Control through order and structure
Operational Performance Measurement in Facilities Management
Introduction
This article is concerned with approaches to operational performance measurement in facilities management. In a subsequent article I hope to consider approaches to strategic performance measurement in facilities management.
Facilities management can be considered to be about providing the right facilities and services, of the right quality, at the right time, and at the right cost to support an organisation to carry out its core business or purpose. There is no easy way to answer the question, what is ‘right’, as there are numerous variables to consider related both to the priorities of the organisation and to the business environment in which it is operating, and ultimately it comes down to a matter of judgement rather than the application of any absolute science. The answer will vary from one organisation to another, and from one time to another for the same organisation. This is the concern of strategic facilities management.
However, at the more operational end of the discipline the way to measure these parameters is less variable and easier to determine. In outsourced arrangements, usually the services, quality, and cost will be already defined in the contracts, and in many cases the timing of service delivery will also be defined. In theory if the ‘right’ services, quality, and timing have been specified, and the cost is acceptable, then the services should appropriately support the core activities of the organisation. What then remains is to measure whether what has been determined is actually being delivered, so that service delivery can be managed to be in line with this determination.
In addition to the above, another ingredient is needed to make service provision effective at the operational level. That is communication between the recipients of the services and the service providers. This includes both the ease of making service requests on the part of the recipients and the feedback concerning service delivery on the part of the service providers. Communication is a major part of the transactional context in which services are delivered and received. It is the lubricant that enables the other elements to work effectively.
So to facilitate effective service delivery management at an operational level, presuming that the services have been appropriately specified, the parameters that need to be measured are:
Service quality;
Timeliness of service delivery;
Cost of service;
Ease and adequacy of communication between the parties.
Failure to adequately measure any of these parameters could result in less than fully effective service delivery management.
Measuring Service Quality
Input and Output Measures
Service quality can be defined by either inputs or outputs. Traditionally it has been defined by inputs, as generally these are easier to specify. Examples of input definition include specifying how often cleaning routines should be performed in a space or at what frequency planned maintenance activities should be carried out. The presumption of input specifications is that if the inputs are adequate then the desired output should be achieved.
In more recent times there have been attempts to define service quality by the desired outputs. These are harder to define but have the advantage that they directly address what is desired from the service. Examples of output definition could include specifying that a room be substantially free of stains, dirt, dust, and debris, with only minor defects, or that equipment is maintained to meet all performance expectations, and operate within design parameters.
Since the outputs are the purpose of the service provision, ultimately it is these that need to be measured to determine the service quality, rather than the inputs. However, in some cases it is also necessary to measure inputs to verify that observed outputs are the result of service inputs and not just coincidental.
An example of measuring service inputs in conjunction with outputs, albeit a negative one, is measuring planned maintenance activities in addition to measuring equipment breakdowns, to determine if the breakdowns were due to lack of maintenance or were just unfortunate incidents. If planned maintenance activities are not performed and there is a breakdown, although that does not prove that the breakdown was due to the lack of maintenance, the lack of maintenance is a service failure that most likely contributed to the breakdown. Conversely if maintenance activities are performed as planned and there is no breakdown, strictly speaking that does not prove that breakdown was avoided by maintenance, but it is likely that it was, and the desired outcome has been achieved.
Performance Indicators
Desired service quality outputs can be measured by the use of indicators. These are statements of the desired result of the service, and are often expressed in terms of a negative condition that is to be avoided, e.g. no equipment failures due to lack of maintenance. These indicators are statements of the reasons for providing a service, and since generally the reasons for a service are the same regardless of where they are being delivered, performance indicators generally should be the same for any given service, regardless of facility or service level.
Whilst the reasons for a given service are the same, the consequences of service failure vary according to the context in which they are delivered. For example, one consequence of an unclean customer-facing area is that customers will get an unfavourable impression of the company, and may therefore be less inclined to do business with them. Whereas there is no such commercial consequence of having an unclean storage area which is never visited by customers. The consequences of a power failure in a data centre are that the data centre crashes with potentially large financial losses due to penalties or loss of business. Whereas the consequences of a power failure in a warehouse is usually just inconvenience with only a small cost impact.
The greater the consequence of service failure, the higher the level of service that is needed to reduce the risk of failure. Higher service levels require greater service inputs, either in terms of more tasks to be performed, or a higher frequency of performance, or both.
Examples of typical areas that performance indicators can address are:
Maintenance outputs
Reliability (things works when they are needed)
Environmental comfort (the building occupants are not too hot or too cold, etc.)
Statutory & warrantee compliance (everything is legal and warrantees are valid)
Energy efficiency (energy consumption is in line with normal expectations)
Operating life (assets are not failing before the end of their normal operating lives)
H&S (services are performed in a way that is safe both to operatives and occupants)
Standard of appearance (the visual appearance of assets is maintained to an appropriate standard)
Cleaning outputs
Cleanliness (areas are kept clean to an appropriate standard)
Availability of washroom consumables (soap, towels, etc. available when needed)
H&S (services are performed in a way that is safe both to operatives and occupants)
Security outputs
Building access control (unauthorised people do not get into the building/area)
Building monitoring (unauthorised/criminal activity or emergency incidents are not allowed to go unnoticed, by monitoring via CCTV, alarms, building patrols, etc.)
Incident response (unauthorised/criminal activity and emergency incidents are responded to in a timely and appropriate manner)
The list of services and items above is not definitive or exhaustive. It merely indicates the kind of things that should be considered when choosing performance indicators. The questions to ask are, why do we need this service, and what would be the consequences of not having the service (which also would be the consequences of a service failure). In this exercise negative questions are often more helpful than positive questions. The answers to these questions will lead to the performance indicator statements.
