Using a balanced scorecard to help measure facilities management performance

Transcription

1 KPMG International Shared Services and Outsourcing Advisory Using a balanced scorecard to help measure facilities management performance by Doug Burr, Director, KPMG Advisory Services For nearly 20 years, leading organizations have been using balanced scorecards to strategically measure the financial and non-financial performance of different operational functions within their firms. More recently, they have begun leveraging them to measure the performance of their third-party service providers. In the facilities management (FM) function, use of a balanced scorecard enables companies to evaluate the performance of their external providers against multiple criteria (see Figure 1), help set alignment and focus, identify improvement opportunities, enhance performance reporting, and conduct constructive discussions with their FM providers. Sample balanced scorecard (1 best, 5 worst) Evaluation Criteria Weight Evaluation Comments Score Cost 35 Costs were slightly under budget 2 Customer Satisfaction 20 Score based on customer satisfaction survey Service Delivery 20 All SLA requirements were met 1 EHS Performance 10 There were a couple of safety incidents in the cafeteria Compliance 10 No fines or violations 3 Innovation/Continuous Improvement 5 No initiatives were implemented Weighted Score 2.25 Note: Evaluation criteria and weights are for illustrative purposes only 2 4 Figure 1 In a sense, the balance scorecard process for FM service providers should be similar to the way in which individual performance is handled expectations are set, measures to evaluate performance are established, performance is monitored and discussed throughout the year, corrective measures are implemented, and performance is formally documented. Just as organizations want their employees to achieve the highest level of performance, they should want the same from their FM service providers. Although there is no set format for balanced scorecards, and they vary from company to company, Figure 1 demonstrates elements many organizations include in those for their FM service providers: Evaluation criteria areas measured (e.g., cost, customer satisfaction, service delivery, safety performance) Weight placed on each criterion (i.e., different % for each criterion, totaling 100%) Evaluation comments favorable as well as areas for improvement Evaluation score (e.g., 1-5 scale) for each criterion and a total weighted score. 1 Shared Services and Outsourcing Advisory / August 2012

2 When to use a balanced scorecard A balanced scorecard should be prepared for each FM service provider only when it makes good business sense to do so, e.g., when the amount of FM spend is significant, services are frequently performed, or when the provider works on-site full-time. The balanced scorecard approach works extremely well for companies that operate under an integrated facilities management (IFM) wherein some FM services are selfperformed by one service provider while others are handled by firms with which it has partnered, all in an integrated manner model because of the multiple service lines and the breadth of the provider s responsibilities. But it is also very valuable for firms that do not operate under an IFM model. To view year-on-year balanced scorecard trends and determine if performance is improving or not, organizations often use graphics (see Figure 2). Sample score graph Evaluation criteria the basics Figure 2 The evaluation criteria on the balanced scorecard should be tailored for each category (e.g., cost, customer satisfaction, service delivery, etc.) as well each major service line (e.g., janitorial services, food services, maintenance, etc.) and the weight should vary to reflect the importance of each criterion to the organization. Firms typically establish scoring definitions and the means by which the scores will be calculated to minimize subjectivity and provide clarity on how performance will be measured. While some organizations use highly detailed scorecards to thoroughly evaluate each criterion, the right level of detail for any given firm is dependent on multiple variables including that there is a credible and easy process by which to obtain the necessary information. Specific evaluation criteria Cost While all firms track actual costs, they should also evaluate cost performance at a more detailed level with weights and scoring definitions assigned to each sub-category to ensure cost-effective service delivery. Figure 3 on the next page is an example of a balanced scorecard for cost. Many organizations find it useful to assess costs not only in aggregate, as in the above example, but also by type of expense. This enables them to zoom in on specific expenses such as maintenance or energy/utilities, and have meaningful discussions with their providers about whether their expectations are being met. Customer satisfaction Measuring the satisfaction level of those receiving FM services is another critical part of the process. Organizations should use a variety of methods to obtain input directly from their internal customers, including periodic surveys (e.g., annual/ semi-annual/upon completion of a service), online or paper suggestion boxes, administrative assistant feedback sessions and # of complaints received. A detailed scorecard, similar to the one in the cost category, should be established to measure customer satisfaction. All of these are excellent ways to hear the voice of the customer and identify areas for improvement. Yet care should be taken to develop and administer surveys that capture relevant information without being a burden to, and that feedback sessions do not keep participants away from their jobs for too long. Service delivery Proper operational performance is ensured only when providers meet or surpass firms service delivery expectations. Thus, organizations should implement a detailed scorecard to assess service delivery performance for each service line. For example, in the maintenance category, the detailed scorecard may look like the example in Figure 4 on the next page and Figure 5 shows an example of a detailed scorecard for food services. Similar to the scorecard examples, organizations should establish detailed scorecards for their other outsourced service lines, such as janitorial services, call center and mailroom. 2 Shared Services and Outsourcing Advisory / August 2012

