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OCR for page 89
6
Adapting Principles and Policies from
Best-Practice Organizations to the
Federal Operating Environment
BACKGROUND
In Chapters 2 through 5, the committee identified principles and policies
used by best-practice organizations for facilities investment and management.
The committee found these principles and policies to be largely independent of
the size and complexity of the organizations, their form (e.g., corporation, part-
nership), their orientation toward goods or services, and their centralization or
decentralization. The practices used to implement the principles and policies,
however, vary widely and are tailored to an organization's structure, goals, re-
sources, and culture. In this chapter, the committee addresses how the identified
principles and policies from best-practice organizations could be tailored to the
structure of the federal government and to the goals, resources, and cultures of its
individual departments and agencies.
The chapter first reviews special aspects of the federal operating environ-
ment that must be considered in any adaptation of the identified principles and
policies. The following section consolidates and reiterates the principles and poli-
cies used by best-practice organizations as defined and identified by the commit-
tee. Issues and barriers related to adapting these individual precepts for use in the
federal operating environment are discussed and one or more recommendations
for their adaptation are made. The chapter concludes with the committee's rec-
ommended overall strategy for implementation.
89
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90 INVESTMENTS IN FEDERAL FACILITIES
SPECIAL ASPECTS OF THE
FEDERAL OPERATING ENVIRONMENT
Although many have suggested that the federal government adopt principles,
policies, and practices used by private-sector organizations to make the govern-
ment more "businesslike" in its operations, significant differences in the two en-
vironments complicate their direct transfer.
Mission
As long as profits result, a private-sector organization's mission, values, and
leadership can remain relatively unchanged for years. In the federal government,
the accepted overall goal is to promote the general welfare of the public; federal
departments, independent agencies, corporations, and commissions each have
multiple missions and programs intended to help achieve the overall goal. How-
ever, the electoral process ensures change in executive and legislative leadership
on a regular, relatively short-term basis. As the leadership changes, the emphasis
placed on meeting particular missions also changes.
The electoral process in the legislative branch and at the top of the executive
branch also means that the major participants are acting within a framework of
public positions on many of the values and priorities implicit in facilities projects.
The time between initial project analysis and decision making and the start of
execution can be quite long and span several administrations. Consequently, in
the government, accountability for decision making is dispersed among a myriad
of stakeholders, some of whom may no longer be with the government by the
time decisions for investments are implemented and the facilities are subsequently
operated.
The Organizational Structure
In large private-sector organizations, the chain of command between deci-
sion makers and operating groups is relatively short, the size of the decision-
making group is relatively small, and there are strong commonalities of goals and
values among all those involved.
In the federal government the decision-making environment is rather more
complex, deriving in part from the separation of powers between the executive
and legislative branches and, within the legislative branch, between the Senate
and the House of Representatives; the organizing principle of checks and bal-
ances at all levels; and the consequently much longer command chains. This sys-
tem ensures that the many viewpoints, possible outcomes, and consequences of
public policy decisions are identified, considered, and accommodated, which can
span several administrations.
Rather than operating as a single entity, the federal government operates as a
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 91
network of distinct but interdependent organizations. Federal facilities invest-
ment decisions involve multiple stakeholders, decision makers, and operating
groups with differing missions, values, goals, and responsibilities, which may
sometimes be overlapping and sometimes conflicting. In this network-like struc-
ture, responsibility and authority for decision making are spread throughout the
executive and legislative branches and frequently are not directly linked.
Within the federal structure, departments and agencies are somewhat analo-
gous to private-sector organizations. Departments and agencies have specific and
varied missions; significant resources at their disposal to achieve those missions;
and a variety of decision-making and operating groups--human resources, facili-
ties, research, financial, policy-level and program-level units, public relations,
etc.--with differing objectives, responsibilities, and technical knowledge. They
have some flexibility in establishing processes for the evaluation of facilities in-
vestment proposals, although they must all follow the same procedures for fund-
ing requests through the annual budget process.
The answer to the question, What facilities are required? typically begins to
be formulated at the department and agency level. It is here that facilities require-
ments to support organizational operations or meet congressional and presiden-
tial directives are identified, alternatives are developed, and analyses of facilities
investment proposals are conducted. Trade-offs begin to be made among alterna-
tives for a specific investment proposal, among a range of proposals, and among
investments in facilities and other important organizational activities.
Unlike private-sector organizations, federal departments and agencies can-
not independently make a final decision to proceed with a significant facility
investment or to independently allocate funding for that investment. Instead, they
can only recommend that an investment be made and then forward that recom-
mendation to the Office of Management and Budget for its review and to Con-
gress for a final decision. These reviews and approvals involve a set of stakehold-
ers who take a government-wide perspective and whose responsibilities,
objectives, and values differ.
The Nature of Federal Facilities Investments
Another distinction between private-sector organizations and the federal gov-
ernment relates to who pays for and who benefits from the facilities and infra-
structure in which they invest. Federal facilities investments are funded by the
American public and therefore incur costs and confer benefits on a wide spectrum
of people and organizations. Such investment decisions must take into account
the costs and benefits to the public at large, not just those to a specific agency,
department, or organization. The benefits are often qualitative rather than quanti-
tative and can be difficult to measure. The costs and benefits may also differ
depending on the level--national, state, regional, local, departmental, or agency.
The wide range of government roles and missions means that each funding
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92 INVESTMENTS IN FEDERAL FACILITIES
proposal for facilities must compete with many more alternatives for public in-
vestment, each with quite different measures of social utility. Federal facilities
that support public services do not generally operate under easily quantifiable
dollar measures of costs, operating margins, and market performance, further
complicating simple metrics for making decisions. The commitment of public
funds also requires far more transparency in the process than does that of private-
sector funds.