Measurement Methods
However just defining performance indicators is not enough. Without a way of determining whether these indicators are satisfied or not there is still no effective means of performance measurement. So a crucial consideration in choosing performance indicators is how it can be determined that the requirements of these indicators are being met.
This will be governed by the tools and other resources available. It will also be influenced by how and where the measurement is determined, e.g. whether performance indicators are assessed centrally (e.g. on a multi-site portfolio) or locally (e.g. on a single site contract). Central assessment must rely more on centrally available reports from e.g. helpdesk and maintenance management systems, etc., whereas direct observation can be employed more in local situations, avoiding the need for as many formal reports.
The real skill in designing an effective performance measurement regime is marrying appropriate performance indicators to the resources actual available to measure them, in a way that is both meaningful and practical. The right data must be available and the right reports designed to answer the questions posed by the performance indicators. If this is not done well, then the measurement regime will not adequately facilitate management of the services.
Direct and Indirect Measurement Methods
Service quality can be measured either directly or indirectly. Direct measurement is carried out by direct inspection of the space/items, e.g. inspecting an area/room for cleanliness. This need not be done only by the facilities management team (client or service provider or both) but can also be done by the customer (and e.g. captured via a customer satisfaction survey). Indirect measurement is carried out by inspecting the records generated in the process of service delivery, e.g. maintenance test and inspection reports, etc..
Direct measurement works better where inspection can be made non-invasively (e.g. inspecting the cleanliness of a room) and indirect measurement is more appropriate where inspection would require opening up or dismantling an item (e.g. inspecting whether a pump had been maintained). In the latter case a direct inspection would effectively be repeating the maintenance activity.
Direct inspection can be either formal and structured using a predefined inspection check list (paper or electronic) or informal and unstructured such as a general walk round to see if anything is amiss. Both have their place in establishing whether services are being delivered as expected. Whilst a structured inspection regime generates a formal structured record that enables comparison of service quality over time and also between sites, thereby facilitating trend monitoring and benchmarking, an informal walk round can be a quick and cost-effective way of “taking the temperature” of the service delivery to see if remedial action or further investigation is required. An effective measurement regime could be to use formal inspections at predetermined intervals, e.g. weekly or monthly, and informal walk rounds on an ad hoc basis or when a concern has been raised.
Service Levels
Service levels are defined in the service specifications or statement of works. Different areas or equipment may have different service levels. For example, customer-facing areas usually require a higher standard of cleanliness than back office areas, and critical equipment will require a more rigorous maintenance regime than non-critical equipment. As indicated in the previous section, these differences in service level are due to the different consequences of failure in different situations. These differences in service level need to be taken into account in the inspection regimes.
Inspection Responsibilities
To reduce bias or subjectivity, it is often desirable that inspections are carried out jointly between a client representative and a service provider facilities manager (FM). How often this is necessary depends on the criticality of the service, the practicality of doing so, and the degree of trust between the parties. For example, in small remote sites where there is no resident client representative or FM it may be necessary to rely more on customer feedback than on formal FM inspections. Where there is a high degree of trust between a client and service provider the client may decide to leave most inspections to the service provider, and monitor lightly through customer feedback and sample joint inspections on a rotational basis and/or irregular informal walk rounds.
Consequences of Service Failure
How formal and structured the measurement and inspection regime needs to be depends on the consequences of poor service quality to both the receiving organisation and the service providers. Where the services are more critical to the receiving organisation (i.e. the consequences of service failure are higher) the regime should be more rigorous and formal. Likewise, where there are tangible negative consequences to the service provider, e.g. where financial penalties for poor performance apply in the contract, the regime also should be more formal and inspection should involve a representative of the receiving organisation and be formally documented.
Measuring Timeliness of Service Delivery
Facilities services can be delivered either on a planned or a reactive basis. Examples of planned services include planned preventive maintenance (PPM), and cleaning at scheduled times each day/week, etc.. Examples of reactive services include breakdown repairs and response to customer requests for replenishing of supplies, adjusting environmental conditions, repairing defective items, etc. or for additional services.
Timeliness related to planned services is a matter of how much of the service is delivered to the planned schedule. Timeliness related to reactive services is a matter of time to respond to requests, both initially and then to complete the requested services.
Examples of timeliness performance indicators could include absolute statements like ‘all PPM delivered to plan’ for planned services, or ‘all non-urgent requests responded to in 3 working days’ for reactive services. Alternatively, allowable non-conformance could be quantified using statements such as ‘no more than 5% overdue PPM’ or ‘no more than 5% delinquent service requests’. The degree of allowable non-conformance should be determined by the criticality of the service, i.e. the magnitude of the consequence of service failure. The higher the criticality the lower the degree of non-conformance that should be allowed.
Regarding choice of timeliness performance indicators, the same comments apply as to those for service quality; i.e. they must take into account both the requirements of the service and the tools and resources available to measure compliance. They must also take into account the practicality and necessity of achieving the specified response times. For example, it is probably not practical or necessary for all requests to be responded to within say 15 minutes. A hierarchy of response times can be used to prioritise service requests. The performance indicators should take the different priorities into account.
One of the easiest ways to measure timeliness of service delivery is to use the work request management system where one exists. These can be used to monitor numbers of PPM tasks completed on time/late and also record and monitor response times for service requests. The fact that now most of these work in real time makes this much more convenient than it used to be.
Whilst it still depends on ensuring contractors and operatives record when they start and complete jobs, as this can now be done by a simple “click” on a handheld device at the time the event occurs, it is less onerous than it used to be. However, training and follow-up on contractors and operatives is still necessary to ensure complete and accurate measurement, thereby maintaining the integrity and credibility of the measurement system.
