Real Property Asset Management Planning
What private industry can learn from government.
By Ray Summerell
How does your company’s real property portfolio
affect your business financial goals — and what’s
the best way of accounting for your real property
to understand its role in your company’s balance
sheet?
The federal government is wrestling with those questions
right now and there are emerging best practices that
can benefit your organization.
Many of you are dealing with the ramifications of
The Sarbanes-Oxley Act. Your government counterparts
are responding to federal legislation and regulations
(such as OMB Circular A-123, Executive Order 13327
and General Accounting Service Board Statement 34)
that are closely scrutinizing full disclosure and
inventory of assets — including real property.
A popular misconception about this recent spate
of rules and regulations is that they address real
property as a management issue. Hardly. In fact they
address financial accountability as a management issue,
and approach it from real property first – because
that is typically the second largest budget line item
for any service-oriented business (second only to
human resources).
For government agencies, solutions lie in developing
and implementing Asset Management Plans that tie real
property to business objectives, presented in a financial
framework for more accurate decision making, tactical
action and reporting.
The same is true with private industry. Sarbanes-Oxley
requires a full and accurate disclosure of assets
and their values (and transactions), with repeatable
controls and procedures to demonstrate that accuracy
over time. Even privately-held companies are beginning
to follow the guidelines set by this legislation.
This article presents a government-derived and perfected
four-phase methodology for a management strategy that
translates facilities and infrastructure plans and
operations into predictable and optimal cash flows.
How Real Property Affects Business Success
Experienced executives understand that business success
requires full financial accountability, as well as
the skillful interplay of mission and business strategies,
financial tracking, and real property portfolio management.
Business and mission strategies are fed by solid
auditable costs and investment management, along with
an optimized facilities and infrastructure portfolio.
Those three objectives, however, cannot be attained
without the sharing of data, optimized for the particular
business in question.
The development and maintenance of shared, optimized
data is the product of the interplay of three categories
of business functions. Business metrics and economic
analysis are supported by financial executives. Real
property executives are responsible for the operations
of the real property portfolio; additionally, they
track asset utilization and maintain the data that
arises from such tracking.
Finally, Chief Information Officers or other IT
professionals ensure the integration and management
of this optimized data. They create or validate data
systems that comply with existing technology standards
and that can accommodate data migration or interoperability
requirements (see diagram).
Unfortunately, there are no commercial off-the-shelf
tool sets that look across this range of management
functions at a strategic level to identify trends
that support the integration of information across
business functions.
The inter-relationship of data on that level requires
the adoption of a methodology for real property asset
management. That means considering business strategy
requirements as well as the real property assets that
an organization maintains to support those business
strategies.
A Cyclic Methodology for Asset Management
The methodology described in the following section
provides a general way of looking at the problem of
real property asset management. It is comprised of
four phases:
- Capacity Analysis
- Mission Value Analysis
- Scenario Analysis, and
- Execution & Tracking
In Capacity Analysis, an organization takes inventory
of all real property and its condition and determines
the accuracy of data. You thereby gain an understanding
of whether you have the capacity to accomplish all
of your business, mission or operational objectives.
The Mission Value Analysis phase addresses how an
organization’s overall asset portfolio capacity
contributes to fulfilling an organization’s
business or mission. It includes understanding the
long-term durability and value of real property assets
to the organization over time.
In Scenario Analysis, “what-if” scenarios
are applied to those aspects of capacity with true
mission value. For example, given that it may be possible
to reduce real property holdings without compromising
future functions, what specific types of changes can
be made throughout all real property holdings that
are the most cost-effective?
Execution involves development of applications to
support management of excess property disposal; monitoring
the proper execution of all programs related to the
initiative; creating an audit trail of implementation
activity; and tracking current and previous activity
against changing requirements.
It is important to note that continually evolving
legislative and regulatory requirements will create
new performance measurements for organizations. This
may – and likely will – necessitate a
revised Capacity Analysis, and the cycle begins again.
More on Capacity Analysis
A key aspect of Capacity Analysis is a comparison
of various facility locations, to develop strategies
for optimizing real property use, operational cash
flows and return on investment. Data-related functions
appropriately handled in Capacity Analysis (as well
as, secondarily, in Mission Value Analysis and Scenario
Analysis) include:
- Inventory Validation,
- Utilization Profiling, and
- Organization (Demographic) Assessments
In Inventory Validation, reviews of on-site or of-record
data sources validate accuracy and proper identification
of facilities by type. Spot checks assess the reliability
of inventory source data for use in resource justification
and budget formulation.
Utilization Profiling consists of assessments of
current inventory utilization, as compared to facilities
space criteria or performance metrics. Shortages,
underutilized, or vacant facilities must be accounted
for and reported on—preferably by type and function.
The outcome of this profiling is often a set of recommendations
for transitioning to more efficient usage profiles.
In Organizational Assessments, populations, missions,
and functions are compared against space utilization
criteria and performance metrics to determine whether
the real property inventory is adequate to support
the organization. Here’s where you’ll
begin to create strategies for distribution of populations
among various locations based on real property inventories.
Don’t forget to perform Condition Assessments
in this analysis. Observe and record the general condition
of facilities, and make sure to highlight conditions
that are below acceptable standards. If you group
together like-type facilities, you’ll get an
overall location assessment by facility type, and
can compare facility conditions between locations.
This will make clear how to properly budget and invest
in construction, maintenance and repair programs.
More on Scenario Analysis
Scenario Analysis gives you greater insight into
both near term and sustained operating costs associated
with facilities that support important missions. This
helps with planning for adaptive reuse of facilities
or disposal of excess assets.
Functions appropriately handled in Scenario Analysis
(as well as, secondarily, in Mission Value Analysis)
include:
- Plant or Facility Replacement Planning,
- Real Property Utilization Strategies, and
- Construction, Maintenance and Repair Assessments
Plant or Facility Replacement Planning uses information
from existing real property records, condition assessments,
facility utilization standards, metrics, and related
data to generate costs and timelines for replacement
of various facility types by location. This type of
planning exercise results in strategies and capital
investment alternatives for construction, maintenance,
and repair.
Real Property Utilization Strategies combine information
gathered from inventory and population validation,
with applied standards and metrics to generate facilities
life-cycle cost estimates for various facilities and
locations. The result is the development of best value
strategies, expected annual savings and costs, and
alternative utilization (or disposal) of facilities
you may no longer need.
Construction, Maintenance and Repair Assessments
involve assembly, analysis, development, and justification
of requirements for new construction, maintenance,
and repair of real property and infrastructure. These
assessments must compare programs across several locations
to determine optimum utilization of scarce resources.
The result of this effort is the development of performance
and budget metrics for allocation and distribution
of resources.
Conclusion
If you’re not looking at how your real property
ties to your company’s overall financial position,
you’re not being fully accountable—a huge
risk in today’s legislative environment.
By examining business and mission requirements,
creating auditable cost and investment management
strategies, and optimizing facilities and infrastructure
portfolios, any organization can realize sustainable
success in real property asset management.
Most organizations undertaking such analysis see
real gains in reduced operating costs and managed
value. These benefits enable companies to make better
informed decisions related to business and mission
strategies.
And that has real bottom-line implications for your
business.
Ray Summerell is VP of Corporate Development for
VISTA. He can be reached by phone at 703-561-4064, or
by email at ray.summerell@vistatsi.com.