Decision-Making Environment
In the federal government, as in many private-sector organizations, requests
for funding of particular programs, projects, and initiatives typically exceed avail-
able resources. Decision makers in Congress and federal departments and agen-
cies are asked to balance the competing demands of very different programs:
Funding for facilities investments must be weighed against funding for medical
research, weapons systems, homeland security, education, and numerous other
public programs. The knowledge that resources are limited and trade-offs will be
made contributes to a competitive rather than a collaborative environment for
facilities investment decision making at all steps in the process. The current fed-
eral operating environment may be characterized by guarded communication
about facilities investments, adversarial relationships, and gamesmanship.
The Annual Budget Process and Procedures
It is standard practice for private-sector organizations to make decisions about
operating and capital expenditures (e.g., facilities) and to budget for them sepa-
rately; the two are linked through an overall management plan. In the federal
government, expenditures for operating and capital expenditures are considered
concurrently, and decision making for facilities investments is driven in large
part by the annual budget process. The budget scorekeeping rules mandated as
part of the Budget Enforcement Act of 1990 (for which there is no private-sector
analogue) also influence decisions related to the acquisition or leasing of facili-
ties and the use of alternative financing approaches. The budget process and
scorekeeping procedures reinforce a focus on the short term and on the first costs
of facilities investments, typically only 5-10 percent of the total life-cycle costs.
An additional complication is that
[n]early every federal agency oversees some capital spending. . . . As a result,
decisions on infrastructure are largely ad hoc in that they are aligned with agen-
cies' programs, which have differing goals. Even within agencies with signifi-
cant infrastructure budgets like the Department of Transportation, infrastructure
investment strategies for different programs like transit and aviation may be
developed separately. Because the federal government does not have an overall
plan for its capital investments, the challenge of selecting the most important or
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 93
cost-effective projects is even more difficult across federal agencies (GAO,
2000b, p. 44).
Procedures
In the federal government, activities typically related to facilities investment
and management, such as budgeting, acquisition, and modifying a project's scope
or direction to account for changes in requirements, are procedurally encumbered.
The Federal Property and Administrative Services Act of 1949 governs the ad-
ministration of facilities in all federal civilian and military departments and agen-
cies. More recent legislation, including the Government Performance and Results
Act of 1993, the Federal Acquisition Streamlining Act of 1995, and the Clinger-
Cohen Act of 1996, applies to facilities management but also to a wide range of
other federal activities.1
The inherent differences between nongovernmental and governmental orga-
nizations, then, are significant. Nonetheless these differences do not fundamen-
tally change the need to apply best practice principles and policies to foster suc-
cessful investment in and management of federal facilities portfolios. They do,
however, impact the particular lessons that might be transferred from one domain
to the other. The next section focuses on answering the question, How can the
principles and policies used by best-practice organizations be applied to the fed-
eral operating environment?
ADAPTING BEST-PRACTICE PRINCIPLES AND POLICIES TO
THE FEDERAL ENVIRONMENT
Principle/Policy 1. Best-practice organizations establish a framework of
procedures, required information, and valuation criteria that aligns the
1These include the Government Performance and Results Act (GPRA) of 1993 (P.L. 103-62),
which requires federal agencies to develop mission statements, long-range strategic goals and ob-
jectives, and annual performance plans and to identify and measure the "outcomes" or results of
federal programs. Related legislation includes the Chief Financial Officers Act of 1990; the Federal
Acquisition Streamlining Act of 1994, Title V; the Government Management Reform Act of 1994;
and the Federal Financial Improvement Act of 1996. Executive initiatives and directives that spe-
cifically pertain to federal facilities and infrastructure include Executive Order No. 12893, "Prin-
ciples for Federal Infrastructure Investments" (January 26, 1994); Office of Management and Bud-
get (OMB) Bulletin No. 9416, Guidance on Executive Order No. 12893, "Principles for Federal
Infrastructure Investments"; OMB Circular A11: Part 3: "Planning, Budgeting, and Acquisition of
Capital Assets"; OMB's Capital Programming Guide, a Supplement to Part 3; and Executive Order
No. 13327, "Federal Real Property Asset Management," signed February 4, 2004. The President's
Management Agenda, issued in the summer of 2001, focuses on improving the management and
performance of the federal government.
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94 INVESTMENTS IN FEDERAL FACILITIES
goals, objectives, and values of their individual decision-making and
operating groups to achieve the organization's overall mission; create
an effective decision-making environment; and provide a basis for mea-
suring and improving the outcomes of facilities investments. The com-
ponents of the framework are understood and used by all leadership and
management levels.
Discussion 1. The components of this framework include terminology
that is agreed upon by the relevant decision-making and operating groups; a
business case analysis; evaluation processes that are clearly defined and incor-
porate multiple decision points; performance measures; continuous feedback
processes; methods for establishing accountability; and incentives for groups
and individuals.
In the federal government, decisions about federal facilities investments in-
volve multiple stakeholders: Congress and its various committees, the adminis-
tration, federal departments and agencies that own facilities, operating groups
that manage facilities portfolios, the OMB, agencies that use facilities provided
by others, special interest constituencies, the GAO, and others. These stakeholder
groups have differing terminologies, responsibilities, objectives, and values.
For example, groups that manage facilities portfolios are responsible for en-
suring that facilities perform well enough to support their department's or
agency's missions and programs without undue disruption. They have limited
authority to determine what investments are made within the funding allotted to
them. Their objectives and values may be to build the highest-quality facilities
within the available budget in order to minimize long-term building operating
costs.
