Public Sector Property
Asset Management
Public Sector Property
Asset Management
Malawi Ngwira and David Manase
School of Engineering and Built Environment
Glasgow Caledonian University
This edition first published 2016
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Library of Congress Cataloging-in-Publication Data
Ngwira, Malawi.
Public sector property asset management / Malawi Ngwira, David Manase.
pages cm
Includes bibliographical references and index.
ISBN 978-1-119-08576-8 (hardback)
1. Real estate management. 2. Government property–Management.
I. Manase, David. II. Title.
HD1394.N49 2015
352.5–dc23
2015019383
A catalogue record for this book is available from the British Library.
Wiley also publishes its books in a variety of electronic formats. Some content that
appears in print may not be available in electronic books.
Set in 10.5/13.5pt, MinionPro by SPi Global, Chennai, India.
1
2016
This book is dedicated to Valentah, Lamal, CJ,
Xavyera, Gladys and Wezi.
Contents
Acknowledgements
1 Asset Management Concept and Development
in the Public Sector
1.1 Introduction
1.2 The concept of asset management
1.2.1 Definition of asset management
1.3 Benefits of asset management
1.4 Asset management development in the
public sector
1.4.1 Origins of asset management
1.5 Chapter summary
2 Practice of Asset Management
2.1 Introduction
2.2 Drivers of asset management reforms in the
public sector
2.2.1 Internal factors behind asset management
reforms in the public sector
2.2.2 External forces behind asset management
reforms in public sector organisations
2.3 Trends in the development of asset management
in the UK public sector
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2
6
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9
11
13
14
14
15
22
29
vii
viii
Contents
2.4
2.5
2.6
2.7
2.8
Asset management development in Scotland
2.4.1 Prudential Code
2.4.2 Publication of the asset management
guidance by the Scottish Government
2.4.3 Decision of Audit Scotland
2.4.4 Publication of ‘Value for Money’ by audit
bodies
2.4.5 Duty by local authorities to achieve best
value
Structure of operational property assets in the
public sector
Role of property assets
Asset management development in other parts
of the world
2.7.1 Asset management development in New
Zealand and Australia
2.7.2 Asset management development in the
USA
Chapter summary
3 Asset Management and Organisational
Management Theory
3.1 Introduction
3.2 Asset management and organisational
management theories
3.2.1 Strategic management theory
3.2.2 Change management theory
3.2.3 Management theory
3.2.4 Leadership theories
3.2.5 Organisational structure theory
3.3 Relationship between asset management and
organisational management theory
3.3.1 Significance of strategic management
approach in asset management
3.3.2 Asset management as a significant change
management event
3.3.3 Asset management team and project
management approach
44
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57
58
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62
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Contents
3.3.4 Asset management and organisational
structure
3.3.5 Asset management and leadership skills
3.3.6 Asset management and capacity building
3.3.7 Asset management and motivation
3.3.8 Asset management and stakeholder
management
3.3.9 Asset management and value theory
3.4 Chapter summary
4 Strategic Asset Management
4.1 An overview of strategic asset management
4.2 Strategic planning
4.3 Enablers of asset management
4.4 Formulation of strategic plan or corporate
asset strategy
4.4.1 Development of vision, mission goals
and objectives
4.4.2 Review of the organisation’s internal and
external operating environment
4.4.3 Asset information, data collection and
asset knowledge
4.4.4 Identification of size of strategic task or
service level gap
4.5 Asset management planning
4.5.1 The asset management team
4.5.2 Strategy formulation
4.5.3 Strategy implementation
4.5.4 Asset monitoring and control
4.5.5 Asset management audit and review
4.6 Asset management outcomes
4.7 Chapter summary
5 Asset Management Planning
5.1 Introduction
5.2 Formulation of asset management policy
5.3 The asset management team
5.4 Asset management tactical planning
5.4.1 Asset management improvement planning
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x
Contents
5.5
5.6
5.7
5.8
5.4.2 Non-financial factors
5.4.3 Multi-criteria analysis – analytic
hierarchy process
5.4.4 Minimised lifecycle management
of strategies
Strategy implementation
5.5.1 Arrangements at corporate level
