WORKSHOP & NETWORKING EVENT

December 9, 20182:30pm – 6pm

Dubai Chamber of Commerce

Sponsored By

SUCCESS FACTORS IN THE FACILITY MANAGEMENT INDUSTRY GROWTH

Peter PrischlManaging Director – Drees & Sommer International

Facility Management, as an economic activity, can be viewed on level of …

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… Economic sector - all external and internal companies and departments

… Industry - all companies selling FM to others

… Individual business / enterprise - within the FM industry

… also: FM department - the „organizational function“ of Facility Management –a profit center within a company

Facility Management is the fourth largest economic sector in developed EU economies –more important than construction, automotive or pharma industry!

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What is „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

6

?

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1. Why should the Facility Management economic sector(= both internal and external) grow?

2. Why should the Facility Management industry(external FM companies) grow?

Let us start on the strategic level: With these ten Real Estate & Facility Management strategies FM can 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

The five stages of Real Estate & Facility Management (REFM) maturity: Position your company:

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

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.

What is the best size for a Facility Management Service Provider company?

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Small

Medium

Large

Mid-size FM Service Providers are special – how „mid-size“ do you have to be?

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FM service customers seem to reward mid-size Service Providers because of –

• big enough for professional management systems

• written process definitions in operations manuals etc

• Professionally educated site managers

• Digitized service processes -> IWMS (Integrated Workplace Management Systems) / CAFM (Computer Aided Facility Management Systems)

• Just two relevant management layers ( = quick decisions, communications, learning):

• Top Management

• Site management

• Big enough for professionally trained technicians – in MEP, HVAC, Energy, Hygiene, Security, Safety, Environment, Nutrition

Is there any hope for small FM companies?Yes – disruptive business ideas to grow past established competitors

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„Disruption“

concept by Clayton Christensen, Harvard Business School – often misunderstood

Disruptive

E.g. a company enters a market with a niche product/service, or a new delivery channel, noone realizes it can make established firms obsolete

Example:

Fruit basket service

Flower service:

Not so good, can probably be matched more easily by an established competitor (more easy to deliver)

When you want to improve your FM company‘s position in the market, focus on one thing:

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WorkplacePractical example:

NOT „we manage 600.000 square meters“

BUT „we manage 50.000 workplaces“

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

Flexible workspacethat enables

collaboration andfocus

Project and skill-setalignment

Financial incentives Employee amenities- 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

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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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

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

For an economic-sector-wide standardization, a life cycle process system is a good basisReal Estate & Facility Management Process Model (acc. to GEFMA 100-2)

International REC concept | Peter Prischl 18-04-1924 Real estate life cycle

Real Estate & Facility Management

Conception Planning Construction Marketing ProcurementOccupancy & Operations

Renovation & Rebuilding

Vacancy Disposal

Facility Operations Management

Workplace provision

Building operations

Facility supply and waste disposal

Cleaning and care

Security and Safety

Property / lease / tenant

administration

Support services asrequired by users

Projekte durchführen

Constrcution projectmanagement

Planning and design basics determination

Planning and design

Construction / Fit-out tender

Construction delivery

Construction performancesupervision

VacancyManagement

DisposalManagement

Building dismantling/ demolition

Building wastedisposal

Residual materialsrecycling / disposal

Real Estate purchasing

Building / Facility leasing for own use

Building / Facility renting for own use

Real Estate selling

Real Estate leasing

Real Estate / spacerenting out

Construction projectmanagement

Construction delivery

Construction performancesupervision

Construction projectmanagement

Building planning and design

Construction supervision tender /

contracting

Construction projectmanagement

Project development

Land acquisition

Planning and design basics determination

Architectural / General Contractor

competition

What should an FM company always offer as standard services?(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

4

The ROI model (co-developed by Peter Prischl) allows an FM company to offerfully customized services, in alignment with the customer

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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

attractiveness10. 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

What has our clients‘ attention? What do they need to deal with?

▪ Workplace – as a key to the Future Of Work

▪ Overcoming the incredible slowness of real estate (construction) processes

▪ Workplace and built environment adaptation to changing corporate goals

▪ „Change Excellence“ – in our own consulting processes and management, and instilling it in ourcustomers

▪ Full sustainability

(Cost reduction is a normal everyday activity – nothing to get excited about …..)

What is a business model?

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In 1990‘s, primarily seen in context of technology / deregulation / Web

A bit like a cooking recipe (it also does not tell you if customers actually like it)

A business model shows value only in interaction with customers and competitors

Peter Drucker: A business model is the answer to these questions:Who is your customer, what does the customer value,and how does your enterprise deliver value at an appropriate cost?

A business model should contain four elements:

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• Customer value proposition

• Profit formula

• Key resources

• Key processes

(Source: Christensen)

Powerful business models –

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• Create virtuous cycles which, through repetition, create competitive advantage –

• either in isolation from

• or in interaction with competitors

• Create „customer stickiness“ (not the same as „loyalty“)

• Embed your service into the customer‘s service

• have a revenue model which makes absolutely clear

• WHO pays

• for WHAT

• and HOW

for every value consumption in your provider organization.

Our „North Star“ for successful Real Estate & Facility Management business:

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Peter Drucker:

„The purpose of a business isto create a customer.“

PANEL DISCUSSION

Moderator: Mr. Ali AlSuwaidi – MEFMA Vice President

• Ali Hassan Harmoodi – General Manager, Etisalat FM

• Mohammad Abdulkarim Khamis – General Manager, Emirates FM

• Peter Prischl – Managing Director, Drees & Sommer International

• Suhas Inamdar – Head of Technical Support & Planning, Wasl Properties