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Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Outsourcing:Outsourcing:Threat or Threat or
Opportunity?Opportunity?
Scott S. Tibbo, CFMScott S. Tibbo, CFM
Director Real Estate Advisory ServicesDirector Real Estate Advisory Services
Expense Management Solutions, Expense Management Solutions, Inc.Inc.
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
BackgroundBackground
Given the significant pressure to reduce Given the significant pressure to reduce overhead costs within all companies today, overhead costs within all companies today, “outsourcing” is a major topic of discussion…and “outsourcing” is a major topic of discussion…and consideration. consideration.
Even for companies who have already outsourced Even for companies who have already outsourced (first generation), it is still a major topic of (first generation), it is still a major topic of discussion…and in many instances, a significant discussion…and in many instances, a significant issue, given low satisfaction levels with their issue, given low satisfaction levels with their current arrangement.current arrangement.
Should outsourcing be viewed as a threat or Should outsourcing be viewed as a threat or opportunity? It can be either depending on the opportunity? It can be either depending on the approach taken.approach taken.
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Presentation GoalPresentation Goal
To provide a “balanced view” on outsourcing, To provide a “balanced view” on outsourcing, review the steps you should consider review the steps you should consider
BEFORE you pursue outsourcing as an BEFORE you pursue outsourcing as an option, option,
key factors you should consider DURING the key factors you should consider DURING the evaluation process, evaluation process,
critical success factors & management critical success factors & management strategies you should implement AFTER the strategies you should implement AFTER the decision has been made… decision has been made…
to help you ensure your department is to help you ensure your department is positioned effectively to face the outsourcing positioned effectively to face the outsourcing dilemma.dilemma.
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
What Outsourcing Dilemma?What Outsourcing Dilemma?A Few Very Typical ScenariosA Few Very Typical Scenarios
The “Chairman’s Challenge” (or the new CFO) The “Chairman’s Challenge” (or the new CFO)
The “pitch” on the 19The “pitch” on the 19thth Hole Hole
The company-wide “strategic cost assessment”The company-wide “strategic cost assessment”
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
What Are Your Options?What Are Your Options?
Hide and hope it never happens to you,Hide and hope it never happens to you,
Try to convince your senior management Try to convince your senior management that everyone else is “wrong”that everyone else is “wrong”
Be ProactiveBe Proactive – have a very clear picture – have a very clear picture of your operation, know where you stand of your operation, know where you stand relative to the market, communicate your relative to the market, communicate your plan…and control the process!plan…and control the process!
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
The ProcessThe Process
Fully assess your current environmentFully assess your current environment
Benchmark and develop key findingsBenchmark and develop key findings
Identify opportunities for improvementIdentify opportunities for improvement
Evaluate alternative solutionsEvaluate alternative solutions
Determine recommended solutionDetermine recommended solution
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Know Your OrganizationKnow Your Organization
Have a very clear picture of your Have a very clear picture of your organizationorganization
Be able to define what you do, why you Be able to define what you do, why you do it and how much it costsdo it and how much it costs
Understand the underlying business Understand the underlying business driversdrivers
Know your customers and what they Know your customers and what they expect from you expect from you
Know how your customers perceive youKnow how your customers perceive you
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Analyze Current Organizational Analyze Current Organizational AlignmentAlignment
Vice President
Real Estate
Regional FM Director
(38 staff)
Regional FM Director
(40 staff)
Regional FM Director
(39 staff)
Design and Construction
(5 staff)
Regional FM Director
(22 staff)
Total Dept: 139 Unit Cost: $6,502,061
Box Moves Design & Construction Move Coordination Space Planning Project Management Minor Construction Commissioning
Tenant Services Customer Relations Utilities/Energy Standards/Specifications Call Center/Help Desk Landlord Interface
Asset Management Building Operations Repairs & Maintenance Building Services Grounds Protection/Security
