WORKSHOP & NETWORKING EVENTNovember 12, 2018 - Dammam, KSA

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Value Added of Professional, Comprehensive Facility Management (especially for public facilities, including hospitals)

Peter PrischlManaging Director – Drees & Sommer International

„Value Added“ and „added value“ are practically the same,but let us stick to „Value Added“ as the technical term for the economic concept„Value Added“ or „added value“ - difference

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„Value Added“ Technical term for the economic concept

„… added value …“ Colloquial term, such as in „he really added value to our football team“

Value Added is – in the end – defined by the buyer / consumerValue Added - definition

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Value Added =

Price – Cost

Output – Input .

Value of the Output(s) – value of the Input(s) .

Value Added is the value by which the Output exceeds the Input (for producing a service)

Example: Value Added calculation

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CLIENT gets full FM Services for an office site with 400 workplaces, pays SAR 2.500 per workplace / month..

SERVICE PROVIDER OUTPUT (Income): 400 x 2.500 …. 1.000 TSAR (One million SAR)----------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------

SERVICE PROVIDER INPUT (Costs): – Subcontractors ………………........... 300

– Consumable materials …….......... 60

– Own direct personnel ……..………. 400

– Selling, General & Admin. Costs . 160(incl. Depreciation)

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- --------------

SERVICE PROVIDER‘S VALUE ADDED 80 TSAR

?

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1. What are your three biggest challenges to produce Value Added in Facility Management right now?

2. What would help you most to reach these Values Added in Real Estate and Facility Management in 2019?

What is „professional, comprehensive Facility Management“ (FM)?ISO 41000 Facility Management Standard: Definition

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“Facility Management is the organizational function which integrates people, place and process

within the built environment with the purpose of improving the quality of life of people

and the productivity of the core business.”

Facility Management has two fundamental aspects:

Space and infrastructure

People and organisation

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Let us start on the strategic level: With these ten Real Estate & Facility Management strategies you create a coherent Value Added in response to strategic challenges:

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0 % 100 %

IMPORTANCE

Stimulate innovation

Increase flexibility (of the corporation)

Reduce real estate and workplace cost

Optimise financial structure

Contribute to sustainability

Increase real estate value

Control risks

Support culture and corporate branding

Increase employee engagement

Increase productivity

Definitions / Explanations:Ten Real Estate & Facility Management (CREFM) strategies / 1

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▪ Increase flexibility- Physical / spatial / technical flexibility – adaptability of building constructions / technical / workplace infrastructure- Functional / organisational flexibility – adaptability of buildings, workspaces and functions to changing demands- Legal / financial flexibility – adaptability to corporate financial demands regarding capital employed – disposability

▪ Increase productivity- Healthy work environment, inducing minimal absence due to (physical and mental) health reasons- Supportive work environment, which minimises hindrances and enables optimal employee output

▪ Reduce real estate and workplace cost- Optimise fixed cost i.e. investment in buildings/facilities(keep in mind that rent is also a compensation for capital employed, same goes for financial leasing)

- Optimise variable i.e. ongoing costs

▪ Stimulate innovation- Stimulate individual and collective creativity- Enable explicit and implicit knowledge and idea sharing

▪ Control risks- Assess risks associated with all elements of real estate and facilities – technical, functional, developmental, operational, location, compliance, etc.- Manage risk portofolio for optimal probability/impact results and costs (financial and non-financial)

Ten Real Estate & Facility Management (CREFM) strategies / 2

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▪ Increase employee engagement- Design and operate to meet work environment requirements and needs of employees, resulting in positive attitudes and emotions- Relate such a positive emotional state to involvement and input in individual and group work

▪ Contribute to sustainabilityRegarding building and facility design, construction and operation – protect, conserve and restore –- natural environment- natural resources- human (long-term) holistic health and well-being- material goods

▪ Optimise financial structure- Assist finance function in employing capital according to corporate policies (which may change), involving outright ownership, leasing (according tonational and international financial standards and requirements) or rent

▪ Support culture and corporate branding- Use, where appropriate, corporate real estate and facility design to support employee behavior / corporate culture- Employ real estate design to influence and affirm the image of the organisation aligned with the corporate brand

▪ Increase real estate value- For owned real estate – locate, design and operate it with an optimal balance sheet valuation and an eventual optimal sales price in mind

Seven universal principles for sucessful Facility ManagementFM principles (GEFMA) 1/2

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1. Customer / Service OrientationThe Facility Manager and his internal and/or external Coworkers have a clear Service Provider self-concept and maintaina principled service culture. They know and understand the requirements of their customers and they strive to fulfill orsurpass these.

