Organisations must think strategically if they are to do more than simply survive in today’s increasingly competitive marketplaces. This thinking applies to both core and non-core business. In the case of the latter, facilities management has a pivotal role to play in support of the core business and must be closely coupled with the organisation's strategy overall.

Keywords

facilities, facilities management, strategy, outsourcing, core business, support services, business

Time equivalence: 30 minutes (article only); 2 hours (article and exercises).

Learning objectives

  1. Present a working definition of facilities management.
  2. Distinguish between an organisation’s core and non-core business and appreciate the relationship between the two.
  3. Describe the range of services covered by facilities management.
  4. Understand why different organisations will have different facilities management needs.
  5. Explain the importance of developing a formal strategy for facilities management.
  6. Describe the three key stages to creating an effective facilities management strategy and implementation plan.
  7. Understand the need to gain a complete financial picture of the direct and indirect costs of both in-house and outsourced service provision.

Introduction

Facilities management has developed in the past decade into a major, thriving business sector and discipline and continues to grow in many countries. The term facilities management – or facility management if one adopts a US perspective – has become accepted by governments, the business community, educationalists and researchers as an essential component of today’s business world.

Facilities management is of significance to organisations of all kinds and, as an emerging discipline, it has become the focus for the important issues of best value and customer satisfaction within the management of supporting services. Well-managed services enable an organisation to function at its most efficient and effective level, offering real added value improvements to the organisation’s core business. Facilities management is being elevated to a strategic level of importance and is therefore being given the task and opportunity to contribute to business success and to aid the delivery of competitive advantage. Indeed, in recent years, the range of services covered within the remit of facilities management has become more complex, as facilities management has moved into the core operational functions of client organisations. It is necessary for facilities management service providers and their customers to acknowledge the role of facilities management in the organisation’s strategic operations. This article presents the core concepts of facilities management with particular attention being given to the role of outsourcing.

What is facilities management?

Most real estate represents substantial investment for organisations and has to accommodate and support a range of activities, often taking into account competing needs. Within those activities is the owner or tenant organisation’s core business, for which an appropriate environment must be created in buildings that may not have been designed for the purposes for which they are now used. Yet, no matter how well focused an organisation might be on its core business, it must not lose sight of the supporting services – its non-core business. Facilities management places the non-core business at the service of the core business in such a way as to protect an organisation’s capital investment in real estate and helps turn a cost item into one of added value.

Organisations may have already considered the distinction between their core business and non-core business (such as security, HVAC maintenance and cleaning) as part of the drive to deliver and achieve best value and customer satisfaction. Since running costs account for a significant part of annual expenditure, second only to payroll, there will be pressure to look for savings in non-core business areas. Cutting operating budgets may be an attractive, or financially expedient, short-term measure but may not foster the organisation’s long-term development. Since the running of an organisation involves complex, co-ordinated processes and activities, it is necessary to take an integrated view. A piecemeal approach to cutting costs is unlikely to produce the required savings and may harm the organisation’s ability to deliver the most appropriate services. For facilities management to offer maximum support to core business activities, the organisation must, therefore, recognise that cost and quality are inextricably linked and should not be considered separately.

Facilities management can accordingly be summarised as creating the optimal environment for the organisation’s primary functions, taking an integrated view of the business infrastructure, and using this to deliver customer satisfaction and best value through support for and enhancement of the core business. Thus, facilities management can be described as something that will:

  • deliver effective and responsive services;
  • enable changes in the use of space in the future;
  • sweat the assets, i.e. make them highly cost effective;
  • create competitive advantage for the organisation’s core business; and
  • enhance the organisation’s culture and image.

Several definitions exist. The following cover what, in this article, is meant by facilities management.

