation of the model in a teaching and training environment in a discipline which, hitherto, has been largely practice-driven rather than theory-driven. The proposed FM Resource Consumption Model emphasises the centrality of the bedrock theory of demand and supply in aligning supporting resources to the fulfilment of business objectives. While the facility manager may not be on the Board of Management of a business, there are significant opportunities available to be able to shape and influence the way in which facilities and facilities management services can directly support and contribute to maximising the wealth and value of a business (including shareholder wealth). However, this can only be achieved when a broader business context within which facilities management operates is clearly understood by facilities management practitioners. This is not simply about learning some financial management and accounting terms and concepts. The real value add lies in understanding the overall nature of the business and its

11 610 CIB World Building Congress 2007 business dimensions/attributes and how the business must response and behave to sustain itself in a dynamic and competitive market place. 5. REFERENCES Committee on Business Strategies for Public Capital Investment, National Research Council. Investments in Federal Facilities: Asset Management Strategies for the 21st Century, 2004, p32 Cotts, D, and Rondeau, E. P., 2004, The Facility Manager's Guide to Finance and Budgeting. (New York, Amacom) Chase, E., Integrated Services - The Future of FM? i-fm Feature, (accessed 4 Jan 2007) Corenet Global, 2004, Corporate Real Estate Integrated Resource & Infrastructure Solutions. CoRE 2010 reports. Jenkinson, T, Central Europe demand for integrated FM soaring. (accessed 4 Jan 2007) Jenkinson, T, Integrated FM market growing strongly in US.. (accessed 4 Jan 2007) Jorroff, M., Louargand, M.,Lambert, and S., Becker, F., 1993, Strategic Management of the Fifth Resource: Corporate Real Estate. The Industrial Development Research Council, U.S.A. Klein, R.A., 2003, Strategic facilities planning: Keeping an eye on the long view. Journal of Facilities Management,2, (4), Mount, S.K., 1990, Strategic Facilities Planning as a Component of the Business Plan. Industrial Development, August Nutt, B., 2000, Four competing futures for facility management. Facilities, 18 (3/4), Nourse, H. O. and Roulac, S. E., Linking Real Estate Decisions to Corporate Strategy. The Journal of Real Estate Research. 8, (4), Osgood, Jr. R.T., 2004, Translating organisational strategy into real estate action: The strategy alignment model. Journal of Corporate Real Estate, 6, (2), Then, D., 1999, An integrated resource management view of facilities management. Facilities.12/13, Then, D. 2003, Integrated Resources Management Structure for Facilities Provision and Management. ASCE Journal of Performance of Constructed Facilities - 17, (1), Then, D., 2004, Concepts in Facilities Management. Chapter in Architect s Handbook of Construction Project Management. Editors: Murray, M. and

12 CIB World Building Congress Langford. D., (RIBA Enterprises. ISBN: ). Then, S. S. and McEwan, A, 2004, Capturing knowledge from facilities management practices Issues and Possibilities. In Proceeding of CIBW Hong Kong Symposium, Human Elements in Facilities Management Understanding the needs of our customers. Hong Kong, (CIB Publication 287), edited by Then, D., Jones, K., & Hinks, J.,