Portfolio Planning Space Planning Design & Construction Project Management Construction Mgmt Capital Projects
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Analyze Current PortfolioAnalyze Current Portfolio
Region
High Technology Assets
Office/Consumer Service
Distribution/Warehouse/Other
Total
Number of
Locations
SquareFootag
e
Number of
Locations
SquareFootag
e
Number of
Locations
SquareFootag
e
Number of
Locations
SquareFootag
e
Region I 33 332,366 14 122,572 21 72,283 68 527,221
Region II 27 399,341 16 449,403 20 59,950 63 908,694
Region III 53 455,382 35 212,983 21 97,058 109 765,423
Region IV 18 225,789 22 259,147 12 65,489 52 550,425
Total 1311,412,8
78 871,044,1
05 74294,78
0 2922,751,7
63
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Document Provision of ServicesDocument Provision of Services
Service Level Agreements Bldg 1 Bldg 2 Bldg 3
BUILDING OPERATIONSElectrical Services X X XElevator/ Escalator Services XFire Life Safety X X XGeneral Building Maintenance X X XMechanical Services X X XPlumbing Services X X XPreventive Maintenance X X X
BUILDING SERVICESGeneral Cleaning X X XRecycling X X XTrash Removal X X XWindow Cleaning X X X
TENANT SERVICESAudio/ Visual Services XConference Room Set-Up XParking Administration XReceptionist Services X
PROJECT MANAGEMENTMAC Project Management X X XMove Coordination X XSpace Planning Services X X
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Define Service LevelsDefine Service Levels
PROJECT MANAGEMENT (MAC)
Primary Responsibilities:
On all assigned projects, serve as primary project resource responsible for coordinating resources and Suppliers, managing the budget and schedule, taking corrective actions as warranted, and integrating related functions such as Property Services, Multimedia, IS, Reprographics, Mail Services, Copier Services, Amenities and Security and any required base building trades.
Directly manage the hiring and supervision of the moving company retained to complete the physical relocation of employee materials and equipment.
Develop and maintain project schedules and budgets and prepare the appropriate documentation to obtain Company approvals as required.
Coordinate all internal and external resources and firms to ensure projects are addressed in a cohesive manner with strong and effective communications occurring throughout the duration of a given project.
Coordinate with end-user representatives to ensure that the end-user business groups are properly prepared for a given move activity.
Maintain an on-site move administration presence during moves to ensure smooth, responsive and successful move execution. Establish escalation procedures to respond to issues or conflicts that might arise during a given move activity.
Develop a post move follow-up process to evaluate the overall move process and end-result. Prepare punch list summaries and monitor the completion of all punch list items.
Ensure as-built drawings and revised space plans are properly filed.
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Analyze Current Resource Analyze Current Resource UtilizationUtilization
12%
58%
7%
5%
10%
9%
7%
59%
8%
8%
10%
8%
29%
39%
9%
3%
10%
10%
8%
65%
11%
3%
7%
5%
23%
5%
31%
8%
21%
11%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% Salary Spent
REG I REG II REG III REG IV REG IVARegions
General Support and OthersSecurityTenant ServicesAdministrativeProject ManagementBuilding Operations
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Analyze Current Resource Analyze Current Resource UtilizationUtilization
Staff Position
Current Headcount
Sal & Benefits/ ea
Total Sal & Benefits
Fully Loaded Labor
Rate/ Hr
Annual Salary at Union
Scale/ ea
Total Annual at
Union Scale
Difference Union to Actual
Overtime Rate/ Hr
Overtime Hours
Calculated
Average Overtime Per Person
Building Operations
Chief Engineer 1 $113,058 $113,058 $37.99 $79,019 $79,019 $34,039 $56.99 597 597
Lead Engineer 1 $109,157 $109,157 $36.74 $76,419 $76,419 $32,738 $55.11 594 594
Engineer 3 $102,104 $306,312 $34.48 $71,718 $215,155 $91,157 $51.72 1,763 588
General Maint Tech 2 $96,986 $193,972 $32.84 $68,307 $136,614 $57,358 $49.26 1,164 582
Sub-total 7 $722,466 $295,464 $507,208 $215,291 4,118 590
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Document Workload VolumesDocument Workload Volumes
Preventive Maintenance Workorders Region I Region II Region III Region IV Region IVA Totals
Business Continuity 59 4,580 3,984 978 128 9,729Drinking Water 5 1,946 118 170 44 2,283Electrical Services 4 535 1,333 205 0 2,077Elevator Repairs 9 25 28 36 8 106Energy Conservation 2 906 24 1,741 0 2,673Fire/ Life Safety 234 7,225 338 338 268 8,403General Building Maintenance 14 5,842 978 308 1,616 8,758Mechanical Services 502 2,625 1,814 133 480 5,554Plumbing Services 1 190 875 180 1 1,247Pest Control 72 424 858 196 158 1,708Window Cleaning 1 900 35 223 24 1,183Asphalt/ Concrete Repair 1 416 55 0 4 476Electronic Security 0 205 936 0 0 1,141