Definitions

‘an integrated approach to operating, maintaining, improving and adapting the buildings and infrastructure of an organisation in order to create an environment that strongly supports the primary objectives of that organisation’ (Adapted from Barrett and Baldry, 2003)

‘The practice of coordinating the physical workplace with the people and work of the organisation. It integrates the principles of business administration, architecture and the behavioural and engineering sciences’ (The British Institute of Facilities Management – BIFM)

‘management of a vital asset – the organisation’s facilities.’ (The International Facility Management Association – IFMA)

Typical approach to facilities management

There are common themes and approaches to facilities management, regardless of the size and location of the real estate, although these may not necessarily result in common solutions. In some cases, real estate services are outsourced (for example, contracted out) and in others retained in house, for good reason in each case. Some organisations operate what might be described as a mixed economy, where certain services, even the same ones, are outsourced as well as retained in house. There is no general rule, rather a need to define the thinking, practice and procedures that will lead to best value for an organisation.

Definitions

Outsourcing
the contracting out of the facilities management services required by an organisation to external service providers.

In-house provision
supply of facilities management services within the client organisation - the in-house team may or may not be an independent body.

Whichever course of action has been taken – retain in house or outsource – the primary concern is the basis of the decision. It is not the outcome that needs to be looked at closely, but the efficacy of the decision-making that leads to it. It is, for example, always necessary to stress the importance of a careful evaluation to determine the merits of the case for outsourcing. Where the organisation’s approach has been arrived at through, for example, demonstrating better value (for money) from one approach as opposed to the other, facilities management can be considered to be working effectively.

Strategy overview

Managing facilities efficiently and effectively requires that a robust strategy is developed within the context of the organisation’s business plan and space/accommodation strategy. These should involve development of strategic objectives and a plan for the facilities management, with proper reference to the overall business plan and space/accommodation strategy within which it might be contained. A strategy (or business plan) for facilities management should:

  • consider the needs of the organisation, differentiating between core and non-core business activities;
  • identify and establish effective and manageable processes for meeting those needs;
  • establish the appropriate resource needs for providing services, whether obtained internally or externally;
  • identify the source of the means to finance the strategy and its practical implications;
  • establish a budget covering short term needs and best value over the long term; and recognise that management of information is key to providing a basis for effective control of facilities management.

The three main stages in the development and achievement of a workable strategy for facilities management are:

  1. analysing requirements – top level analysis;
  2. developing solutions – finding the best option; and
  3. implementing solutions – putting the plan to work.

Developing a facilities management strategy 

01

The aim of the analysis is to establish a thorough understanding of the present state of the organisation’s real estate and facilities management. This means assembling all material facts including:

  • the organisation’s objectives, needs and policies (from the business plan);
  • physical assets and space utilisation achieved (from the space/accommodation strategy);
  • a review of resources, processes and systems to provide a broad picture of the current provision of services; and
  • a cost analysis.

02

Once information from the analysis stage has been assembled, a robust and structured approach to the interpretation of the information can be adopted. It is essential that the interpretation of information derived from the analysis is open and allows new ideas and innovative solutions to be developed. The recommended approach is: 

  • generating options;
  • assembly of criteria for judging options;
  • evaluating options; and
  • selecting preferred option – the organisation’s actual facilities management strategy.

03

Policy statements can be developed into operational plans and implemented through a process that is capable of managing change. The change management process should be undertaken adopting best practice in human resources management. The implementation plan should include programmes, milestones, performance measurement and risk analysis. The risks to successful implementation should be identified and responsibilities for managing these assigned.

In summary, the plan should encompass people and systems, communication, resource planning and procurement/purchasing.

Selecting a strategy

The starting point for managing facilities is, as previously noted, the organisation’s business plan and its real estate (or space/accommodation) strategy. These should be kept up-to-date and used to determine the nature and level of services support. The facilities management strategy must reflect the organisation’s business objectives, needs and policies, as well as practicalities, such as its current real estate in general and space in particular. This formal strategy should include descriptions of the approach to measuring how the business objectives and needs have been met.