Measuring Cost of Service
Cost measurement is an extensive topic that cannot be covered adequately in one section of an article such as this. It is mentioned here in a brief way for the sake of recognising that it is an important aspect of facilities management. As far as this article is concerned, the point to note is that quality, timeliness, and communication need to be evaluated in the context of cost, and are constrained by the cost that an organisation can afford. There is always a quality/cost trade off.
Measuring costs goes beyond simply accounting for costs, which every organisation must do in one way of another through its accounting procedures. It also includes evaluating whether the costs are reasonable, both in terms of what the organisation can afford and in terms of value for money.
Comparing actual costs to budgeted costs is one way that costs can be related to the organisation’s ability or willingness to pay. Competitive tendering and market benchmarking are ways of evaluating value for money. Cost benchmarking against other properties of similar types is a way of identifying how costs compare with peer facilities.
It is beyond the scope of this article to describe these techniques or discuss their merits. Suffice to say here that each have their particular benefits and challenges. Performance measurement is not complete without some attempt to relate costs to the benefits received from facilities and services.
Measuring Ease and Adequacy of Communication
Communication can make a big difference to the customer experience in using facilities and receiving services. The ease with which customer requests can be made and the degree, timeliness, and informative quality of communication from the service providers are aspects of the service, in addition to the actual service tasks carried out. So it is important that this matter is not neglected when measuring service performance.
To work well communication must be tailored to the needs, circumstances, and even to some extent the preferences of the customers. In other words, it needs to be particular to the customers, or at least to a class of customer. The best way to determine whether this is happening is by asking the customers themselves if the communication is working well for them. Customer perception is as important as objective measurements in this matter.
Customer feedback can be solicited by a variety of means. Feedback can be requested after each interaction via an automated email, and/or customer satisfaction surveys can be conducted periodically. In addition to these more formal methods personal interaction is also important. Much insight into customer issues can be gained by talking to customers face to face. This insight cannot always be obtained via remote interaction such as emails and surveys. This insight can be used to improve the delivery of the services.
Conclusion
Service quality can be defined by inputs or outputs, but ultimately it is the outputs that need to be measured. Service quality, timeliness, and effectiveness of communication can all be assessed by using performance indicators, which are statements of the reasons for providing a service. However, these indicators must be matched by measures and means of measurement from which it can be determined whether or not they are being met.
The matching of meaningful performance indicators with measures and measurement methods that are practical and sustainable in the particular situation of the contract or service arrangement is the most important aspect of designing service performance measurement regimes. The choice of performance indicators and mix of measurement types should be determined by the criticality of the services, the practicalities of the situation, including the tools and other resources available, and a consideration of what is cost-effective.
Measurement can be direct or indirect, structured or unstructured, and be performed by FM staff (by client representatives alone, service provider managers alone, or jointly) or customers. A suitable mix of approaches needs to be determined based on the requirements of the situation, the consequences of service failure, and what is practical in the situation.
Concerning cost of services, there needs to be some evaluation of whether the costs are reasonable in terms of what the organisation can afford and in terms of value for money. Techniques for doing this include budgetary control, competitive tendering, market benchmarking, and benchmarking against peer facilities.
Concerning timeliness, services are either planned or reactive. Measurement is either by percentage of services delivered to plan or percentage of services delivered according to agreed response times. The same comments apply as to other measurement parameters in that performance indicators should take into account both the requirements of the services, the consequences of failure, and the resources available to measure compliance with them.
Concerning effectiveness of communication, customer feedback is crucial. The ease of making service requests and the appropriateness and adequacy of communication from the service providers ultimately has to be judged by the recipients of the services.
Designing and implementing an effective performance measurement regime requires careful consideration and judgement. It must take into account both the priorities of the client organisation and the practicalities of the situation. Whilst adopting existing successful regimes from other situations can be a good starting point, these have to be applied in a way that addresses the priorities and circumstances of the situation at hand. If they are applied without taking these into account, the measurement regime will not be effective.
Adequate resources need to be applied to ensure that what is implemented does address the particular priorities of the situation, and actually works in that situation and gives meaningful results that can be used to manage and improve the service delivery. These resources can either be obtained in-house where the appropriate skills are available, or bought in from professionals who are experienced in this field. But adequate time and resources must be employed if an effective performance measurement regime is to be achieved.
Strategic Performance Measurement in Facilities Management
Introduction
In my first article on operational performance measurement in Facilities Management I identified the four main parameters that require measurement at an operational level to ensure effective service delivery management, and explored how these could be measured. These are:
Service quality;
Timeliness of service delivery;
Cost of service;
Ease and adequacy of communication between the parties.
However, I also made the points that this presumed that the appropriate service selection, quality, timing, and cost had been specified, and that determining what was ‘right’, i.e. what most appropriately supports an organisation to conduct its core business, was not easy. This is because there are many variables to consider, including how the organisation defines its core business, what it sees as the factors critical to its success, what it considers its success criteria to be, and the business environment in which it is operating (both for its outputs and its inputs).
In this article I explore some ways in which this determination might be made.
Strategic Questions
This determination starts by asking a number of strategic questions related both to the business itself and to the facilities needed to support it. These strategic questions are:
Are the facilities in the right locations to enable the business activities (with respect to proximity to markets, proximity to physical resources, and proximity to human resources)?
Are the facilities and support services suitable and sufficient to enable business activities?
Is the cost of facilities and support services affordable for the business?
Is the risk of business interruption through facility failure or unavailability suitably controlled or mitigated?
Do the facilities contribute positively to worker productivity and motivation?
Are the facilities (and therefore the business) in the right locations?
In addition to service selection, quality, timing, and cost, another parameter comes into play at this level; location. This is related to proximity to markets, proximity to physical resources, and increasingly important in this era of the knowledge-worker, proximity to appropriate human resources (i.e. talent). So the first strategic question for both the business and the facilities relates to location.