Senior-level executives, in contrast, are responsible for the overall perfor-
mance of the organization in meeting its mission and for using resources effec-
tively and efficiently. They must balance the competing demands of a variety of
programs and initiatives: Funding for facilities investments must be weighed
against funding for personnel, information technologies, research, other physical
assets such as vehicles, ships, planes, and so forth. Their objectives and values
may support building a less costly facility of sufficient quality to meet only the
immediate need so that investments in other programs can also be made.
Personnel at OMB are responsible for reviewing the budgets submitted by
agencies and recommending resource allocations, although they do not make fi-
nal decisions. Their objectives may include helping to reduce the budget by limit-
ing funding levels for various programs or services. They may not support allo-
cating any funding for building a specific facility.
Decision makers in Congress and the President are asked to balance the com-
peting demands of very different programs across a wide spectrum of agencies
and other federal entities: Funding for facilities investments must be weighed
against funding for medical research, weapons systems, homeland security, edu-
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 95
cation, or any of a myriad of other public services. At this level, specific facilities
investment decisions may be subsumed entirely by policy decisions.
The lack of alignment in goals and objectives among these stakeholders is
exacerbated by the federal budget process. The knowledge that resources are lim-
ited and trade-offs will be made contributes to a competitive rather than a coop-
erative decision-making environment. Agencies may overstate a need in their
budget requests based on an expectation that the budget will be cut; then, when
cuts are made, there may still be enough funding to proceed. Reviewing authori-
ties, in turn, may suspect that budget requests are always inflated and that cuts
can safely be made.
A history of such gamesmanship sows elements of doubt and mistrust be-
tween the managers providing information and the decision makers using it: Can
decision makers believe what is being communicated? Will people do what they
promise? Agency managers may believe that decision makers are unable to ac-
knowledge the legitimacy of the needs being set forth in the face of pressure
(such as to maintain a certain level of budget request). Or, based on their objec-
tives and values, decision makers may recognize the needs but believe that other
investments have a higher priority.
For these reasons and others, the environment for decision making about
federal facilities investments can presently be characterized as one of adversarial
relationships, gamesmanship, miscommunication, and mistrust.
The committee believes that a framework of procedures, required informa-
tion, and valuation criteria based on the principles and policies used by best-
practice organizations for facilities investment and management should be
adopted. The individual missions, goals, cultures, and organizational structures
of federal departments and agencies can be expected to result in varying practices
within this to-be-adapted government-wide framework of principles and policies.
Because such a framework represents a significant departure from current
operating procedures, it might be advisable to establish one or more pilot projects.
A small government agency with a diverse portfolio of facilities might provide a
good environment in which to test the framework.
RECOMMENDATION 1. The federal government should adopt
a framework of procedures, required information, and valuation crite-
ria for federal facilities investment decision making and management
that incorporates all of the principles and policies enumerated by this
committee.
******
Principle/Policy 2. Best-practice organizations implement a systematic
facilities asset management approach that allows for a broad-based un-
derstanding of the condition and functionality of their facilities portfo-
lios--as distinct from their individual projects--in relation to their or-
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96 INVESTMENTS IN FEDERAL FACILITIES
ganizational missions. Best-practice organizations ensure that their fa-
cilities and infrastructure managers possess both the technical expertise
and the financial analysis skills to implement a portfolio-based approach.
Discussion 2(a). Facilities portfolio managers within federal agencies face
many challenges, including the following:
1. Finding ways to manage portfolios comprising a few hundred to several
hundred thousand individual structures of various types, ages, and conditions
without having the authority or budget necessary for proper management. Such
portfolios typically are dispersed throughout the United States and sometimes
across the world.
2. Coordinating and monitoring several hundred to several thousand ongo-
ing projects for new construction, renovation, repair, and renewal. These projects
are in various phases of development and their total costs range from several
million to several billion dollars.
3. Adapting 20- to 100-year-old facilities to accommodate new information
technologies and new physical security measures.
4. The continued deterioration of facilities as indicated by the growing back-
log of maintenance and repair.
5. The acquisition of new facilities without adequate annual resources com-
mitted to properly maintain them.
6. Excess and obsolete facilities that consume resources needed for mission-
critical facilities or other programs.
In recent years, federal departments and agencies, including but not limited
to the Department of Transportation, the Coast Guard, and the GSA, have begun
to implement facilities asset management programs that consider both the port-
folio and individual investments. Portfolio-based approaches should be imple-
mented in every department and agency with responsibility for facilities man-
agement.
RECOMMENDATION 2(a). Each federal department and agency
should update its facilities asset management program to enable it to
make investment and management decisions about individual projects
relative to its entire portfolio of facilities.
Discussion 2(b). A concern in implementing new approaches to facilities
asset management is the availability of federal staff with the full range of skills
now required. Most federal facilities management organizations currently have
facility professionals and staff with expertise in managing contracts, budgets, and
schedules related to their specialty. The best of these have also taught themselves
communication skills and techniques of financial analysis and information tech-
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 97
nologies. They have largely done a remarkable job with the resources available to
them.
Departments and agencies will need to give their facilities asset managers
training in the business tools and financial theories and concepts required to imple-
ment a portfolio-based approach. Mirroring this, departments and agencies, in-
cluding the OMB and the GAO, should ensure that financial, budget, and pro-
gram analysts receive some basic training on the physical aspects, not merely the
financial aspects, of facilities investment and management.