2. Process OrientiationThe FM Service Providers plan and control their processes. Responsibility for resource provision and for work executionand supervision always lie in one hand.

3. Product (Result) OrientationThe customer (User / Contract Partner) judges sucess of the Facility Management unit by its results and leaves theService Providers as much room as possible in applying their Facility Processes.

We should actually look beyond „Result“ to Outcome = which benefits have the users and stakeholdersreceived

Seven universal principles for sucessful Facility ManagementFM principles (GEFMA) 2/2

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4. Life Cycle OrientationFacility Management spans the whole life cycle of facilities. The causalities among the facilities‘ life cycle phases arerecognized and considered in planning to optimize the sustainable succes of the business.

5. Holistic approachServices within a Facility Management system are planned and controlled with their interdependencies in a way whichsecures a total optimum for the customer and not a suboptimum for one area at the cost of others.

6. Market OrientationThere are clear customer-vendor relationships on the basis of Service Level Agreements (SLA) and invoicing, also forrelationships within one company.

7. PartnershipTreating each other as partners facilitates the smooth deployment of Facility Management‘s support processesinterwoven with the User‘s core processes.

3 key drivers of productivity in the workplace – according to 200 CRE managers

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Results

86% 85%

50%

42%

19%

11%6% 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Appropriate toolsand technology

Leadership anddirection

Flexibleworkspace that

enablescollaboration and

focus

Project and skill-set alignment

Financialincentives

Employeeamenities -

cafeteria, fitnesscenter, incentive

programs

Negativerepercussions,

fear of failure, jobinsecurity

Other, pleasespecify

17%

22%

28%

55%

62%

82%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Other, please specify

Recordable instances

Work order completion

FM performance to budget

Project scheduling and budget accuracy

Total cost of occupancy

49%

51%

Yes No

Do organizations link core business productivity measures with Real Estate/Facility Management performance measures? – HOW?

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Results

Which CREFM performance drivers are key? Which levers work best?

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▪ Increase value of assets

Real Estate Strategies

▪ Obtain current valuations of facilities/ Select suitable locations▪ Manage risk associated with properties▪ Make lease/purchase decision on a facility by facility basis▪ Redevelop obsolete properties

▪ Select locations that attract customers/ Provide space that attracts employees▪ Make symbolic statement through design and location▪ Create workplaces that support the environment and workers▪ Provide environment that supports productivity

▪ Develop usability of the workplaces▪ Design facilities that allow innovative processes▪ Emphasize knowledge work settings▪ Allow users to participate in design phase

▪ Seek locations convenient to employees/ Provide pleasant working environment▪ Provide functional workplace▪ Provide desired amenities▪ Respond quickly to real estate requests

▪ Maintain facilities to accommodate optimal operations▪ Provide environment that enhances productivity▪ Choose convenient layouts and locations for providers▪ Design facilities that improve the creation and delivery of products▪ Choose convenient locations for employees in separate buildings

▪ Choose leasing instead of owning/ Negotiate short - term leases▪ Create flexible workplace solutions▪ Favour multiple use facilities▪ Select serviced offices

▪ Minimize acquisition and financing costs/ Minimize operating expenses▪ Create economies of scale in acquisitions/ Use workplaces more efficiently▪ Conduct routine maintenance▪ Balance between outsourced and in-house services▪ Act as a control mechanism/ Utilize government incentives▪ Establish workplace standards

Productivitygrowth

Revenuegrowth

Core business

performance

Real estate performance drivers Real estate performance levers

▪ Reduce environmental impact

▪ Increase innovations

▪ Increase employee satisfaction

▪ Increase productivity

▪ Increase flexibility

▪ Reduce Cost

Ca. 50 proven REFM-related cost levers are availableCost (and waste!) reducing levers