At the time of the industrial revolution the dominant factor in determining the location of a business was usually proximity to physical resources. This was because the inputs for manufacturing industry (e.g. coal, iron ore, water, etc.) were mostly heavy and bulky, and therefore difficult and expensive to transport over the more primitive transport systems of the time. But human resources were flexible and could be brought to the places of extraction and manufacture; hence the migration of human populations from the countryside to industrial towns and cities at that time.
But today in the age of the knowledge economy, proximity to physical resources tends to be less important, either because products are smaller (e.g. electronic devices), and/or because manufacturing has been outsourced to lower-wage economies. Also improved means of transportation has reduced the costs of transport, making close proximity to physical resources less critical, although cost-effective access to these resources is still important for manufacturing businesses.
In these days of the knowledge economy human talent is often the critical differentiator. Proximity to a pool of creative human talent where new ideas are constantly being fermented through intellectual interaction can be now more important. Talented people are attracted to the places where likeminded able people are generating new ideas and creating exciting developments (e.g. silicon valley in California, Media City in Salford, Cambridge Business Park, etc.), and businesses want to tap into that talent pool.
This is somewhat a chicken and egg situation as the talent is there because businesses are there that give them the opportunity to exercise their talent; and because the talent is there businesses want to be there to access the talent. This is especially true in high tech industries and creative industries.
Concerning proximity to markets, although the internet economy has reduced the importance of location to some extent, it is still a factor to consider, especially in relation to delivery of goods and services. Access to good transport networks is important in this regard. But the ease and cost of delivery is more important than the physical distance to customers.
The question concerning location (or locations) is firstly a question for the business. The business itself (i.e. the business leadership) needs to decide where it needs to be in order to successfully conduct its business. All the factors discussed above are important to varying degrees, and a business judgement needs to be made between these sometimes competing factors as to where to best locate the business or component parts of it. This judgement will differ from business to business.
All this obviously has important implications for facilities; it may be that some legacy facilities are no longer in the best locations for the current or future business, and changing location may need to be considered. Additional facilities in new locations may also be needed, or some legacy facilities may need to close. This has implications for facility costs, which vary from location to location. Relocation and acquisition/set-up costs have to be taken into account as well.
Sometimes cost considerations will outweigh location considerations, and sometimes location considerations will outweigh cost considerations. But the strategic facilities manager or director needs to be aware of location considerations relevant to their business, and needs to be in dialogue with the leadership of the business concerning this fundamental matter. Good strategic performance related to the location of facilities is achieved if the facilities allow cost-effective access to all geographies that the business desires to operate in and to serve.
Therefore measurement of performance requires the articulation of clear geographical objectives/aspirations on the part of the business, against which the locational characteristics of the facilities can be compared. The locational characteristics include access to transport networks that link to desired markets for customers, human resources, and physical resources; the cost of acquiring and servicing facilities in that location; and the perceived desirability of the location by employees and potential employees (e.g. access to restaurants, shops, parks, entertainment venues, etc. in the immediate vicinity, and access to desirable and affordable housing with community facilities such as schools, etc. within reasonable commuting distance of the facility).
In assessing how well the location of current or potential facilities match the stated needs and desires of the business it is helpful to consider what alternative locations might meet those objectives, and to compare these to the current facilities, or those being considered, by applicable location characteristics. This will give a comparative assessment of locational performance that could inform moves or new facility location decisions where appropriate.
Are the facilities and support services suitable and sufficient?
Once the question of location has been addressed, the next question to ask concerns the selection and specification of facilities and services. What facilities and services does the business need to support its operations, and to what standard and level of service?
Consideration of this question needs to start with the business itself and not with the facilities and services. In other words it needs to start with questions concerning the business activities that need to be housed and the support they require, rather than jumping straight to assumptions on facilities and services. Once the activities and support have been identified then the appropriate facilities and services to house and support those activities can be considered.
In undertaking this consideration it is helpful to consider and evaluate and compare alternatives. An approach similar in principle to Value Engineering is helpful here. So for each facility being considered the following questions could be asked:
What type of space is it?
Why do we need it?
What is the benefit of having it?
What would be the consequences of not having it?
Could we manage without it?
Is it sufficient or insufficient?
Could we manage with less of it?
Do we need more of it?
What standard of fitments and decoration is required?
Is the standard sufficient?
Is a higher standard required?
Could a lower standard be tolerated?
For each service being considered the following questions could be asked:
What type of service is it?
Why do we need it?
What is the benefit of having it?
What would be the consequences of not having it?
Could we manage without it?
What service level is required?
Is the service level sufficient?
Is a higher service level required?
Could a lower service level be tolerated?
Since this is a strategic analysis the units of analysis should be high level, e.g. office space, manufacturing space, etc. and maintenance service, cleaning service, etc. rather than at a detailed level.
All the different facilities and services being considered can then be compared and ranked against each other using this analysis. This comparative assessment of suitability and sufficiency could be used to assess the relative suitability and sufficiency of the current facilities and services, and to consider possible alternatives.
Is the cost of facilities and support services affordable?
Related to the choice of appropriate service selection and specification, the another important question to ask is what cost/quality profile does the business need from its facilities. Does it need cheap facilities or high quality facilities?
Part of the art of facilities management is the balancing of the quality and quantity of facilities against the cost of facilities. If the quality and quantity are inadequate or insufficient business activities are impeded or interrupted; if the cost is too high profit is unnecessarily reduced. Where this balance should be struck needs to be informed by the business strategy.
Does the business seek competitive advantage through cost leadership or through differentiation? If it has a strategy of cost leadership then it probably needs cheaper facilities. If it has a differentiation strategy it may need higher quality facilities to support its operations.