5.5.2 Arrangements at property
management level
5.5.3 Project management arrangements
Asset monitoring and control
Asset management audit and review
Chapter summary
128
129
136
142
143
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145
146
149
150
6 Asset Management Plan
6.1 Introduction
6.2 Definition of an asset management plan
6.3 Aim of an asset management plan
6.4 Purpose and content of an AMP
6.5 Content of an AMP
6.5.1 Strategy development
6.5.2 Organisational aims and objectives,
property asset implications and property
asset aims and objectives
6.5.3 Corporate vision and strategy and its
property implications
6.6 Review of current property assets
6.6.1 Consideration of options
6.6.2 Programme development/development
of plan
6.6.3 Implementation of programmes
6.6.4 Monitoring, review and evaluation
6.7 Chapter summary
151
152
152
152
153
154
156
References
Index
171
183
158
160
163
163
165
166
168
170
Acknowledgements
It is a pleasure to acknowledge the many authors and organisations
whose work we consulted and took us a great way towards completing this book. We are also highly indebted to our employer,
Glasgow Caledonian University, for the excellent support given to
us during the development of this book. Last but not least, special
thanks go to our families for their support and patience.
xi
1
Asset Management Concept
and Development in the
Public Sector
Public Sector Property Asset Management, First Edition.
Malawi Ngwira and David Manase.
© 2016 John Wiley & Sons, Ltd. Published 2016 by John Wiley & Sons, Ltd.
1
2
Public Sector Property Asset Management
1.1 Introduction
This chapter reviews the literature on property asset management
in the public sector by focusing on three areas. First, the review
explains the concept of asset management. Second, literature is
reviewed in order to highlight the structure of operational property assets in the public sector in the United Kingdom (UK). Third,
the evolution of asset management is reviewed by tracing its origins, the forces behind asset management reforms, as well as the
trends in the development of asset management in the UK and
internationally. A review of the trends in the development of asset
management in the UK includes establishing the status of asset
management practice in public sector organisations.
1.2 The concept of asset management
This section explains the concept of asset management by defining
and identifying the components that it comprises.
1.2.1 Definition of asset management
Different sources variously describe and define the term ‘asset
management’. For instance, the Royal Institute of Chartered
Surveyors (RICS) (2008) settled on a definition and description
of the term asset management in public sector organisations
after evaluating a number of published definitions from various
sources, such as those by RICS/Office of the Deputy Prime
Minister (ODPM) (2005), Male (2006) and Lyons (2004). Thus,
RICS (2008) defines asset management as ‘a structured process
that seeks to ensure best value for money from property assets
in serving the strategic needs of public sector organisations’.
In considering this definition and other definitions of asset
management, RICS (2008) concludes that ‘there appears to be
considerable consensus over the basic characteristics of strategic
asset management for land and buildings and a distinction
between strategic asset management and operational property
management’.
Asset Management Concept and Development in the Public Sector
3
Asset management is characterised by:
●
●
●
●
●
the adoption of an integrative approach (Institute of Asset
Management, 2006; British Standard Institution (BSI), 2008;
Edwards, 2010);
defining service levels and performance standards and limiting
them to strategic planning objectives;
an optimised investment decision-making approach;
adopting a long-term (lifecycle) approach to asset management (Worley, 2000);
demand and risk management (Department of Provincial and
Local Government, 2010).
The integrative role of asset management relates to the fact
that the approach combines management, financial, economic
and other activities and practices applied to the management
of property assets’ (Institute of Asset Management, 2006b) in a
systematic and coordinated manner (British Standard Institution,
2008). The Audit Commission (2000) states that the strategic
approach to managing public sector organisation property
portfolios involves two broad strands of activities, as illustrated
in Figure 1.1. The strands are Strategic Property Considerations
and Property Services.