Training can occur through coursework, seminars in conjunction with the
various operating units at the headquarters of an organization, and with operating
units in the field. Rotational assignments should be encouraged to provide more
in-depth training and understanding. As job vacancies occur in facilities manage-
ment operating groups, departments and agencies should seek to recruit and hire
staff not only with the traditional technical competencies but also with the requi-
site business-related training.2
RECOMMENDATION 2(b). Each federal department and agency
should ensure it has the requisite technical and business skills to imple-
ment a facilities asset management approach by providing specialized
training for its incumbent facilities asset management staff and by re-
cruiting individuals with these skills.
Discussion 2(c). One of the objectives to be met by implementing a facili-
ties asset management approach is to ensure the alignment of an organization's
portfolio of facilities with its missions and operating objectives. Continual moni-
toring is required to identify facilities that are no longer needed due to changing
requirements and those that are obsolete technologically or otherwise. Private-
sector organizations have a direct incentive to dispose of unneeded facilities as
soon as possible because they are a drain on organizational resources and are
readily identifiable on their balance sheets. They dispose of excess facilities
through sales, nonrenewal or breaking of leases, or demolition to free up resources
that can be used for other requirements.
The federal government, in contrast, has continuously acquired facilities over
several centuries but placed relatively little emphasis on disposing of facilities
that have become obsolete, too costly to maintain, or that do not support current
missions and requirements.3 In some cases, considerable pressure has been placed
2In Chapter 2 the committee identified numerous institutions that offer the recommended
coursework.
3 There are, of course, federal facilities that are excess but present significant challenges for dispo-
sition, such as former nuclear sites and their associated facilities. Clearly such properties must remain
under government ownership. Decommissioning such sites will cost billions of dollars; the decom-
missioning of former uranium enrichment facilities, for example, will cost between $9 billion and $20
billion (NRC, 1996b).
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98 INVESTMENTS IN FEDERAL FACILITIES
on elected officials by local constituencies to obstruct the closing of local federal
facilities, even when it is not economically efficient to continue their use.
Federal policies, practices, and procedures present other obstacles for facili-
ties disposition. Eighty-one separate policies applicable to the disposal of federal
facilities have been identified (GSA, 1997). These policies include legislative
mandates or directives that are agency-specific as well as government-wide so-
cioeconomic and environmental policies such as the Land and Water Conserva-
tion Fund Act of 1965, the Stewart B. McKinney Homeless Assistance Act of
1987, and various historic preservation statutes.
The budget structure also weighs against disposal of unneeded facilities. The
budget appropriation line item Operations is used to fund the maintenance, repair,
and disposal of facilities for most departments and agencies. Disposal of some
excess facilities can occur through transfer of ownership or demolition; in both
cases, an up-front investment is required before disposition can occur. Transfer-
ring the ownership of a federal facility to a nonfederal entity brings with it the
responsibility to meet environmental and other regulations. Depending on the
age, materials, and former use of a facility, it may or may not be cost-effective to
make the repairs necessary to comply with regulations in order to dispose of it.
Similarly, it can be expensive to demolish facilities in the short term even if the
long-term benefits may be significant. The military services estimate that demoli-
tion costs for facilities range from $8 to $12 per square foot. For the Army alone,
demolition of excess facilities could cost more than $1.3 billion (GAO, 1997).
Faced with the trade-off of using the available funds to invest in facilities that
support current missions or to dispose of excess ones, managers typically choose
the first alternative (NRC, 1998).
Finally, there are few incentives for departments and agencies to invest the
time and effort to sell excess properties. Proceeds realized through such sales will
go to the general treasury, not back to the organization unless it has been given
authority under special legislation to retain some portion of them.4
RECOMMENDATION 2(c). To facilitate the alignment of each
department's and agency's existing facilities portfolios with its missions,
Congress and the administration should jointly lead an effort to consoli-
date and streamline government-wide policies, regulations, and pro-
cesses related to facilities disposal, which would encourage routine dis-
posal of excess facilities in a timely manner.
Discussion 2(d). Some federal departments and agencies are incurring sig-
nificant costs for operating and maintaining facilities that they no longer need to
support today's missions. The Department of Defense (DoD) estimates it spends
4Legislation has, in fact, been enacted to allow the U.S. State Department to sell some of its excess
properties at fair market value and to retain the proceeds for investment in mission-critical facilities.
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 99
$3 billion to $4 billion each year maintaining excess facilities (GAO, 2003f). The
Departments of Energy, State, and Veterans Affairs, the GSA, and the U.S. Postal
Service own considerable numbers of properties that are no longer needed but
continue to require investment of resources (GAO, 2003f). These agencies and
possibly others are
incurring significant costs for staff time spent managing the properties and on
maintenance, utilities, security, and other building needs . . . [and] the govern-
ment is needlessly incurring unknown opportunity costs, because these build-
ings and land could be put to more cost-beneficial uses, exchanged for other
needed property, or sold to generate revenue for the government . . . . [Holding
excess properties] presents an image of waste and inefficiency that erodes tax-
payers' confidence (GAO, 2003f, p. 11).
The lack of alignment between a department's or agency's missions and its
facilities portfolio, coupled with the cost of operating and maintaining excess
facilities, can require extraordinary measures to effect some improvement, par-
ticularly when the goals, objectives, and values of the President, Congress, de-
partments, and agencies may be so different that a compromise cannot be reached
in the traditional operating environment. One such extraordinary measure was the
base realignment and closure (BRAC) process used to divest facilities owned by
DoD.