Because the cost of facilities is an overhead that directly reduces profit there is always pressure to keep facilities’ costs down, but this is more critical to businesses that have a cost leadership strategy, where margins are small. However facilities cannot be so poor or insufficient that business activities are hampered. Conversely a differentiation strategy may be compromised if business outputs are impaired by inadequate or insufficient facilities. So in this case quality may be more important than cost minimisation.
Like location considerations the determination of the cost/quality profile needs to be made in consultation with the business leadership. They need to determine the acceptable level of overhead cost relative to business revenue and the standards of quality (expressed in tangible terms) required from facilities. Facilities management then needs to devise solutions that match those requirements, engaging in a dialogue with the leadership concerning where best to strike the balance between these two competing priorities.
Good strategic performance related to the cost of facilities and support services is achieved if the facilities and services adequately support business operations so that they achieve business objectives, and at the same time their costs are within the affordability criteria set by the business. This requires that support requirements and affordability criteria have been clearly defined, otherwise achievement cannot be measured.
Once all the above is defined, and provided the support requirements in terms of suitability and sufficiency are being met, it is easy to compare the actual cost of facilities and services to the affordability criteria expressed in financial terms to measure how well they perform in this regard.
Is the risk of business interruption through facility failure or unavailability suitably controlled or mitigated?
Risk management is a broad discipline that reaches well beyond the scope of facilities management. Strategic risk management for businesses should be linked to the key objectives of the business. These will include financial objectives, marketing objectives, product development objectives, etc.. Risks to achieving these objectives can include changes in economic or market conditions, supply chain problems, disruptive technological developments, catastrophic external events, etc.. Most of these are beyond the remit or influence of facilities management, although some can impact the facilities and delivery of support services.
Risks related to the management of facilities include risk of facility failure or unavailability, health and safety risks, legal compliance risks, and security risks, etc.. Most of these risks relate to operational activities rather than being of strategic significance. To be of strategic significance risks must relate directly to the achievement of key business objectives. Usually these will also have longer-term consequences.
It is useful to make a distinction between internal risks, i.e. risks arising from the facilities or services themselves, such as functional failure of facilities or service delivery failures, and external risks, i.e. risks from external forces or events that act upon the facilities or the business, such as flooding, threats or acts of terrorism, civil unrest, etc.. Although facilities management does need to deal with external risks, the consideration in this discourse is with just with internal risks.
To determine which facilities relate to the achievement of key business objectives it is helpful to map out the value chain of the business and superimpose the facilities that support each value-adding activity in that chain. Facilities that house and sustain primary activities will be more critical than those that house and sustain support activities. Again, this is an exercise that needs to start with the consideration of the business, and then consider the implications for facilities.
Good strategic performance related to risk management is achieved if facilities that support critical business functions are either suitably protected from failure or unavailability, or there are alternative facilities that can be deployed in a timely way if they do fail or become unavailable.
As with the quality and quantity of facilities and services, there is a trade-off between the comprehensiveness of the risk control/mitigation measures and their cost. Key risks should be controlled or mitigated at a cost commensurate with the value of business at risk and also within the affordability limits of the business.
So to measure the performance of strategic risk management two questions need to be asked. The first question relates to the effectiveness of the risk control/mitigation measure:– would the critical business activity being protected be able to continue in the event of the risk being realised? The second question relates to the cost of the risk control/mitigation measure:– is the cost of the measure commensurate with the value of the business being protected, and within the affordability limits of the business?
The answer to the first question needs to be yes, and the answer to the second question requires a comparison between the value being protected, the affordability limit set by the business, and the cost of the measure. The cost needs to be less than the value being protected and the affordability limit. As with cost of facilities and services the affordability limit needs to be clearly defined by the business for the measurement to be made.
Do the facilities contribute positively to worker productivity and motivation?
The effect of facilities on worker productivity and motivation, especially on those of knowledge workers, is not well understood. Although some assert that well designed facilities can enhance productivity and motivation it is hard to substantiate such claims. This is because these matters can be influenced by many things and it is hard to isolate the variables in order to measure the contribution, if any, that facilities make.
However it is easier to realise that poor facilities can contribute to lower productivity and motivation of workers. So the objective of the facilities manager in this context is to ensure that the facilities are not frustrating the productivity of workers or demotivating them, regardless of the effect of other factors operating in the situation.
But it is difficult to measure the effect of facilities on these intangible matters. In a manufacturing situation productivity can be measured by units produced per worker, but the output of knowledge workers is more difficult to quantify. Some aspects of their work has no physical output, e.g. meetings attended, phone calls made, etc., and even where there is tangible output, e.g. emails/letters written, reports produced, etc. it is hard to evaluate their worth. It is even harder to determine the value of ideas generated and knowledge created. So there is difficulty in measuring the productivity of knowledge workers.
Motivation, being a subjective matter, is impossible to measure objectively. Although observation of people’s behaviour may give some clues as to their level of motivation it can only really be assessed is by people self-reporting their feeling of motivation or demotivation. But some people are more naturally positive in their feelings towards things in general than others, and this will affect how they report their feelings about their work and their work place. The same is true for those who are naturally more negative in their feelings, whose self-reporting of feelings about their work and workplace will tend to be more negative than their more positive colleagues. So it is difficult to normalise self-reported feelings of motivation.
In addition motivation is affected by the whole experience of people in their daily lives, including what is happening at home, with their family and friends, in society generally (there may be a pandemic going on), as well as what is happening at work including their relationship with their boss, their colleagues, customers and suppliers, etc., in addition to the effect of the facilities. And it is difficult for people to separate out the effects of all these factors.