Totals 904 25,819 11,376 4,508 2,731 45,338
RSF 260,941 908,694 765,423 507,793 223,360 2,666,211
W/ O's per RSF 289 35 67 113 82 59
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Establish Financial BaselineEstablish Financial Baseline
EXPENSE CAPITAL
BASE BUILDING
Plow the driveway Maintain the landscaping Change a light bulb Touch up paint in the corridor Maintain HVAC controls Repair an entry door lockset Patch holes in the parking lot
Install HVAC rooftop unit Renovate the lobby Upgrade the restrooms Replace exterior windows Replace main water supply lines Replace ceiling within major area Repave a parking lot
TENANT SERVICE
Hang a white board Paint a wall purple for the VP Reconfigure a workstation Install a telecom cable in office Repair a printer Install a refrigerator in office area
Replace carpeting in tenant space Build new space for a department Renovate a training center Install new exhaust hoods in lab Construct a new Cafeteria Install UPS for the Customer Call Ctr
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Establish a Chart of AccountsEstablish a Chart of AccountsChart of Accounts
Reporting Category 2003Actual
Cost Per RSF
40000 Cleaning40200 Routine Contract Services $0.0040300 Specialized Contract Services $0.0040400 Cleaning Supplies/ Materials/ Miscellaneous $0.0040500 Trash Removal $0.00
Sub-total $0 $0.0040100 Allocation of Salary and Benefits $0.00
Total Cleaning $0 $0.00
41000 Repairs and Maintenance41200 Elevator/ Escalator $0.0041300 HVAC $0.0041400 Electrical $0.0041500 Structural/ Roofing $0.0041600 Plumbing $0.0041700 Fire & Life Safety $0.0041800 General Building R&M (Interior) $0.0041850 General Building R&M (Exterior) $0.0041900 Other $0.00
Sub-total $0 $0.0041100 Allocation of Salary and Benefits $0.00
Total Repairs & Maintenance $0 $0.00
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Define Alloc of Total Define Alloc of Total Occupancy CostOccupancy Cost
Tenant Expense
Asset RSF Property Operating Expense
Fixed (Taxes & Insurance)
Sub-total Property
Operating Costs
Depreciation & Leasing
Building Total
Tenant Depreciation
Tenant Services
Total Occupancy
Cost
1,000,000 $9,000,000 $1,150,000 $10,150,000 $3,850,000 $14,000,000 $4,000,000 $2,000,000 $20,000,000
Building Cost
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Determine “other” Standard Unit Determine “other” Standard Unit CostsCosts
Service/ Function Cost Driver Indicated As
A & E Design Services Cost Per USF $0.00/ USF
Box Move Services Cost Per Person Moved $0.00 each
Project Management Cost Per USF $0.00/ USF
Telecom Cable Drop Cost Per Drop $0.00 each
Transaction Mgmt Cost Per RSF $0.00/ RSF
Lease Admin Cost Per Lease/ month $0.00 each/ month
Mail Services Avg. Cost Per Transaction $0.000/ piece
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Compile Labor Hours, Material Compile Labor Hours, Material Costs Costs
and Volumesand VolumesUnit Cost Rate DevelopmentBranch Electric Installation Activities
Hrs Req. $/ hr $/ Job $/ ActivityBranch Electric Installation - Cellular Floor Unit Cost $157.50
Administration 0.5 40.00 20.00 Annual Volume 500 Branch Electric Labor costs * 2.5 35.00 87.50 Branch Electric Material costs * 50.00
- Total Cost $78,750.00Total Cost/ ea 3 75.00 157.50
Branch Electric Installation - Above Ceiling Installation Unit Cost $132.50
Administration 0.5 40.00 20.00 Annual Volume 350 Branch Electric Labor costs * 1.5 35.00 52.50 Branch Electric Material costs * 60.00
- Total Cost $46,375.00Total Cost/ ea 2 75.00 132.50
* Based upon 125 LF of installationTotal Annual Cost $125,125
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
The ProcessThe Process
Fully assess your current environmentFully assess your current environment
Benchmark and develop key findingsBenchmark and develop key findings
Identify opportunities for improvementIdentify opportunities for improvement
Evaluate alternative solutionsEvaluate alternative solutions
Determine recommended solutionDetermine recommended solution
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Benchmarking Benchmarking Sources/ApproachesSources/Approaches
Independent research using published Independent research using published benchmarks such as IFMA and BOMAbenchmarks such as IFMA and BOMA
Participate in regional or national special Participate in regional or national special interest groups such as IFMA Industry interest groups such as IFMA Industry CouncilsCouncils
Self-Managed Benchmarking Group on a local Self-Managed Benchmarking Group on a local or regional basisor regional basis
Facilitated Benchmark Consortiums with select Facilitated Benchmark Consortiums with select number of companies within similar industrynumber of companies within similar industry
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Use Consistent Conventions - Use Consistent Conventions - Or You’ll end up with Fruit Salad !Or You’ll end up with Fruit Salad !