As early as 1964, the Secretary of Defense announced the need for a major
military base closing. Legislative and executive decision-making groups were
unable to reach a compromise on such closures for the next 25 years. Following
the end of the Cold War, it became clear again that certain facilities and infra-
structure designed to support a specific type of military force were no longer
needed or financially supportable. In the 1980s, the report of the Grace Commis-
sion concluded that closing unnecessary military bases could produce savings of
$2 billion annually. Decision makers in the legislative and executive branches
agreed that some infrastructure could be closed down without affecting the ca-
pacity of the government to provide for national defense. However, neither branch
could close down military bases without the approval of the other. Both branches
were reluctant to support the closing of specific bases because of the impacts on
local economies, employment, the objections of the local electorate, and the im-
plications for individual members of Congress (Goldfein, 1994).
To resolve this impasse, the Base Realignment and Closure Act was enacted
in 1988, establishing a decision-making process outside the traditional operating
environment. The Act established an independent commission to make the final
recommendations for closures and set ground rules for both executive and legis-
lative agencies in terms of their input and its timing. The Act required elected
officials to approve or reject a recommended package of base closings as a
whole--elected officials were not allowed to remove individual bases from the
list or to otherwise amend it. Time for debate was limited and filibusters in Con-
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 107
the programming process will provide insight into the potential long-
term consequences for the organization, help to identify ways to mitigate
the consequences, and help to reduce life-cycle costs.
******
Principle/Policy 7. Best-practice organizations base decisions to own or
lease facilities on the level of control required and on the planning hori-
zon for the function, which may or may not be the same as the life of the
facility.
Discussion 7. As do private-sector organizations, federal departments and
agencies acquire the use of space and equipment through ownership and through
operating and capital leases. Based on the committee's interviews and research
activities, the criteria departments and agencies use to determine if it is more
cost-effective to own or lease facilities to support a given function are not clear or
uniform. What is clear is that the decision is complicated by the budget
scorekeeping rules.
As with budget requests to design and construct facilities, requests to fund
operating and capital leases are scored up front.8 Leases typically will have lower
costs over the given lease period than the design and construction of a facility,
even if the long-term costs might be higher. Consequently, leasing the required
space may appear to have less impact on an organization's overall budget. In this
case, the scorekeeping rules may provide an incentive for a department or agency
to game the system and request approval to lease space even if it is not cost-
effective in the long term.
The committee believes that a more effective approach for deciding whether
it is best to own or lease the required space is to base the decision on the level of
control desired and the planning horizon for the function. Departments and agen-
cies should determine whether the required space will support functions that are
critical to the organizational mission (core functions), functions that support the
mission, or functions that are mission neutral (noncore) and then determine the
level of control desired. An additional decision factor should be the length of time
the function must be supported. For long-term, mission-critical functions, a de-
partment or agency may wish to exert maximum control through ownership. For
short-term, noncore functions, leasing may be the most cost-effective option.
Whatever the decision, the committee believes it should be based on a clearly
stated rationale linked to support of the organizational mission and the life of the
function.
8The criteria used to distinguish among the different categories of leases are to some extent arbi-
trary (CBO, 2003), leading to some variation in the ways leases are scored by the OMB and the CBO.
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108 INVESTMENTS IN FEDERAL FACILITIES
RECOMMENDATION 7. Each federal department and agency should
base its decisions to own or lease facilities on the level of control desired
and on the planning horizon for the function, which may not be the same
as the life of the facility.
******
Principle/Policy 8. Best-practice organizations use performance mea-
sures in conjunction with both periodic and continuous long-term feed-
back to evaluate the results of facilities investments and to improve the
decision-making process itself.
Discussion 8. The Government Performance and Results Act of 1993 re-
quires all federal departments and agencies to develop performance measures in
order to evaluate the effectiveness of their programs and investments in providing
goods and services to the American public and to report the results annually.
Some federal organizations have used the Balanced Scorecard concept to develop
measures for determining how well strategic objectives are being met. However,
because the results of many federal programs or services are qualitative in nature
and occur over long periods of time--for example, the regulation of air quality--
measuring them can be challenging.
Federal organizations are faced with several issues when they develop per-
formance measures to capture the outcomes of facilities investments and manage-
ment as they apply to portfolios of facilities. One is the lack of adequate baseline
data about facilities portfolios: their condition, value, functionality, and operating
costs. When Congress appropriates the annual operations and maintenance bud-
get back to the agencies, the agencies themselves then allocate this funding to
investments in facilities maintenance, repair, alteration, and renewal. (Planning,
design, and construction of projects are typically funded through separate line
items.) Departments and agencies do not systematically separate and track actual
expenditures for maintenance, repair, and operations of buildings, making it diffi-
cult to develop accurate baseline data. A second issue is the structure of current
accounting systems, which are driven by the federal budget process and do not
typically disaggregate facilities operations and maintenance costs. An example of
one further complicating factor is that many federal buildings are not metered,
making it difficult to track utility costs or usage.
Despite these and other difficulties, efforts are under way to develop mea-
sures that apply to facilities portfolios. Many agencies use a facilities condition
index (FCI) to monitor the overall condition of their facilities inventories. The
Navy has developed the Mission Dependency Index (MDI), which uses opera-
tional risk management techniques of probability and severity and applies them
to facilities in terms of interruptability, relocatability, and replaceability. The MDI
also takes mission intradependencies (those that reside within a command) and
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 109
mission interdependencies (those that reside between commands) into account
through a structured interview process with command representatives of indi-
vidual units that cover a finite geographical area. The DoD has developed a facili-
ties sustainment model and recapitalization metric to determine the rate of resto-
ration and modernization relative to the average expected service life of the
inventory. The Coast Guard is developing (1) a space utilization index (SUI) to
measure compliance with organizational space standards to ensure equitable dis-
tribution of space and funding across the organizations and (2) a systems critical-
ity index based on functional importance, health and safety, repair cost factors,
interdependencies with other systems, and other factors (Dempsey et al., 2003).