For all these reasons the measurement of the contribution of facilities to worker productivity and motivation is almost impossible with any degree of objectivity. The best that can be achieved is some form of self-reporting assessment gained from social science surveys such as the Leesman Index. This attempts to capture employees’ impressions on how well facilities enable their productivity, support their work activities, and impact the workplace culture, as well as record their level of satisfaction/dissatisfaction with the facilities.
This is subject to all the difficulties and limitations identified above, but currently it is the only kind of tool available. Whilst it is better than nothing, it is prudent to consider that of all the measurements discussed in this discourse it is the one that should carry the least weight in any assessment of strategic facilities performance, for all the reasons given above.
Conclusion
Whereas operational performance measurement focuses on facilities and services and how well they are being delivered, strategic performance measurement focuses on the needs and objectives of the business and how well they are being met. Operational performance measurement can be expressed in terms of performance indicators that are either met or not met, but strategic performance measurement is less deterministic and more judgemental. Judgements need to be made in a framework of structured thinking rather than against set criteria, and most of these judgments are business judgements rather than facilities management judgements.
These judgements are also mostly comparative in nature. Performance is expressed in terms of being better or worse than alternatives rather than in absolute terms, or measures are compared to arbitrary values determined by business judgements. In other words, this is more of an art than a science.
It could be argued that the term measurement is inappropriate in this context as this term implies quantification and not just comparison. However measurement is not entirely absent, as costs and opportunity costs are an essential part of the evaluation. Perhaps assessment and measurement might be a more complete description of the exercise.
Above all, strategic assessment and measurement of facilities performance cannot be considered just in terms of facilities and support services. It must be considered in terms of the business these facilities and services serve. And it requires an in-depth understanding of the critical success factors and key success criteria of the business, or at least a good dialogue with those who have that understanding. It is the bridge from operational facilities management to strategic business partner.
The Facilities Management Dilemma
Facilities have the twin status of being both fixed assets and overheads. As fixed assets they are not part of the revenue generation process (which involves the turnover of current assets), and as overheads they reduce operating profit. Both their value (in an historical cost sense) and their running costs can be determined by accountants. But their contribution to the revenue generating process is hard to quantify. So accountants can see how much they have cost the business and thereby reduced profit, but cannot see how much value they have contributed to the business. This is what I call the Facilities Management dilemma.
That facilities do contribute value to the revenue generating process is demonstrated by the fact that if facilities fail or become otherwise unavailable, these processes are hindered or interrupted. Facilities are necessary to keep the business running. The fact that they have the potential to reduce or stop revenue generating activities indicates that they are an essential ingredient to business operations.
But how much should a business spend on facilities? According to accountants the ideal amount is zero, because that would maximise profit. But even accountants realise that this is not possible in practice. Facilities are relatively expensive to provide. So how do we determine the optimum amount to spend on facilities, so as to deliver the most benefit for the least cost, if we cannot measure the benefit side of the equation?
There is no way to answer this question. The value added by facilities is gained not just from the facilities themselves but also from how they are used in the revenue generation processes. In other words the value is unlocked by the way people use the facilities to conduct business activities. Just as business activities are dependant on facilities, the use value of facilities is dependant on the business activities they support and is determined by the value of those activities, not by the cost of providing the facilities.
This value is totally wrapped up with and inseparable from the value of the business activities being supported. There is no way to isolate the value added by facilities in order to compare that to their costs. Optimisation of facilities is not only not possible, it is a false objective because the value drivers and cost drivers are not related or interdependent.
The business case for facilities expenditure must be made in the context of the business being supported; it cannot be determined in isolation from them. Two questions arise here: are the costs within the affordability constraints of the business strategy; and are the facilities suitable for the business activities and processes that they need to support? The cost of facilities still needs to be managed because the business strategy may not be viable if they cost too much, and facilities need to be capable of supporting both the business activities themselves and the people who are carrying out those activities, otherwise those activities will be hindered.
So it is not a choice between cost or value. Neither is it a matter of trading off cost against value. Cost and value are two separate parameters with separate objectives that both need to be managed and achieved simultaneously. This is the facilities management challenge and opportunity.
In the past mainly what has been managed is cost. Value has received little formal attention. But both need to receive equal attention. The good news is that they are not interdependent. Spending more on facilities does not necessarily deliver more value, but more value can be achieved without necessarily costing more.
Facilities managers need to be creative to find solutions that achieve both of these business objectives at the same time and without compromising each other. Neither cost management nor value management are sufficient in themselves. Value management needs more development, but cost management cannot be forgotten in the process. Facilities management needs to embrace both.
Language Lessons for Facilities Managers
Facilities managers need to learn to speak the language of business, and they also need to speak about things that are important to business. Otherwise business leaders will not take notice of what they say. In order to engage effectively with anyone you have to demonstrate that you know their world; and to gain and retain their attention you need to talk about things that are important to them. To demonstrate that you know their world you need to be able to speak their language.
The language of business is accountancy, and the things that are important to business are revenue and profit, cash, and value. (These are quantified by accountants in the profit and loss statement, cash flow statement, and balance sheet, respectively.) Facilities managers need to understand these things in the way accountants understand them, and they also need to understand and be able to articulate how facilities relate to them. Without being able to demonstrate this understanding and articulate their cause in these terms they will not be taken seriously by business leaders.
In accounting terms facilities are assets (unless they are rented, in which case they are a revenue cost), so they have value on the balance sheet. But accountants can only measure their value in terms of the cost to acquire them. Their balance sheet value is just a measure of that part of their cost that has not yet been assigned to an accounting period in the profit and loss statement.
Their actual value to the business (as opposed to their net book value) resides in how the business uses their facilities to generate revenue. Ultimately this value is included and measured in the revenue and profit the business makes, but it is not possible to separate out the contribution of facilities. So it is not possible to calculate the net contribution (value less cost) of facilities to the financial performance of the business.