Strategic property considerations are in effect asset
management, and include decisions about the number, type
and location of assets required to meet a public sector organisation’s objectives. It is the activity that ensures that the land and
building asset base of a public sector organisation is optimally
structured and aligned with its corporate goals and objectives
(RICS, 2008). Strategic property considerations ask questions
such as: where should the property be located; why should
the property be sited in a particular location; and what size of
property is needed to support a service?
Property services comprise two strands: property management
services and professional technical services. Both strands deliver
the strategic asset management objectives by undertaking the
professional/technical and management work necessary to ensure
that property is in the condition, form, layout and location
4
Public Sector Property Asset Management
Strategic property considerations
Where?
Property services
Property management
services
• Accommodation review and space
management
• Property information
• Contract and budget management
• Energy management
Why?
Figure 1.1
Professional
technical services
• Acquisition and disposals
• Valuation, rating and planning
• Lease and rental management
• Building maintenance
What?
Strategic property considerations and property services.
desired. Property services include ensuring that property is supplied with the services required; surplus property is disposed of
and new property acquired and constructed; property is valued;
property rates are catered for; and all this is done in a cost-effective
manner. It also involves offering advice to decision-makers on the
best way of managing operational property assets (RICS, 2008).
What can be discerned from the various activities associated
with property services is that it comprises two elements, namely
property management (PM) and a concept known as facilities
management (FM).
Ali (2007) cites Brown et al. (1993) who define facilities
management services as coordinating the needs of people,
equipment and operational activities into the physical workplace.
It focuses on the provision of a quality working environment
through various responsibilities such as facilities design, energy
conservation and environmental control (Ali, 2007; Tay and Ooi,
2001). On the other hand, property management, according
to Gibson (1994), is concerned with the care of buildings to
tenants’ or owner occupiers’ satisfaction. Both FM and PM
have responsibility for premises, although the focus of activities
for meeting those responsibilities is different. The core of PM
activities, also known as estate management, involves valuation
Asset Management Concept and Development in the Public Sector
5
of property; acquisition and disposal of buildings; provision
of advice on property investment; administration of leases;
administration and accounting for service charges; supervision
of building repairs; rent reviews and rating advice; strategic
reviews of property and accommodation and sales of surplus
space (Stansall, 1994; Balch, 1994).
Conversely, activities associated with FM include: control
of operating budgets and occupancy costs; management and
maintenance of building services; planning and management of
moves; selection of furniture; management of space allocation
and use; supervision of cleaning; security, IT/communication
and telecommunications services; catering and office support
services; materials and equipment purchase management; office
equipment and furniture purchase and management; as well as
maintenance of the building itself (cleaning, heating and lighting)
and maintenance of all mechanical and electrical equipment and
building fabric in terms of decoration and repair of internal and
external equipment (Stansall, 1994; Balch, 1994).
In practice, the functions of PM and FM are not so neatly
separated. There are some common roles between them. The
interface between operational property management and facilities
management within an organisation is shown in Figure 1.2.
Strategic property management activities: FM and PM
Property management
activities
• Facilities or property
provision
Figure 1.2
FM activities
• Building
maintenance;
• Record keeping;
• Landlord advice
Provision of satisfactory
workplace
Asset management: FM and PM activities.
6
Public Sector Property Asset Management
1.3 Benefits of asset management
The integration of facilities and property management services, the hallmark of asset management, is the most beneficial
arrangement for supporting public sector organisation objectives.
There are practical and business benefits that accrue from
utilising property asset management arrangements (National
Asset Management Steering Group (NAMS), 2006a). The holistic
and long-term view adopted by asset management makes it an
efficient approach to property management as it ensures that
property assets, which represent a major investment built up over
hundreds of years in some cases, continue to deliver the desired
services for as long as required. Additionally, the benchmarking
of condition and performance, both of which are integral to
asset management, promotes innovation and efficiencies (NAMS,
2006a). Furthermore, asset management provides a structured
and programmed approach to long-term change. This is necessary because property assets are slow to respond to change
due to the long lead-in times needed to create them as well as
their illiquid nature. Annual incremental change is therefore
insufficient and, as such, it is practically desirable to adopt a
strategic approach, which asset management provides (RICS,
2008). An asset management framework also offers business
benefits, which include amongst others: improved governance
and accountability (Scottish Executive, 2003); enhanced service
management and customer satisfaction; improved risk management (NAMS, 2006a); improved financial efficiency; and
improved decision-making (Worley, 2000).