NASA has developed a parametric model for tracking deferred maintenance
across its inventory. Some or all of these indices could be adapted for use by other
federal departments and agencies and used in combination with other metrics to
measure the performance of federal facilities portfolios. An approach like that of
the Balanced Scorecard could be applied hierarchically, with successively more
detailed objectives and metrics at lower levels. The department or agency level
would be the starting point since it is the focus of resource allocation and estab-
lishment of management objectives. Department objectives would flow down to
agencies and thence to regions and facilities.
The effective use of performance measures for facilities investment and man-
agement requires the continuous monitoring of projects, processes, and facilities
portfolios through short- and long-term feedback. Monitoring the progress of fa-
cility projects to measure whether they are on time and within budget is a com-
mon practice in federal organizations. The GSA, the U.S. Postal Service, the
State Department, and other agencies receive feedback on customer satisfaction
with newly occupied buildings through postoccupancy evaluations. Such evalua-
tions provide a basis for lessons-learned programs, which in turn are used to
improve processes and design standards. However, most of the feedback proce-
dures are short term. To the committee's knowledge, no federal department or
agency gathers consistent, organized, long-term feedback to determine if facili-
ties investments met organizational objectives, solved operational problems, or
reduced long-term operating costs. This type of feedback is essential if the out-
comes of facilities investments and management processes are to be measured
and improved.
RECOMMENDATION 8. Each federal department and agency should
use performance measures in conjunction with both periodic and con-
tinuous long-term feedback and evaluation of investment decisions to
monitor and control investments, measure the outcomes of facilities in-
vestment decisions, improve decision-making processes, and enhance
organizational accountability.
******
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110 INVESTMENTS IN FEDERAL FACILITIES
Principle/Policy 9. Best-practice organizations link accountability, re-
sponsibility, and authority when making and implementing facilities in-
vestment decisions.
Discussion 9. As noted in Stewardship of Federal Facilities: A Proactive
Strategy for Managing the Nation's Public Assets, the responsible ownership of
facilities by the federal government is
an obligation that requires not only money, but also the vision, resolve, experi-
ence, and expertise to ensure that resources are allocated effectively to sustain
the public's investment. The recognition and acceptance of this obligation is the
essence of stewardship. Public officials and employees at all levels are respon-
sible for decisions that affect the stewardship of facilities. (NRC, 1998, p. 62)
In the federal government, responsibility and authority for making decisions
and executing programs often are not directly linked. Instead, decision-making
authority and decision-making responsibility are spread throughout the executive
and legislative branches, leading to a lack of clear-cut accountability for facilities
investment outcomes.
In the instance of facilities management and maintenance, the linkages be-
tween responsibility, authority, and accountability are lacking at several levels.
First, for most facilities projects, one operating unit may be responsible for the
planning of a facility, another for designing and constructing it, and a third for
maintaining, preserving, and operating it. When these functions are separate, there
is no strong incentive for those designing a facility to consider its life-cycle costs
or to evaluate alternative materials, systems, or other components in terms of
their impact on long-term operations and management, repair, and disposal costs.
The groups responsible for design are rarely held accountable for the subsequent
total operating costs of the facility. The group overseeing construction is respon-
sible for and held accountable for completing the facility on time and on budget
but not necessarily for ensuring that the facility will operate economically and
satisfy user requirements.
Second, those who use a facility often are not responsible for its maintenance
and care. Their budget allocation is usually separate from that for facilities main-
tenance, so to them, the facility does not have a direct cost. They operate within
the facility but are not accountable for how their operations affect the facility or
the cost of maintaining it.
Third, those responsible for managing facilities portfolios may be held ac-
countable for the quantity and quality of services being provided to the organiza-
tion. However, they are not always given the resources and authority necessary to
maintain the facility's functionality or condition at the level needed to effectively
support the required services.
Fourth, to help balance the budget, budget and program analysts may be
responsible for limiting the resources to be invested. However, they are not held
accountable for the consequences of their recommendations, which may include
the worsening condition of facilities over time through lack of investment.
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 111
Fifth, senior managers and elected officials are responsible for broad levels
of services and for balancing needs with available resources. At this level, trade-
offs are made among a wide range of programs and services, and decisions are
made by consensus. Faced with these trade-offs, senior managers and public offi-
cials may decide that there will be no serious consequences if facility mainte-
nance and repair is deferred another year in favor of more urgent operations or
programs with greater visibility. Only if there is a catastrophic failure, such as a
roof falling in or a bridge collapsing, are senior managers likely to be held ac-
countable for the condition of facilities in any given year (NRC, 1998).
Within the federal government, private-sector methods for linking responsi-
bility, authority, and accountability for facilities investment-related activities are
most easily applied at the project level. Given adequate resources and the author-
ity to allocate those resources, a facility project manager can be held accountable
for delivering a project on time and within budget. As one moves up within a
department or agency to the facility program level, accountability for the out-
comes of investments is more difficult to establish owing to the typical separation
of planning, design, construction, and operations functions and, more importantly,
to an inability to control adequate resources to manage existing facilities portfo-
lios over the long term.
Several elements of the framework of principles and policies recommended
in this report will enhance accountability for the outcomes of federal facilities
investments. Implementation of facilities asset management approaches, coupled
with adequate resources and authority for allocating those resources, will en-
hance accountability for outcomes within facilities management organizations. A
facilities asset management approach allows linking the performance of the fa-
cilities portfolio to the organization's mission and measuring how well opera-
tional and strategic objectives are being met over both the short and long terms.