But this does not mean that facilities do not contribute to financial performance; without facilities business activities cannot take place and there is therefore no financial performance. It just means it cannot be measured separately. So the cost of facilities, which can be measured, is often seen as merely an overhead cost that directly reduces profit for no apparent gain other than it allows the business to operate.
Unless facilities managers understand this dilemma they will not be able to articulate value propositions for facilities to business leaders and decision makers. The value is there, but it cannot be measured by the accountants. Not only does the value case need to be to articulated in other ways, but for this to be received facilities managers first need to demonstrate that they understand both business principles and why value cannot be quantified in the conventional accounting way.
This has implications for the education of facilities managers. They need a robust understanding of the concepts of accounting and its limitations, particularly in relations to facilities. They also need to understand the value drivers for facilities, to equip them to develop credible value propositions. One of the first items in the education of a facilities manager should be a good grounding in accounting and business concepts.
The first language of facilities managers should be the language of business, and whenever they speak to business leaders they need to speak in this language. Facilities managers need language lessons in accounting and business concepts. Only then will they be able to convince the C-suite of the value of their contribution.
How Can Facilities Management Be More Business-Focused?
To answer this question it is helpful to understand the role of facilities within the wealth creation process. Economists classify factors of economic production into primary factors and secondary factors. Primary factors provide services and are not consumed in the production process, so they endure over multiple production cycles. Secondary factors are consumed or become part of the product in the production process, so they do not endure beyond one production cycle. Examples of primary factors include manufacturing sites, factories, machines and equipment, human labour, and management. Examples of secondary inputs are seed for growing crops, raw materials for producing goods, energy for running machines, etc.. The wealth creation process transforms inputs of secondary factors into consumer goods and services (i.e. outputs) using primary factors.
Facilities clearly fall into the primary factor category, providing services but not being consumed or incorporated into the product during the production process. Management also comes under the same category for the same reasons. The significance of this is that they are only indirectly related to the creation of wealth as represented by the production of consumer goods and services. It is the secondary factors of production that are directly related to the creation of wealth because they are the direct inputs to the production of consumer goods and services.
Understanding the position of facilities and their relationship to the production of consumer goods and services is essential to understanding how facilities can be managed in a business-focused way. Facilities in a business context do not exist for their own sake; they exist to serve a business purpose. That purpose is to enable economic production. But facilities cannot drive economic production. Unlike with secondary factor inputs, increases of which increase production, increasing or improving facilities does not increase production, although that may allow increased production. But reduced performance of facilities can hinder or stop economic production.
The key point to understand from this is that increased input of facilities does not increase wealth creation. However reduced facilities performance can constrain it. Therefore a key responsibility of facilities management is to ensure that facilities are suitable and sufficient to support the wealth creation processes so that they do not constrain them, but that they are not overprovided. Therefore a business-focussed facilities manager should ideally seek to understand what type of facilities best suit his business and how much is required to allow it to function adequately, and try to align the facilities provision to those requirement as closely as practicable so as to avoid inappropriate or excessive provision of facilities that do not contribute to the wealth creation process.
However, the difficulty is that facilities are inflexible resources which are slow to acquire, change, and dispose of, but economic production levels change constantly, governed by changing market demand for consumer goods and services and availability of secondary factor resources. So if the space provision is tightly matched to requirements, that will constrain production if demand rises quickly and be wasteful if demand falls. This is not an easy problem to manage, especially if production levels are volatile. A judgement needs to be made as to the likely level of production going forward, and therefore a likely optimal level of space provision.
A possible way of facing this problem is to have different categories of space provision held on different lengths of tenures; long tenures (e.g. freehold or long lease) for base load production, and shorter tenures (e.g. medium or short term leases) that can be increased or reduced moderately quickly to accommodate variations in levels of production. Even so productions levels are still likely to change quicker than the space provision can be changed. This approach tends to be more viable for larger businesses with a larger portfolio of facilities.
Also, because facilities are only indirectly related to production, their costs are indirect costs. The nature of indirect costs is that because they are not related to production, they always reduce profit regardless of the volume of production. In contrast direct production costs are related to the volume of production. As output and sales increase, although production costs will increase as a consequence, profit will also increase. So an increase in production costs does not necessarily mean a decrease in profit. But increasing facilities, either qualitatively or quantitatively, not only does not increase value, it actually reduces value because it reduces profit.
The fact that facilities costs are indirect or overhead costs that always reduce profit is another strong reason why facilities should not be overprovided (after an allowance has been made to accommodate expected fluctuation in production). Business-focussed facilities managers will always subject their costs to challenge and seek ways to achieve the same performance at less cost. This has to be balanced, of course, by the need to ensure the facilities are still suitable and sufficient, so their costs cannot be reduced indefinity. But the contrasting responsibility to ensuring suitability and sufficiency is robust cost management. Effective cost management is therefore also always a key responsibility of facilities management.
To enable wealth creation facilities must be not only suitable and sufficient, but also available to support business operations. Unavailability of facilities, either through physical or mechanical failure of structures or equipment, destructive elements such as fire and flood, non-performance of services, external factors such as security incidents, power outages, etc., or other means may disable the wealth creation process by hindering or stopping business operations. Therefore another key responsibility of facilities management is to manage the risk of facilities unavailability.
But to manage risk in a business-focused way, not only the likelihood of the various threats and the nature of the failure and need to be considered, but the potential consequences to the business must also be taken into account. For example, not all power failures interrupt critical business operations, and those that do are more serious and costly than those that do not. The more business-critical the operation being supported the more justification for expenditure on risk management measures, and the less critical the operation the less justification.