==++Keys To Success
• Common methodology
• Clear set of definitions
• Sophisticated data collection tools
• Valid assessment of data
• Meaningful sharing of findings & actionable steps
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Individual OpEx Benchmark Individual OpEx Benchmark Analysis Analysis vs. BOMAvs. BOMA
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
Cos
t/R
SF
Cleaning Repairs &Maintenance
Utilities Total Grounds &Security
Administrative
BOMA Category
Main Building
BOMAComparison
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
OpEx Comparison Against BM OpEx Comparison Against BM GroupGroup
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
Cleaning Repairs & Maint Utilities Grounds &Security
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Detailed Comparison Against BM Detailed Comparison Against BM GroupGroup
Cleaning - Normalized Costs
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
Routine Contract Services $0.71 $0.44 $1.03 $1.67 $0.86 $0.69 $3.54 $2.34 $0.69 $0.73 $0.00
Specialized Contract Services $0.14 $0.03 $0.00 $0.03 $0.06 $0.04 $0.12 $0.20 $0.13 $0.02 $0.01
Cleaning Supplies/ Materials/ Miscellaneous $0.14 $0.07 $0.00 $0.00 $0.17 $0.09 $0.00 $0.00 $0.09 $0.12 $0.21
Trash Removal $0.06 $0.10 $0.04 $0.00 $0.03 $0.00 $0.03 $0.09 $0.02 $0.12 $0.01
Allocation of Salary and Benefits $0.00 $0.00 $0.00 $0.37 $0.00 $0.02 $0.00 $0.00 $0.00 $0.00 $2.51
Total Cleaning $1.05 $0.63 $1.07 $2.07 $1.12 $0.83 $3.69 $2.63 $0.94 $0.98 $2.75
P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Beyond BOMA…now what?Beyond BOMA…now what?
BOMA Categories Include:
Cleaning Repairs and Maintenance Utilities Roads and Grounds Security Administrative Parking Operations (fee) Fixed Expenses Leasing Expenses Building Depreciation Interest Ground Rent
Audio/ Visual Support Conference Room set-up EH&S General Tenant Services Interior Plants Parking Administration Signage Landlord Oversight
MAC Project Management Project Mgmt (Large Proj) Move Labor A&E Services Furniture Management Ergonomic Adjustments Warehouse Services Communications Cabling General (Tenant) Const Construction Management Commissioning
Copy, fax, printer services Document Destruction Fleet Management Office Supply Provisioning Receptionist Records Management Special Events Support Switchboard Services Courier Services Mail Distribution Parcel Delivery Shipping & Receiving Client Unique Services
Facilities Management
Services
Other FM and Tenant
Support Services
Project Related
Services
Other Services
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Benchmark Current vs. Market Benchmark Current vs. Market CompsComps
ActivityActivity Cost
Activity Volume
Current Cost / Activity
Market Comp Variance
Premium over Market
Project Management $150,000 75,000 $2.00 $1.50 $0.50 $50,000Design Services $75,000 75,000 $1.00 $0.50 $0.50 $50,000W/ S Installation: Minor $50,000 250 $200.00 $150.00 $50.00 $17,000
W/ S Installation: Major $45,000 100 $450.00 $250.00 $200.00 $18,000Move Labor $75,000 1,000 $75.00 $70.00 $5.00 $5,000Cabling $150,000 500 $300.00 $250.00 $50.00 $25,000Electrical $50,000 250 $200.00 $150.00 $50.00 $12,500
Total $595,000 $445,000 $177,500
Premium over Market 35.1%
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Benchmark Current vs. Market Benchmark Current vs. Market CompsComps
Example: Box Move CostsExample: Box Move Costs
Move Services Annual Volume Annual Cost Avg. Cost Per
MoveMarket Comp
Market Annual Cost
Potential Annual Cost Reduction
Box Moves (2002) 400 $75,000 $188 $100 $40,000 -$35,000
Box Moves (2003) 500 $105,000 $210 $100 $50,000 -$55,000
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
The ProcessThe Process
Fully assess your current environmentFully assess your current environment
Benchmark and develop key findingsBenchmark and develop key findings
Identify opportunities for improvementIdentify opportunities for improvement
Evaluate alternative solutionsEvaluate alternative solutions
Determine recommended solutionDetermine recommended solution
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Identify Gaps & Areas of Identify Gaps & Areas of OpportunityOpportunity
Compare company performance to Compare company performance to benchmark results obtained from benchmark results obtained from researchresearch
For areas where improvement is needed For areas where improvement is needed define desired target or goaldefine desired target or goal
Identify actions required to bring Identify actions required to bring performance into target rangeperformance into target range
Build an integrated implementation plan Build an integrated implementation plan to achieve overarching strategic goalsto achieve overarching strategic goals
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Identify Potential Cost Saving Identify Potential Cost Saving OpportunitiesOpportunities
RECOMMENDATION SAVINGS ASSUMPTIONESTIMATED ANNUAL
SAVINGS
Organizational & Staffing Changes
Streamline Company on-site staffing Reduce 1.5 headcount (1Facility Planner, 50% Tech Coord) $125,000