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28 Capacity evaluation

29. Level of administrative tasks

30. Reduction of duplication of

work

31. Definition of interfaces

32. Evaluation of service scope

33. Evaluation of competencies

34. Identification of process

breaks

35. Defined responsibilities

36. Management mechanisms

37. Reporting

38. Internal Benchmarking

39. Reduction of repeated

process steps; short decision

making processes

40. IT-costs

• Consideration of all real estate costs

• Comprehensive cost-reduction by reviewing more than

50 leverages per property

• Individual appraisal with regard to potentials and

feasibility

• Identification of Quick Wins

Cost Levers

1. Standardization

Service Levels

2. Reduction Service Levels

3. Price negotiations

4. New tender offers

5. Service provider bundling

6. Introduction of standardized

contracts

7. Outsourcing

8. Management of service

providers

9. Bonus/ Malus- systems for

external mngt,

10. Quality inspection and defining

Malus-regulations

11. Renegotiation

12. Effective maintenance strategy

13. Consumption management

14. Retrofitting of the property

15. Costs of utilities

16. Bundling of purchases

17. Form of contract

18. Lease term/ Extension

19. Reduction of the rent

20. Additional services

21. Space optimization

22. Relocation

23. Rate of internal services

24. Fixtures

25. Rent-free periods

26. Space reduction

27. Evaluation rent vs. ownership

FM-Costs Utilities Rental costs Organizational costs

Appraisal leverages

41. Portfolio adjustments

42. Space optimization

43. Sale/ relocation

44. Extension

45. Ownership vs. rents

46. Off-Balance -strategies

47. Optimization of financing

48. Tax optimization

Costs of equity capital

44%

30%

13%

11%

1% 1%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

10% 20% 30% Less than 5% 40% Over 40%

More than two thirds of FMs estimate workplace productivity improvement potential between 10 and 20%

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Benchmark vs. actual analysis led to savings against benchmarkActual example, German global company

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Building Electrical Systems

General Building Maintenance/Repair

CleaningServices General

Achieved Savings

1.6

1.4

3.5

2011 actual spend(Baseline)

8.0

1.7

2.2

4.1

-1.4

(-18%)6.6

Savings validation

The estimated saving are calculated and validated against site benchmarks

Savings through CREM initiatives total up to 8-14% of opexActual example, industrial client with 120 sites in Europe

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Value Delivery Typical Value Delivery Curve

▪ Highest savings in Year 1: 10% - 12%

▪ Additional savings of 2% year 2 and 3

▪ Contract duration: 3 + 1 + 1

506.821

589.327

20142013

11.787

(2%)

2012

11.787

(2%)

2011

58.933

(10%)

2010

FM + E&S spend, Baseline 2009

If there is one thing you should focus on when you want to improve Value Added –which is it?

workplace

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The five stages of Real Estate & Facility Management (REFM) maturity

The Massachusetts Institute of Technology model for Real Estate & Facility Management

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• BUs as process driver

• RE costs absorbed as corporate G&A

• Reactive

• Traditional cost control standards

• BUs pay depreciation

• Reactive

• Cost and usage standards

• BUs pay (opportunity)

• Proactive

• Benchmarking

• Outsourcing alliance

• RE becomes profit center

• BUs pay market rent

• CREM

• Anticipating and measuring business trends

• Business strategy drives RE decision

• Serving stakeholders

• BUs must justify market rentsCaretaker

Controller

Dealmaker

Entrepreneur

Business strategists

Technical Analytic Problem solving Business planning Strategic

Market orientation

Engineering buildings Minimizing building cost Standardizing building usage

Matching market options

Integrated market orientation

Hospitals are leaving Value Added on the table –by overemphasizing self-delivery in Facility management

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Study of more than 100 German hospitals shows: Outsourcing is neglectedboth for operations and maintenance

Single Facility Service Tendering is still the prevailing method in hospitals

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The Value Added principleis ignored in Hospital FM

In soft services, outsourcing is common – but still for single services – no Value Added

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Reinigung (innen/außen) und Wäscherei – Fremdvergaben weitestgehend

umgesetzt! Potenzial für die weiteren Leistungsbereiche bei 30-50%!

Heterogener Modell-Mix – Einzelvergabe nach wie vor noch weit verbreitet

Motives for Outsourcing: Flexibility strongest

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Biggest risk seen in Outsourcing: 1. Hyginie 2. Utilities supply 3. Facility availability

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Outsourcing risk – hyginie

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Eintrittswahrscheinlichkeit und Auswirkungen bei einer

„Servicegesellschaft“ am geringsten!

Outsourcing risk – facility availability

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Eintrittswahrscheinlichkeit und Auswirkungen bei einer „Servicegesellschaft“ und „Gesamtvergabe“

am geringsten!