The selection of the approach through which service provision will take place should be based on the ability of that approach to satisfy those attributes that an organisation considers most important to its success. However, as the circumstances, which the organisation is subjected to, are subject to change, the most appropriate option will be the one that can also accommodate change. Naturally, there will be advantages and disadvantages in providing services either in house or by outsourcing. The organisation must, therefore, decide the route that provides best value for itself in the long term. This is achieved by taking full account of the implications especially the true cost of all options.

Debate on the benefits or otherwise of outsourcing has been running for decades. Although it is now generally agreed that outsourcing can stimulate innovation and can present cost savings through the harsh realities of competition, it cannot be assumed to be the best approach in all cases. The merits of outsourcing each service must be considered until the optimal mix of outsourced and in-house provision is attained. 

Management issues

The decision to outsource or provide services in house must take into account both the capability of service providers and the effort required to manage them. An organisation that takes the decision to outsource can delegate the direct supervision of work and service operatives to the provider. The role for the organisation’s representative then becomes one of managing the output from the service provider. The representative should act as an informed client managing performance against service specifications and service level agreements (SLA). Organisations need to consider their approach to this new management role carefully.

Definitions

Service specifications
quantify the acceptable standard of service required by the customer (or end-user) and will generally form a  part of the contract with the service provider.

Service level agreements (SLA)
build on the service specification by amplifying, in practical terms, the obligations of each party.

A service specification quantifies the acceptable standard of service required by the customer and will generally form a part of the contract with the service provider. Its production is a prerequisite for drafting a service level agreement (SLA). Specifications set out standards covering organisation policy, department requirements, statutory requirements, health and safety standards and manufacturers’ recommendations. The specification may also outline the procedures needed to achieve required technical standards.

A service level agreement (SLA) builds on the service specification by amplifying, in practical terms, the obligations of each party. Technical and quality standards will usually be defined in relation to industry standards or manufacturers’ recommendations, whereas performance will be related to the specific requirements of stakeholders, that is, frequency of activity and response times to call outs. This agreement need only include, at the bidding stage, a framework setting out the overall performance parameters with detailed procedural issues to be evolved and refined during the life of the contract. Whilst the scope must be made clear, detailed day-to-day operating procedures can only be refined as the knowledge and experience of each service partner is built up over time. SLAs must be kept up-to-date.

In contemplating a mix of support services such as cleaning, security, building and mechanical and electrical maintenance, it is easy to see the diversity of tasks involved. This may mean that a manager or supervisor who is trying to cope with such a range of services may not be competent in all. This could prove to be a problem for smaller organisations where, although the tasks are not extensive individually, their diversity is great, requiring the manager or supervisor to be multi-skilled. For larger organisations, specialist management and supervision may be cost effective and efficient, because more of it is required.

Cost factors

Indirect cost

In choosing the approach to service provision, total cost is often under-reported. In evaluating the comparative cost between in-house or outsourced service provision, organisations should identify all costs, both direct and indirect. A common mistake is for only the direct costs to be reported. Indirect costs include those incurred in the internal management of external contracts and the ongoing training and development of in-house personnel. Furthermore, the full administration of the services such as permit-to-work procedures, competent and approved person regimes, together with the technology to operate them, all attract a cost that must be recorded.

Organisations also need to consider the costs of financial administration. For instance, a small number of labour and material contracts means that invoices can be processed more cost-effectively than in situations where invoices are many and frequent. Clearly, the method of procurement has an implication for the accounting function.

Direct cost

By contrast, direct cost is easier to ascertain. In the case of an outsourced provision the contract sum is a figure that is readily available. For in-house provision, the direct cost calculation would include salaries, including benefits. As noted above, these more obvious costs should not be looked at in isolation from the associated indirect costs.

Control

Linked closely to the management variable is the issue of control. For many organisations considering outsourcing, the greatest concern is that of a perceived loss of control. The level of control that can be achieved is closely correlated with the method of procurement and the contractual relationship established between the organisation and the service provider. Through a more traditional contract the level of control is limited. For more control, a partnering arrangement may be appropriate.