Streamline Sub-contracted staffing Reduce 3 headcount (1 Tech, 1 Planner, 1 Maint Tech) $300,000
Operating and Tenant Expense Reductions
Property Operating and Admin Expenses Bring "compressible" Operating Expenses in line with market $600,000
Move Management Bring Box Move Expenses in line with market $50,000
Mail Services Bring Mail Service Expenses in line with market $65,000
Total Potential Savings Per Year $1,140,000
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Determine if “Internal Solution” is Determine if “Internal Solution” is ViableViable
Assess your organizations’ ability to Assess your organizations’ ability to successfully implement the needed successfully implement the needed changes/improvements. Evaluate in view of:changes/improvements. Evaluate in view of:
Sufficient Resources (Both Managerial & Technical)Sufficient Resources (Both Managerial & Technical) Technology and Reporting CapabilitiesTechnology and Reporting Capabilities Process Improvement/Ability to meet Service LevelsProcess Improvement/Ability to meet Service Levels Procurement Sophistication/Appropriate LeverageProcurement Sophistication/Appropriate Leverage Senior Management Support/Alignment of GoalsSenior Management Support/Alignment of Goals
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
If Viable – Implement Proposed If Viable – Implement Proposed ChangesChanges
Clearly articulate the objectivesClearly articulate the objectives Ensure the message is Ensure the message is
understandable at all levelsunderstandable at all levels Share the impact of the objective if Share the impact of the objective if
metmet Communicate progress toward goals Communicate progress toward goals
frequently, with a consistent format, frequently, with a consistent format, and through multiple channelsand through multiple channels
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
The ProcessThe Process
Fully assess your current environmentFully assess your current environment
Benchmark and develop key findingsBenchmark and develop key findings
Identify opportunities for improvementIdentify opportunities for improvement
Evaluate alternative solutionsEvaluate alternative solutions
Determine recommended solutionDetermine recommended solution
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
If Uncertain – Evaluate If Uncertain – Evaluate OutsourcingOutsourcing
Develop overall bid strategy – decide what Develop overall bid strategy – decide what services are to be included in the bidservices are to be included in the bid
Clearly define the scope of all services Clearly define the scope of all services and identify specific service level and identify specific service level expectationsexpectations
Based on scope/bid strategy, research Based on scope/bid strategy, research firms most qualified to include in the bid firms most qualified to include in the bid processprocess
Develop appropriate pricing models and Develop appropriate pricing models and contracting approachcontracting approach
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
What Outsourcing Is NotWhat Outsourcing Is Not A panacea for all problems with in-house A panacea for all problems with in-house
facilitiesfacilities A guarantee that expenses will declineA guarantee that expenses will decline An assurance that service levels will An assurance that service levels will
improveimprove A simple decision followed by an easy A simple decision followed by an easy
transitiontransition An opportunity to divest oneself of any An opportunity to divest oneself of any
further concerns regarding Facilities further concerns regarding Facilities Management in the futureManagement in the future
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
What Outsourcing IsWhat Outsourcing Is One method of managing resources to One method of managing resources to
meet strategic or operational targetsmeet strategic or operational targets An often complex structure of An often complex structure of
independent contractors each independent contractors each specializing in a functional areaspecializing in a functional area
A long term commitment to a new way of A long term commitment to a new way of doing businessdoing business
A decision that can be made in total or A decision that can be made in total or for selected functions within the for selected functions within the operationoperation
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
What Outsourcing Can BeWhat Outsourcing Can Be A strategic advantage for your operationA strategic advantage for your operation An opportunity to invest valuable An opportunity to invest valuable
resources elsewhereresources elsewhere An opportunity to increase operational An opportunity to increase operational
flexibilityflexibility A chance to benefit from expertise and A chance to benefit from expertise and
technology investments available from technology investments available from others, orothers, or
…….an unmitigated, poorly executed, .an unmitigated, poorly executed, tremendously expensive disaster.tremendously expensive disaster.