Relations between operator model risks and degree of outsoucing

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Risk assessment of Total Outsoucing and captive FM company

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Operator model risk overview

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Risk valuation of abstract operator models vs. actual in-house situation „incongruent“

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Ergebnis der Risikobewertung der Betreibermodelle und Status-Quo nicht

kongruent! Realität vs. Vision?!

Counclusion and outlook for CREFM in hospitals

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▪ Single Facility Service tenders are still the dominating model in hospitals

▪ Risk potenzial of a given operator model reduces with -

• Increased bundling of Facility Services

• Increased influence of the hospital management on the operator

• Decreasing number of Facility Service providers

▪ Cost pressure vs. Risk potential?

▪ Single service tender vs. …. No, not total FM provider, but Facility Service company!

▪ Short-sighted cost thinking vs. Value Added management!

So why is nothing chaningin practice?

The ROI model co-developed by Peter Prischl measures speed and Economic Value Added (EVA) of improvement actions within the Facility Management function

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Legend:

4. Vacancy17. Real Estate Portfolio Management7. Transparency (Cost, clarity,

visualisation)15. Transaction support: More speed,

more detail, less uncertainty, higher attractiveness

10. Service desk2. Cleaning3. Efficiency (room booking)12. Contract management1. Maintenance (Condition, reasons,

spare parts)8. Moves11. Security and Access Management6. Standardisation13.Procurement and outsourcing16. Energy management

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BACKUP

Context of the Organization

• External & Internal Issues

• Interested Party Requirements

• Establish Scope

• Document Scope

• FM Management System

Leadership

• Leadership & Commitment

• Establish FM Policy

• Communicate FM Policy

• Relevant Roles

• Responsibility & Authority

Support

• ID & Secure Resources

• Source & Monitor

• Competencies

• Awareness

• Communications

• Information Required

Performance Evaluation

• Scope of Monitoring

• Monitoring Means & Methods

• Documented Results

• Evaluate Performance

• Performance Audits

• Top Management Review

• Communicate / Act on Results

Planning

• Risks & Opportunities

• Plan / Address Risks

• Requirements of Stakeholders

• FM Objectives

• Implementation Plan

• Planning Horizons

Operation

• Processes

• Change Control

• Control Processes

• Customer Relationships

• Integrate Service Delivery

Improvement

• Nonconformity

• Corrective Actions

• Proactive Measures

• Gap Analysis

• Continually ImproveSource: ISO TC 267

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The typical projekt-scope – What is often our task in the project?(Excerpt)

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Optimisation of Rental Contracts− Reviewing lease contracts / break options− Ownership vs. Rental− Standardisation of rental contracts− Continuous lease management− Reduce vacancies

Project management− Execute projects within budget frame− Construction projects/Manage acquisition and sale− Integration of Knowhow during the planning

Avoiding risks− Define and assign operator responsibilities− Meet production requirements− Central safety and fire protection regulations− Supervision of insurances

Defining portfolio strategy− Linkage to core business requirements− Portfolio adjustment / off balance strategies− Sales & Relocation− Optimize sites− Optimization of financing

Optimisation of FM-Costs− Define standards− Control of qualities and maintenance− Reduce costs by benchmarking

Maintenance− Managing maintenance backlog− Preventive Maintenance− Reactive Maintenance − Introduction of standards

Define Service provider strategy − Define in-house service depth− Bundle/tender of service providers− Standardisation/optimisation of contractual design− Reviewing and renegotiation of existing contracts− Service Provider management and controlling

Consumption − Energy Saving Measures− SLA / KPI definition− Strengthening cost awareness (user)− Introduction of standards (security, cleaning, etc.)− Control of qualities and maintenance

Reduction of Costs Optimisation of Assets

Purchasing Production FM/RE … Production Plots Buildings …

1

2

3

4

1

2

3

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Moderator: Mr. Peter Prischl - Managing Director, Drees & Sommer International

• Eng. Sultan Alkhuraissi – General Manager for Operations & Maintenance, Royal Commission in Jubail

• Mr. Ali Manajem – Performance Improvement Consultant, Saudi Aramco

• Eng. Naif Al-Trad – Executive Director Hospital Operations, King Fahad Specialist Hospital

• Dr. Abdulaziz Saud Almohassen – Assistant Professor (Building Engineering Dept.), Imam Abdulrahman Bin Faisal University

• Eng. Mohammed Salim Patel – Facility Management Director, Tadbeir Real Estate Company

PANEL DISCUSSION

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