Whatever arrangement is put in place, technology has a part to play in the delivery of reliable management information. It is through available and accessible information that many of the control issues can be solved. In so doing, value can also be added if the management information is delivered as a consequence of service provision and is therefore available without cost or, at least, for a nominal sum.

Implications of outsourcing

Any significant change in the number of services that are outsourced will have an impact on the structure of the department or organisation; in the case of outsourcing all real estate services, a small core management team is required to control and co-ordinate the activities of the external parties. In this instance, the role of management changes from direct management to the management of the output of others: the performance measurement of deliverables. The main tasks then become the management of the respective contracts and the definition and development of policy and procedures. These, along with relevant standards, are vital if the respective contracts are to meet the expectations of customers and are not to encourage malpractice or other kind of irregularity.

The most appropriate management structure will be the one that ensures both economy and control for the organisation over its facilities. Clearly, the management of contractors is different to the supervision of directly employed personnel and should not demand as high a level of resources. It is acceptable that some personnel will have to be retained even where the organisation has opted for total facilities management by a single contractor since the informed client function (ICF) must be maintained. This should be a major factor in the drive to have personnel who are trained to act as competent client representatives and, if organisations find such expertise lacking, they should adopt recruitment policies that recognise the specialisation of facilities management and seek individuals who have undergone appropriate education and training. The role of managing the client-contractor interface includes the following duties:

  • maintaining and enhancing the informed client function;
  • defining real estate and space standard policies and monitoring space utilisation;
  • understanding and monitoring customer requirements and keeping customers informed;
  • planning projects involving new or additional works; and
  • managing the approvals process and payments to the contractor.

Where services are retained in house, it is essential to ensure that the management structure facilitates a split between purchaser and provider, with the purchaser acting as the objective and informed client in order to monitor the performance of in-house service delivery. Policies and procedures must be formalised within this management structure to ensure that customer expectations are met and malpractice and other kinds of irregularity are actively deterred. The most appropriate management structure will be the one that ensures both economy and control for the organisation over its facilities. This means that organisations will need to determine exactly the number of personnel and their functions for managing the provision of services.

Conclusions

If buildings and other facilities are not managed, they can begin to impact upon an organisation’s performance. Conversely, buildings and facilities have the potential to enhance performance by contributing towards the provision of the optimal work and business environment. There is no universal approach to managing facilities. Each organisation – even within the same sector – will have different needs. Understanding those needs is the key to effective facilities management measured in terms of providing best value. Furthermore, once established the facilities management strategy should be a cornerstone of an organisation’s accommodation strategy, not adjunct to it.

In choosing the most appropriate solution consideration must be given to direct and indirect costs of both in-house and outsourced service provision so that a complete financial picture is gained, with comparison made on a like-for-like basis to enable a decision to be taken on best value grounds. A long-term and integrated view of service provision is essential to effective facilities management.

Exercises

  1. Does your own organisation (company or institution) have a clear understanding of its facilities management? Write down the key aspects of your organisation’s understanding or views of facilities management.
  2. Try to differentiate between the core and non-core business in your organisation. Write down a short description of the core business and then list the main non-core business activities.
  3. Write down the most important services in your organisation and rank them according to their importance to the ongoing functioning of the organisation.
  4. In your own organisation, which are the services that present the greatest difficulty/difficulties in terms of having in place the appropriate manpower and supervision?
  5. In your own organisation, what do you know or believe to be the ratio between direct cost and indirect cost for services? Express your figures as percentages (e.g. 80:20, 90:10)?

References and bibliography

Atkin, B. and Brooks, A. (2015) Total Facility Management. Fourth edition, Oxford: Wiley-Blackwell.
Barrett, P.S. and Baldry, D. (2003) Facilities Management: Towards Best Practice. Second edition. Oxford: Blackwell Science.
Booty, F. (ed.) (2009) Facilities management handbook. Fourth edition, Oxford: Elsevier Butterworth-Heinemann.

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