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Sourcing Process OverviewSourcing Process Overview Clearly define the services to be Clearly define the services to be
includedincluded Develop Bid StrategyDevelop Bid Strategy Pre-Qualification/Develop the bid listPre-Qualification/Develop the bid list Determine Contract & Pricing StructureDetermine Contract & Pricing Structure Detailed Assessment of ProposalsDetailed Assessment of Proposals Interviews & Reference ChecksInterviews & Reference Checks Scoring EvaluationScoring Evaluation Determine final recommendationDetermine final recommendation
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Develop SLA’sDevelop SLA’sAccount Management Building Services
Finance and Administration Cleaning
General Management Trash Removal
Operational & Financial Reporting Window Cleaning
Technology Grounds
Vendor Management Asphalt/ Concrete Repair
Building Operations Landscape Maintenance
Asset Management Snow Removal/ Ice Treatment
Business Continuity Protection
Customer Service Requests Electronic Security
Electrical Services Tenant Services
Elevator Services Audio/ Visual Management
Energy Conservation Conference Room Set-up
Fire/ Life Safety Services EH&S
General Building Maintenance General Tenant Services
Preventive Maintenance Interior Plants
Mechanical Services Signage
Plumbing Services Project Management
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Develop Bid StrategyDevelop Bid Strategy
PROPOSED BID STRUCTURE OUTSOURCE TO TWO PRIMARY SERVICE FIRMS, RETAIN CERTAIN FUNCTIONS INTERNALLY
Basic Services provided by Facility Mgmt firm:
Building Operations
Preventative Maintenance
HVAC, Electrical
Plumbing ,Fire Protection
General Maintenance
Janitorial Services
Landscaping & Snow
Capital Project Mgmt
Add’l Services provided by Facility Mgmt firm:
Call Center/ Help Desk
Leased Building Support
Conference Room set-up
Audio/ Visual Support
Company Switchboard
Receptionists
Waste Treatment Op’s
Security Guard Services
Services provided and/ or managed by PM-Arch Firm:
MAC Project Coordination
Design Services
Voice/ Data Wiring
Branch Electrical
Move Relocation Svcs (including coordination of Furniture Installations)
Internal Rent / Space Allocation Mgmt
Services provided and/ or managed directly by Client:
Risk Management (EH&S, OHS and Fitness Ctr)
Strategic Space Planning
Corporate Fleet Car Program
Records Retention
Calibration
Food Services, Mail & Copy
W/ S Installation Contract
FACILITIES
MANAGEMENT SERVICES
TENANT SUPPORT
SERVICES (Managed by FM firm)
PROJECT MANAGEMENT
& DESIGN SERVICES
Services
Not Included in Bid
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Develop Overall Pricing Develop Overall Pricing StrategyStrategy
Bid Summary
F-8
Transition FeeF-7
Ad-Hoc Pricing
F-6
Unit PricingF-5
Mgmt FeeF-4
Operating Budget
F-3
StaffingF-2
VolumesF-1
Pre-Populated, or Auto-Feed Sheets
Supplier Input SheetsBid
SummaryF-8
Transition FeeF-7
Ad-Hoc Pricing
F-6
Unit PricingF-5
Mgmt FeeF-4
Operating Budget
F-3
StaffingF-2
VolumesF-1
Pre-Populated, or Auto-Feed Sheets
Supplier Input Sheets
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Bid ProcessBid Process Conduct Bid Conference, Tours, Conduct Bid Conference, Tours,
InterviewsInterviews Analyze proposals in view of:Analyze proposals in view of:
Relevant/Demonstrated ExperienceRelevant/Demonstrated Experience Operational CapabilityOperational Capability Key Resources/Proposed Project TeamKey Resources/Proposed Project Team Technology/Procurement CapabilityTechnology/Procurement Capability Geographic Alignment/Strategic FitGeographic Alignment/Strategic Fit Willingness to agree to Contract TermsWillingness to agree to Contract Terms ReferencesReferences EconomicsEconomics
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
The ProcessThe Process
Fully assess your current environmentFully assess your current environment
Benchmark and develop key findingsBenchmark and develop key findings
Identify opportunities for improvementIdentify opportunities for improvement
Evaluate alternative solutionsEvaluate alternative solutions
Determine recommended solutionDetermine recommended solution
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
Determine Recommended Determine Recommended SolutionSolution
Compare internal to external, and external Compare internal to external, and external to each otherto each other