The development and consistent use of a business case analysis that docu-
ments decisions, value trade-offs, the quality and depth of the alternatives ana-
lyzed, and those responsible for the analysis will enhance accountability for in-
vestment proposals and their outcomes. More integrated approaches to the design,
construction, and operation of individual buildings could result in lower life-cycle
costs and could also serve to make planners, designers, constructors, and opera-
tors of facilities more accountable for the performance and functionality of the
facility. Some design-build-operate-maintain project delivery strategies have been
developed on these premises. The Departments of Defense and State are now
conducting pilot studies to determine if this type of project delivery strategy could
be widely used to achieve better facilities and greater accountability.
As a first step toward making the decision-making process itself more trans-
parent, and to enhance accountability at all levels, each federal department and
agency should develop a decision tree or diagram that illustrates the many inter-
faces among the decision-making and operating groups involved in the process,
identifies the points at which decisions are made, and identifies the groups mak-
ing the decisions at each point.
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112 INVESTMENTS IN FEDERAL FACILITIES
RECOMMENDATION 9. To increase the transparency of its decision-
making process and to enhance accountability, each federal department
and agency should develop a decision process diagram that illustrates
the many interfaces and points at which decisions about facilities invest-
ments are made and the parties responsible for those decisions. Imple-
mentation of facilities asset management approaches and consistent use
of business case analyses will further enhance organizational account-
ability.
******
Principle/Policy 10. Best-practice organizations motivate employees as
individuals and as groups to meet or exceed accepted levels of perfor-
mance by establishing incentives that encourage effective decision mak-
ing and reward extraordinary performance.
Discussion 10. The federal government, unlike private-sector organizations,
does not operate on a risk-reward basis, nor does it seek to make a profit. Using
public dollars to create financial incentives to motivate individuals to meet orga-
nizational objectives sometimes raises concerns; however, such incentives are
already used on a limited basis by federal departments and agencies. Incentives
come in many forms. Identifying and implementing incentives to support good
decision making on the part of individuals and operating groups is as important
for federal organizations as it is for the private sector.
In the federal system, the multiple-objective nature of laws and policies and
the sheer volume of procedures sometimes result in unintended consequences,
including disincentives for good decision making and cost-effective behavior.
The budget scorekeeping rules are one example; they are intended to provide
transparency in the budget and to help control spending, but they also engender
gamesmanship that discourages long-term, cost-effective behavior in favor of
behavior that satisfies short-term needs. The separation of planning, design, con-
struction, and operations functions within departments and agencies creates dis-
incentives for life-cycle costing in favor of driving down the first costs of facili-
ties. The federal budget process creates additional disincentives for cost-effective
actions. For example, in most circumstances, the carryover of unobligated funds
from one fiscal year to the next is not allowed even if a facilities program man-
ager can demonstrate that carryover of funding for a capital investment is the
most cost-effective approach. Funds that are not expended in the current fiscal
year are routinely taken back from departments and agencies, and the next fiscal
year's funding may be reduced on the premise that money not spent is money not
needed. Thus, admitting to savings is not in a federal manager's interest or that of
his organization (NRC, 1998).
Examples of incentives that would support more cost-effective decision mak-
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 113
ing and management by facilities asset management groups include these: (1)
allow savings from one area of operations to be applied to needs in another area if
the savings are carefully documented; (2) allow the carryover of unobligated funds
from one fiscal year to the next for capital improvements, if doing so can be
shown to be cost-effective; or (3) establish awards for operating units with high
levels of performance. A major issue in the implementation of such programs is
to find ways to militate against the common practice of reducing a department's
or agency's budget in future fiscal years if the agency appears to have funds
available at the end of the current year.
GSA's Public Buildings Service (PBS) has instituted a program for linking
budget to performance that provides one example of how financial incentives can
be applied in the federal government to motivate operating groups to better meet
organizational goals on a national and regional level. In 1998, PBS began using a
limited number of performance metrics and targets, coupled with funds from its
annual budget, to precipitate changes in employee performance. The funds for the
program are set aside at the beginning of each fiscal year. For each of the nine
performance measures, which are organized around business performance and
customer satisfaction, PBS leadership sets a national goal. It then negotiates tar-
gets for each of its 11 regions, taking into account the characteristics of the real
estate markets in each region. At the end of the fiscal year, the funds are distrib-
uted to those regions that meet or exceed the national goal; the regions that do not
meet goals do not share in the bonus pool. Regions have discretion in how the
money is used. Of $75 million distributed as of 2001, approximately two-thirds
was used for repairs and alterations of PBS space to improve long-term perfor-
mance of regional facilities inventories and about one-third for salary, training,
workspace, and team awards (Dunham and Beard, 2001). The PBS also reports
improved collaboration among the regions and significant improvements in their
performance as additional outcomes of the program.
RECOMMENDATION 10. Congress and the administration and fed-
eral departments and agencies should institute appropriate incentives to
reward operating units and individuals who develop and use innovative
and cost-effective strategies, procedures, or programs for facilities asset
management.
AN OVERALL STRATEGY FOR IMPLEMENTATION
Transforming decision-making processes, outcomes, and the decision-mak-
ing environment for federal facilities investments will require sponsorship, lead-
ership, and a commitment of time and resources from many people at all levels of
government and from some people outside the government. Implementation of
some of the committee's recommendations can begin immediately within federal
departments and agencies that invest in and manage significant portfolios of fa-
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114 INVESTMENTS IN FEDERAL FACILITIES
cilities. However, implementing an overall framework of principles and policies
will require collaborative, continuing, and concerted efforts among the various
legislative and executive branch decision makers and operating groups. These
include the President and Congress, senior departmental and agency executives,
facilities program managers, operations staff, and budget and management ana-
lysts within departments and agencies and from the CBO, the OMB, and the
GAO.