3 Example scorecard for cost (1 best, 5 worst) Actual versus Budget 70 Actual versus Forecast 15 Actual versus same period last year Costs on a unit basis (e.g., per square foot or employee) Costs versus industry benchmarks % under budget 100% accuracy Greater than 10% Reduction 10% better than under budget On budget 99% accuracy 98% accuracy Reduction better than Same On Over budget by less than 95-97% accuracy Higher costs by less than Over by less than Over budget 5 % Less than 9 accuracy Higher costs Over 5 % 5 1st Quartile 2nd Quartile Median 3rd Quartile 4th Quartile Example scorecard for maintenence (1 best, 5 worst) Time to work orders response time 30 Work orders d 30 2 faster 110% of 0-2 faster On time 0-2 slower % greater than 100% of 90-99% of Work order backlog 15 No Backlog X# X# X# X# Operational reliability () Data integrity % Data 100% % Data 95-99% Example scorecard for food services (1 best, 5 worst) % Data % Data 85-89% Food quality/price 30 Exceptional Good Average Marginal Poor Food selection 15 Exceptional Good Average Marginal Poor Figure 3 2 slower Less than 90% of Less than 98% Data less than 8 accurate and Participations rates 15 Above % 41-49% Below 40% Professionalism of staff 10 Exceptional Good Average Marginal Poor Cleanliness of operations 10 Exceptional Good Average Marginal Poor Food subsidy 15 No subsidy X$ X$ X$ X$ Waste 5 Figure 4 Figure 5 3 Shared Services and Outsourcing Advisory / August 2012

4 Environmental, health and safety (EHS) performance Proper measurement of FM service provider performance must take into account injury to people or harm to the environment. Some firms argue that EHS performance is the service provider s issue, and thus do not track it. But it is difficult to maintain that position when an incident occurs, especially when liabilities occur or the event becomes public, resulting in damage to their organization s image. FM service providers should have programs in place to avoid harm to people, property and the environment. Examples of evaluation criteria for this category in the balanced scorecard include: OSHA recordable incident rate OSHA lost time incident rate # of incidents Completion of incident investigations, including root cause analysis and implementation of corrective measures EHS assessment/audit results Waste /recycled Conservation improvements (e.g., energy, water) CO2 footprint Compliance An area often overlooked when measuring FM service provider performance is compliance with laws and regulations, and with internal policies and industry standards. Examples of evaluation criteria that should be included in the balanced scorecard for this category include, fines, violations, regulatory inspection results, assessment/audit results, compliance with internal policies and industry standards, and peer review results. Innovation/continuous improvement With this category, organizations send a clear message that status quo is not acceptable and that their FM service providers need to be more than body shops. It measures the providers performance in driving innovation and continuous improvement to reduce costs and improve operational efficiency. The balanced scorecard should include evaluation criteria such as # of new ideas, leading practices and thought leadership introduced, # of initiatives in pipeline and implemented, cost savings, and process, technology and operational efficiency improvements. For all the above criteria, organization should prepare a detailed scorecard and feed the results into the overall balanced scorecard. Conclusion A balanced scorecard enables organizations to perform a comprehensive assessment of their FM service providers performance. As this article examined only several examples of evaluation criteria that should be included in, and only one type of format for, a balanced scorecard, firms should use the concepts discussed herein as a starting point but not be constrained by them. Organizations should develop a balanced scorecard that is tailored to the needs of their business, and periodically change it as their needs change. For example, it is not essential that the balanced scorecard use weighted averages, but it is useful to assign weights when the different evaluation criteria are not of equal importance. Or, a company may want to call out the implementation of a new information system separately on the balanced scorecard but remove it once the project is d. Similarly, if it wants to closely monitor an IFM service provider s sourcing activities (e.g., reduce the number of vendors, leverage spend, reduce costs, improve diversity spend, etc.), it may want to have sourcing as a separate line item on the scorecard. Firms often benefit from developing the balanced scorecard in partnership with their FM service provider, which enables incorporation of their ideas. This is especially helpful in both achieving their buy-in and understanding what they believe has worked or has not worked on other accounts, such as format, content, process, etc. If done right, using a balanced scorecard can improve organizations ability to monitor their FM service providers performance and drive positive changes. Those already using a balanced scorecard will be well-served by looking for ways to improve it and its supporting processes. And those not yet using a balanced scorecard should strongly consider doing so. KPMG has helped a wide range of clients: Develop balanced scorecards tailored to their needs Define balances scorecard responsibilities/process Establish SLAs and KPIs Define governance and vendor management structure Identify data and reporting requirements Obtain benchmark data and identify leading practices Evaluate FM service provider performance 4 Shared Services and Outsourcing Advisory / August 2012

5 Learn more For related articles and research from KPMG, please visit our Shared Services and Outsourcing Institute: kpmginstitutes.com/shared-servicesoutsourcing-institute. Contact Us Douglas S. Burr Director KPMG s Shared Services and Outsourcing Advisory T: E: dburr@kpmg.com For country, industry and service-specific contacts, please visit: Global/en/Pages/contactus.aspx KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks of KPMG International. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. August 2012