Assess ability to meet the strategic Assess ability to meet the strategic objectivesobjectives
Assess life-cycle cost of each proposalAssess life-cycle cost of each proposal Qualitatively analyze best fit culturallyQualitatively analyze best fit culturally Evaluate speed and ease of implementationEvaluate speed and ease of implementation Ensure buy-in of all impacted team membersEnsure buy-in of all impacted team members Communicate plan, implement, measureCommunicate plan, implement, measure
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Transition & TransformationTransition & Transformation
Establish the appropriate internal Establish the appropriate internal structure to manage the selected solution structure to manage the selected solution – realign responsibilities accordingly but – realign responsibilities accordingly but do notdo not create a shadow organization create a shadow organization Redefine job responsibilities (focus & Redefine job responsibilities (focus & role) of those responsible to manage the role) of those responsible to manage the new modelnew model Establish a detailed transition plan with Establish a detailed transition plan with key milestones and roles & key milestones and roles & responsibilities clearly definedresponsibilities clearly defined Recognize that the transformation Recognize that the transformation process will take some time so be flexible process will take some time so be flexible and open to changeand open to change
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Establish Strong Internal Establish Strong Internal Controls Controls Sarbanes-Oxley Section 404Sarbanes-Oxley Section 404
Management is required to attest that Management is required to attest that internal controls over financial reporting internal controls over financial reporting are effectiveare effective Have to take proactive steps to Have to take proactive steps to ascertain effectivenessascertain effectiveness If outside service organizations are If outside service organizations are used, management must certify adequacy used, management must certify adequacy of outside provider’s controlsof outside provider’s controls Cannot rely on internal auditor’s Cannot rely on internal auditor’s assessment, need independent assessment, need independent verification to ensure transactions are verification to ensure transactions are properly authorized, recorded and properly authorized, recorded and reportedreported
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Continuously Assess the Continuously Assess the New ModelNew Model
A compliance review program provides an A compliance review program provides an independent review of the contract and the independent review of the contract and the relationship and measures the reality of what is relationship and measures the reality of what is happening versus what is supposed to occur. happening versus what is supposed to occur.
In the event the review identifies issues of non-In the event the review identifies issues of non-compliance, a resolution plan is developed and compliance, a resolution plan is developed and the vendor manager is held accountable to the vendor manager is held accountable to execute on the plan. execute on the plan.
Findings of full compliance provide both Findings of full compliance provide both organizations with the assurance that all is organizations with the assurance that all is well.well.
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Common PitfallsCommon Pitfalls Insufficient senior level supportInsufficient senior level support Scope too broadly definedScope too broadly defined Costs evaluated too narrowlyCosts evaluated too narrowly Predisposition to a given solutionPredisposition to a given solution Forgetting the impact of cultureForgetting the impact of culture Jumping to conclusions too early in the Jumping to conclusions too early in the
processprocess Lack of time/resources/skill to manage Lack of time/resources/skill to manage
processprocess
Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.
THANK YOUTHANK YOU
Scott S. Tibbo, CFMScott S. Tibbo, CFMDirector Real Estate Advisory ServicesDirector Real Estate Advisory Services
EXPENSE MANAGEMENT SOLUTIONS, INCEXPENSE MANAGEMENT SOLUTIONS, INC
144 Turnpike Road, Suite 330144 Turnpike Road, Suite 330
Southborough, MA 01772Southborough, MA 01772
(508) 460-7014(508) 460-7014www.expensemanagement.comwww.expensemanagement.com