Having noted this, the committee is well aware that similar recommenda-
tions made by other learned panels advocating long-term, life-cycle stewardship
of facilities and infrastructure have achieved only limited success (see, for ex-
ample, NCPWI, 1988; NRC, 1990, 1991, 1998) and have failed to motivate those
outside the professional facilities community to action. The committee believes
that a new dynamic can and must be instituted.
An illustrative model of sociotechnical systems (Figure 6.1) is useful for
visualizing the interactions that occur during a complex decision-making process
(Linstone, 1984). If the committee's recommendations for improved decision
making for federal facilities investments are to be implemented successfully, these
interactions must be understood and enabled by all the participants in federal
facilities investments and management. Facility managers will not be successful
if they limit themselves to narrow technical analyses or if interactions with senior
ORGANIZATIONAL ASPECTS
PRIMARY
ORGANIZATIONAL
ACTORS
SECONDARY
SOCIO-TECHNICAL ORGANIZATIONS
SETTING
PHYSICAL
(Environmental)
DECISION POLITICAL
SETTING ACTIVITY
TECHNOLOGY
TECHNO-PERSONAL INDIVIDUAL
SETTING ACTORS
TECHNICAL ASPECTS PERSONAL ASPECTS
FIGURE 6.1 A sociotechnical system view for decision making. SOURCE: Linstone,
1984
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 115
SCIENTIFIC SCIENTIFIC VALUE SOCIAL
DATA JUDGMENTS JUDGMENTS JUDGMENTS
x1 w1
y1
x2
w2
Overall
y2 Worth
x3 w3
¥
¥
¥ y3
xn
FIGURE 6.2 A model for integrating scientific and social values in decision making.
SOURCE: Hammond, 1996.
agency management, program and financial staff, and OMB occur just once a
year as part of the budget cycle. Building a case for proactive facility investments
requires that dialogue be initiated and sustained between and among the various
stakeholders using terms of reference that all can relate to and act upon.
Kenneth Hammond has researched the issue of integrating scientific and so-
cial values into the decision-making process and applied the results in practical
ways (Hammond, 1996). He found that in public decision-making settings, an
impasse may occur despite numerous meetings and discussions between govern-
ment officials and community leaders. Often, the root cause of the impasse is the
fact some stakeholders are concentrating solely on technical factors, while com-
munity leaders are primarily concerned with the potential effects on the citizenry.
Figure 6.2 is a diagram Dr. Hammond developed to demonstrate that the
various stakeholders often address related but distinct problems: the technical
requirements involved in solving a specific issue and the social values of the
community. Once such differences are recognized, discussions can be shaped to
address a full range of issues and to develop trust and understanding among the
stakeholders.
The committee believes that all too often, the facilities management commu-
nity, whether in the public or private sector, presents an analysis designed to
convince those who already believe in good facility practices. Factors from the
left side of Figure 6.2 are developed and honed to a keen edge. However, this
information often fails to sway the decision makers, who count facilities as only
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116 INVESTMENTS IN FEDERAL FACILITIES
one area among many competing for resources and attention. Demonstrating that
proactive facility investment supports the broader values of the organization or
government entity will allow for integrated decision making that is more compel-
ling to all stakeholders.
Implementing a framework of expectations, processes, information, and cri-
teria based on the principles and policies identified by the committee will require
broad sponsorship, focused leadership, and deep commitment on the part of all
stakeholders.
To this end, the committee recommends that legislation be enacted and
executive orders be issued that would do two things:
(1) Establish an executive-level commission with representatives from
the private sector, academia, and the ranks of the federal government to
determine how the identified principles and policies can be applied in the
federal government to improve the outcomes of decision-making and man-
agement processes for federal facilities investments within a time certain.
The executive-level commission should include representatives from nonfederal
organizations acknowledged as leaders in managing large organizations, finance,
engineering, facilities asset management, and other appropriate areas. The com-
mission should also include representatives of Congress, federal agencies with
large portfolios of facilities, oversight agencies, and others as appropriate. It
should be tasked to gather relevant information from inside and outside the fed-
eral government; hold public hearings; submit a report to the President and Con-
gress outlining its recommendations for change; an implementation plan; and a
feedback process for measuring, monitoring, and reporting on the results--all
within a time certain.
(2) Concurrently establish department and agency working groups to
provide recommendations to the executive-level commission for use in its
deliberations. The working groups within each department and agency should
work collaboratively with the executive-level commission. Staff in the depart-
ments and agencies are in the best position to communicate their organizational
culture and identify practices for implementing the principles and policies that
will work for their organization. In addition, they can provide the commission
with information on the characteristics of their facilities portfolios; issues related
to aligning their portfolios with their missions; facilities investment trends; good
or best practices for facilities investment and management; performance mea-
sures for monitoring and measuring the results of investments; and other relevant
information.
The committee believes that such sponsorship, leadership, and commitment
to this effort will result in
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ADAPTING PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS 117
· Improved alignment between federal facilities portfolios and missions to
better support our nation's goals,
· Responsible stewardship of federal facilities and federal funds,
· Substantial savings in facilities investments and life-cycle costs,
· Better use of available resources--people, facilities, and funding,
· Creation of a collaborative environment for federal facilities investment
decision making.
Representative terms from entire chapter:
facilities investments