If possible these business consequences should be quantified, or at the least estimated, for example, lost revenue per hour of business interruption. Then they can be set against the cost of the avoidance or mitigation measures. These costs, like all other facilities costs, are indirect costs that directly reduce profit. So they need to be subject to a robust cost-risk analysis to allow rational, business-based judgements to be made concerning the risk management activities to be undertaken and the acceptable level of their costs.
Concerning the affordability of facilities, regarding both the costs to provide and maintain them and the costs of risk management activities in relation to them, this needs to be determined by reference to the competitive strategy of the business. In general terms businesses compete either on the basis of lower cost or on the basis of differentiation. Those competing on the basis of lower cost have tighter affordability constraints for their facilities, and those competing on the basis of differentiation usually have greater support requirements, which may translate into greater performance requirements from their facilities. Therefore it is important for a business-focused facilities manager to know where the affordability constraints for facilities sit in his organisation, and if there are any business-critical support requirements required of his facilities. In other words he needs to understand the competitive strategy of his business and how the management of facilities relates to it.
So far in our consideration of business-focussed facilities management, through considering the place of facilities in the wealth creation process and the nature of their costs, we have established that the facilities manager needs to:
ensure the facilities provided appropriately and adequately support the business operations, without being overprovided;
ensure there is sufficient redundancy and/or flexibility in space provision to accommodate expected variances in production levels;
that the risks to business hinderance or interruption through facilities’ unavailability are suitably managed; and
that the costs of both providing facilities and manging risks are robustly managed so that profit is not reduced unnecessarily.
This requires the facilities manager to understand the facilities performance requirements needed by the business and the likely variations in space requirements, the business consequences of those performance requirements not being met, and the affordability constraints of the business.
However there is further value that can be realised from facilities beyond those listed above, if managed creatively. This is related to the effect facilities can have on people and their performance. This is especially relevant to labour-intensive (as opposed to capital-intensive) businesses; in other words to businesses that create wealth mainly through the effort of people, especially knowledge workers, rather than mainly through the work of machines. But even capital-intensive businesses employ some people, and the facilities that support their efforts can affect their performance.
These effects are both physical and psychological. The physical effects are how facilities can support people’s productivity. These include:
providing spaces to support individual work and collaborative work;
a comfortable, healthy physical environment in terms of temperature, light, fresh air, and noise;
ergonomic/comfortable equipment and furniture;
connectivity to enabling services such as electrical power, telecoms, and data services; and
access to welfare facilities to sustain human work activity.
The psychological effects are how facilities can influence people’s motivation to work. These include:
providing a pleasant visual environment, including pleasing aesthetics and outside awareness; and
providing an inspiring spacial/visual environment that complements the motivational efforts of management towards the workforce (or at lease avoiding a dismal and depressing environment).
So a business-focussed facilities manager will also try to ensure that facilities allow workers to be productive (rather than hindering them) and positively influence work motivation (rather than negatively influencing it). This is a significant challenge, the understanding of which is in a relatively early stage of development, but if successfully done can maximise the benefit to the business of facilities assets, and is a way to get the most out of the unavoidable overhead cost of facilities.
Facilities Managers Must Mind Their Own Business
In a previous article entitled The Facilities Management Dilemma I pointed out that although the cost of facilities can be determined, the value of their contribution to the revenue generating process is hard to quantity. I also pointed out that the value added by facilities is gained not just from the facilities themselves but also from how they are used. In other words the value is unlocked by the way people use the facilities to conduct business activities.
Just as business activities are dependant on facilities, the use value of facilities is dependant on the business activities they support and is determined by the value of those activities, not by the cost of providing the facilities. Since this is the case, it follows that facilities and their costs need to be considered in the light of the business operations they support, and in particular the value of those operations. In order to leverage the value of the investment made in facilities and the ongoing cost to maintain and run them, the starting place must be the value that can be generated by the business operations undertaken within and using those facilities.
Facilities should always be considered within the business case or business strategy of the organisation they serve. If by using certain facilities the business can generate sufficient revenue that, after the deduction of direct costs and the facilities overhead, a healthy margin remains, it is worthwhile to use those facilities. In some business situations the same facilities may be financially viable and in others they may not be; it is the business situation that determines the viability, not the facilities.
So the business case for facilities needs to be made within the business case for the business as a whole, and not in isolation. Therefore it is imperative for facilities managers to be cognizant of the business strategy, and the place of facilities within it, including the financial situation. They cannot add their full value without knowing how the cost of facilities fits into the financial performance of the business.
It also follows that financial performance can be optimised if the essential aspects of the facilities that actually enable and facilitate the revenue generating operations can be identified and maintained, and the costs of the redundant or non-essential aspects be eliminated or minimised. This may not be easy, but it is vitally important for facilities managers who desire to demonstrate higher value to the business. To do this they need to understand both the business strategy and the imperatives that flow from that, and the characteristics of the facilities they either have or are considering acquiring, and how these two intersect positively.
Lack of understanding of what aspects of the facilities are actually facilitating the business operations may allow indiscriminate overhead reduction that impairs the value of the facilities to the business, whilst possibly still retaining unnecessary cost related to redundant aspects. As indicated above, accountants can measure facilities’ costs but have no way to directly measure their use value. If facilities managers can learn to understand what aspects of their facilities add value to their business and what do not, they can begin to actually add value rather than just manage costs. But they need to be able to articulate it not only in practical terms but also in terms of value to the business.
All this makes the case that facilities managers who are serious about increasing their value to organisations and gaining the professional recognition that should accompany that, need to have a thorough grasp of business concepts and principles and be able to apply them to the facilities they manage, within the context of the businesses they serve. They must know not only their facilities but also their businesses, and how one relates to and serves the other. Facilities managers must know their businesses as much as they know their facilities.