Investments in Federal Facilities Asset Management Strategies for the 21st Century (2004) / Chapter Skim
Currently Skimming:
3 Decision Making to Support Organizational Missions
3 Decision Making to Support Organizational Missions
Pages 44-61
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 44... ...
. Because of the sums of money involved and the long-term nature of facilities, major facilities investment decisions have direct impacts on many business units, operating groups, and management levels, as well as on the financial prospects of any large organization.
|
From page 45... ...
Together these components support decision making related to facilities requirements and investments, create an effective decision-making environment, and provide a basis for measuring and improving facilities investment outcomes. This chapter features those components of a framework related to facilities requirements and investments.
|
From page 46... ...
However, in the real-life operating environments of corporations or federal agencies, where multiple stakeholder groups have a direct interest in the outcome of facilities investment decisions, decision making is rarely perfectly logical or sequential. Instead, decision making is likely to be interactive and iterative and to involve various stakeholder groups, who have different interests and information, at different and multiple points in the process.
|
From page 47... ...
Best-practice organizations similarly establish a framework of procedures, required information, and valuation criteria to meet an overarching desired goal-achievement of mission. As noted in Chapter 2, a facilities asset management approach allows an organization to integrate facilities considerations into its strategic planning processes and to forge a direct link between organizational goals, investment decisions, and operations.
|
From page 48... ...
Facilities that support core competencies -- for example, administrative space required for in-house staff or noncore functions-can be differentiated from facilities viewed as mission enablers. Level of Control and Planning Horizons When considering a facilities investment proposal, best-practice organizations determine the level of control required and the planning horizon (the length of time a facility will be needed to support a particular function)
|
From page 49... ...
The General Motors Corporation illustrates one way among many of how a facilities asset management approach can be directly linked to organizational mission and strategic planning. General Motors (GM)
|
From page 50... ...
Buffer facilities are used as space for tenants, have short-term leases, and can be easily disposed of in response to short-term business fluctuations. INFORMATION FOR DECISION MAKING To provide a basis for informed decision making about facilities investments, best-practice organizations foster communication among the various stakeholder groups through the use of common terminology; rigorously analyze and evaluate facilities investment proposals; and analyze ways to disengage from the proposed investment (exit strategies)
|
From page 51... ...
To communicate effectively across the various operating units -- facilities, administration, finance, human resources, and marketing, among others -- bestpractice organizations establish and consistently use an agreed-upon set of terms to promote mutual understanding of the issues, risks, and possible outcomes of an investment proposal. Terms such as "capital" are clearly defined for use by all operating units in both proposal documentation and in interactive discussions so that time is not lost through miscommunication or by continually redefining the ground rules.
|
From page 52... ...
These analyses allow decision makers to better understand the potential consequences of facilities investment decisions and to make informed choices in regard to owning, leasing, reinvesting in, or constructing facilities. Pro Forma Statement At the heart of the business case is a pro forma statement that is essentially a financial analysis.
|
From page 53... ...
For example, if interest rates are 8 per cent, the present value of a dollar received or expended in 20 years is only $0.21. Even though the objectives of capital investment in the public sector differ from those of the private sector, the impact of time and interest rates on public-sector investment decisions is equally powerful.
|
From page 54... ...
Exit Strategies To provide important insight about the potential consequences of investing in a long-term, nonliquid asset like a facility and to select the best alternative to meet the requirement, best-practice organizations typically develop and evaluate exit strategies -- methods for disengaging from an investment -- as part of the business case analysis. A commonly analyzed and implemented exit strategy is to lease the required space in the first place.
|
From page 55... ...
The board of directors may make the final decision about investment proposals with potentially significant impacts on the organization's cash flow, productivity, or competitiveness; in this case, an executive-level reviewing body will forward the proposal to the board as a recommendation rather than a decision. Minimal resources are invested at the earliest stages of proposal evaluation, and the business case analysis is likely to focus on the financial aspects of the proposal, the pro forma statement.
|
From page 56... ...
Identify requirement Operating group develops preliminary proposal Present to Decision-making No-Go · Tied to strategic plan Process Ends entity · Screening criteria · Preliminary analysis Conditional · Minimal resources approval invested Analyze alternatives Recommend · Portfolio impact development strategy to Decision-making No-Go · Scenarios: buy/lease/build Process Ends entity · Total cost projections · Exit strategies Conditional approval Present Final detailed proposal to Decision-making No-Go Process Ends analysis entity Go Fast-track project FIGURE 3.1 Typical decision-making process for facilities investments.
|
From page 57... ...
At this initial stage, the level of analysis must be sufficient to determine whether the proposal has merit, without incurring significant time and resources. A pro forma statement might include the underlying assumptions, preliminary estimates of internal rate of return, cash availability (expected costs and cash flow)
|
From page 58... ...
Scenario development and evaluation can identify a range of situations that are sufficiently plausible and then evaluate their relative risks, costs, and benefits related to cash flow, profits, life safety (e.g., accidents, injury, fire, earthquakes) and security, environmental impacts, and the like.
|
From page 59... ...
If the operating environment changes substantially or significant time elapses before the project can be initiated, best-practice organizations reevaluate the decision to approve the project and determine whether to proceed or cancel it. PRINCIPLES AND POLICIES FROM BEST-PRACTICE ORGANIZATIONS Based on a consolidation of research, interviews, briefings, and the committee members' individual and collective experience, the committee found that bestpractice organizations that successfully manage facilities investments operate under a number of principles and policies in their decision making (all 10 principles/policies are repeated in Chapter 6)
|
From page 60... ...
Executive-level managers from all of the operating units are responsible for reviewing facilities investment proposals, making decisions about their viability, and ensuring that facilities investments are integrated into the organization's overall strategic planning processes. Principle/Policy.
|
From page 61... ...
Best-practice organizations base decisions to own or lease facilities on the level of control required and the planning horizon for the function, which may or may not be the same as the life of the facility. When considering a facilities investment proposal, best-practice organizations determine the level of control (own or lease)
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.