By Robert Fraga, FCMAA, A.I.A.

A recent survey of Chief Executive Officers (CEOs) and Chief Operating Officers (COOs) with major property holdings revealed some startling findings:
• 50% believe that real estate and facilities are not currently well managed
• 80% want to reduce real estate and facilities costs
• 76% are seeking to reduce costs by outsourcing services to a third party
• 86% believe that real estate and facilities are essential for achieving strategic corporate objectives
• 74% do not believe they manage energy effectively
• 75% report that real estate/facilities is among the top four expense categories for their companies

To optimize their facilities utilization and costs to meet their business objectives in an increasingly complex environment that requires aligning people, systems, and technologies to achieve a common purpose, building owners are engaging in Facilities Portfolio Management. This involves aligning the owner's business strategy with the facilities portfolio strategy, reducing operating costs, improving services, and, ultimately, increasing the value of the portfolio. These benefits come from developings a comprehensive plan to address physical plant maintenance and improvements, internal controls, services, and supply chain management factors.
Key features of an effective Facilities Portfolio Management strategy include:
• Aligning the business needs for growth, reduction or maintenance of space with a strategic facilities plan. Finding the best and highest utilization of space to optimize revenue and reduce expenses.
• Documenting and data-based managing through fact finding (building condition assessment, supplier and user surveys, user focus groups, and other means). Defining the problem often suggests a solution.
• Documenting expenditures, including all operating costs including utilities, routine maintenance, custodial services, repairs and alterations, systems replacement, and other costs.
• Analyzing all operating costs and "normalizing" expenditures (projected costs adjusted by inflation divided by the number of months for a 10, 20 or 30 year cycle) to better understand the real costs of operating the portfolio on a monthly basis over time.
• Benchmarking services and operating expenditures against comparable best-in-class institutions and identifying and implementing cost reduction opportunities (looking for the low hanging fruit).
• Making capital investment decisions, taking into consideration both the initial and life cycle costs of the investment.
• Identifying and implementing the most suitable technologies to secure, operate and maintain facilities assets.
• Planning, implementing and monitoring effective routine maintenance programs to prolong the life of building systems.
• Categorizing and reducing the supplier base, identifying strategic suppliers, leveraging volume purchasing, selecting the most appropriate contract vehicle to deliver services, managing and sharing risks, implementing robust internal controls and services administration, and when appropriate, business process outsourcing.
These activities help building owners to understand, forecast, and plan for the maintenance and operations of their portfolio in a systematic and sustainable manner. It permits the building owners to predict, plan for, and obtain the necessary funds to support operating costs including the inevitable repair or replacement of critical and costly building systems and components.
Facilities Portfolio Management aims to integrate many support functions presently done in "silos" by different parts of the owner's organization and with different service providers. These support functions include:
• Property Management: acquisition, disposal, leasing and property development
• Facilities Management: services, operations and maintenance
• Asset Management: space optimization and revenue generation
• Analytical and Technical Services: planning, assessments, programming, contracting support, design and construction management, project management, commissioning and retro commissioning, supplier and supply chain management and others
Unfortunately, for many building owners, these functions are not well integrated. Though well intentioned, individuals and facilities service providers often work at "cross purposes" pursuing strategies that focus on their own functional area of expertise. They either lack access, or neglect to share, all necessary information to see the "big picture." Real-life examples of this lack of coordination include:
• A large portfolio owner planned to replace the roof (at a cost of $10 million) for a facility scheduled for disposal in the next 5 years. Ultimately, the project was stopped and the roof was repaired but only after the design of the reroof was completed.
• The facilities department of a federal agency installed a very sophisticated system to achieve LEED certification and reduce energy consumption. Unfortunately, the facilities group never discussed the plans with the maintenance and operations staff. This group was not capable of running this system and would routinely override the controls resulting in high energy usage.
• The real estate department of a large owner organization purchased a rural site in a preferred area to develop a processing plant. It was anticipated that the facilities would be served by a well and septic system until the county provided water and sewer services, but the real estate department did not coordinate with the facilities department responsible for site due diligence. After the acquisition of the site, it was determined the site could not percolate and that paying to bring in the utilities to the site would be cost prohibitive.
• The maintenance department for a health care facility kept a large inventory of spare parts that included both critical and non-critical (readily available) parts. This inventory took up a considerable amount of space in the facility and unnecessarily obligated funds that could be put to use elsewhere to support the portfolio. Ultimately, many of the parts "walked away" or became obsolete or damaged.
While some owners or service providers have all of the capabilities in-house to provide comprehensive Facilities Portfolio Management services, many use a combination of in-house resources and consultants to get this work done. Regardless of the composition of the team, best-in-class portfolio managers share the following attributes:
• Effective vertical and horizontal communication among all stakeholders.
• An incremental approach to balancing initial costs and life cycle costs along with other business demands.
• A steadfast determination to reduce operating costs and add value by gaining efficiencies, hiring the best service providers, leveraging volume purchasing, strict inventory controls, and other means.
• Providing effective internal policies and procedures, contract administration, and internal controls.
• A commitment to continuous improvement.
Facilities Portfolio Management services must be highly customized to suit the building owner's needs. The size of the portfolio, the age of the facilities, the building utilization and occupancy, the owner's in-house resources and available supplier base define the nature and types of services needed to sustain the portfolio. Regardless of the size, age and utilization, most facilities portfolios benefit from services designed to reduce energy consumptions such as energy audits, functional testing, commissioning, retro-commissioning, and envelope commissioning. For most building owners, these services offer a very high return on investment.
There are a multitude of service providers that furnish some form of Facilities Portfolio Management services including real estate brokers, facility and program managers and high-end business consultants. Each of these consultants brings a particular area of expertise to the building owner but, in order to provide comprehensive portfolio management services (facilities, internal controls, supply management, etc.), they typically supplement their resources through subconsultants and subcontractors.
The best fit for a building owner is to find a facilities portfolio manager that best compliments the owner's in-house forces, can bring multiple resources to the effort, and has a comprehensive plan to align the business and portfolio strategy, reduce operating costs, improve services, and increase the value of the portfolio over time.

Robert Fraga, FCMAA, A.I.A., is director of facilities portfolio management for MBP, a multi-disciplined construction consulting firm experienced in assisting clients in managing the construction process from initial budget, through design and construction, to successful project closeout.