Through effective asset management, a public sector
organisation will improve its governance and accountability
arrangements with regard to its stewardship of property assets.
Improvements are possible because the public sector organisation
is able to demonstrate to tax payers and those who use its services
that these are being managed sustainably and delivered effectively
and efficiently. Improvement in accountability with regard to
resource use is also enhanced by having in place and publishing
financial and performance indicators (NAMS, 2006b; Scottish
Executive, 2003). Furthermore, associated asset management
techniques provide the basis for evaluating and balancing service,
price and quality trade-offs. Having performance indicators in
place ensures that public sector organisations have the ability
Asset Management Concept and Development in the Public Sector
7
to benchmark asset management performance results against
other or similar public sector organisations (Worley, 2000).
Benchmarking ensures that the organisations deliver continuous
improvement in their asset management arrangements through
performance management. Asset management activities are
undertaken in a systematic and coordinated manner. According
to Worley (2000), such an approach improves governance and
accountability as it ensures that there is a clear audit trail for
the appropriateness of decisions taken and the associated risks.
Also, through effective asset management service management,
service user satisfaction can be enhanced. Improvement in
service management and appreciation of services by users can
be realised through a variety of mechanisms. Such mechanisms,
according to the Scottish Executive (2003), include: improved
performance and control of service delivery to the required
standards, thereby maximising efficiency of service delivery;
improved understanding of service requirements and options;
formal consultation and agreement with users on the service
levels; and a more holistic approach to asset management within
the organisation through multidisciplinary management teams.
Improved risk management is another beneficial outcome that
can flow from effective asset management. According to NAMS
(2006b), asset management processes and practices ensure that
assets are assessed for the probability and consequences of failure
and issues relating to continuity of service are addressed. Apart
from improved risk management, effective asset management
practice has the potential to enhance the financial efficiency of
a public sector organisation. At the heart of asset management
practice is the concept of optimised decision-making (ODM),
involving whole lifecycle cost and option appraisal of the asset
management lifecycle activities of asset creation, operation and
maintenance and disposal decisions. ODM, NAMS (2006a)
argues, leads to improved decision-making. ODM ensures that
decisions are based on evaluating both financial (costs) and
non-financial costs and the benefits of alternatives. In addition, the decision-making framework based on ODM enables
the prioritisation of investments, interventions and asset care
activities as well as justification for introduction of or bringing
forward works programmes and funding requirements. Furthermore, ODM makes it easier to recognise all costs of creating,
owning, maintaining, operating and disposing of assets over
8
Public Sector Property Asset Management
the lifecycle of the assets. Additionally, it ensures that a public
sector organisation has a lean, well-maintained portfolio that
allows the authority to live within its means by being able to
fund both capital and revenue, by managing property running
costs effectively and efficiently and releasing capital and then
recycling it into corporate priorities (Scottish Executive, 2003).
Apart from financial, governance and service improvement there
are other benefits that flow from effective asset management.
For instance, according to the Department for Communities
and Local Government (DCLG) (2008), asset management can
improve the economic wellbeing of an area by supporting and
facilitating wider objectives such as regeneration and help to
introduce new working practices and trigger cultural organisational changes. Furthermore, well-managed property assets can
assist in reducing carbon emissions and improve environmental
sustainability through low energy consumption. The potential to
increase co-location, partnership working and sharing of knowledge are other positive outcomes associated with effective asset
management; others include improvements in the accessibility of
services and ensuring compliance with statutes and regulations.
Since the need to ensure that assets are in good condition is
one of the key goals of asset management, it follows therefore
that a public sector organisation is likely to end up having a
portfolio of properties that are likely to be in good condition, that
is both physically and aesthetically. Properties that are in good
condition are not only fit to support service delivery but also help
to improve the quality of the public realm. The advantages offered
by a structured approach to property management, as is the case
with asset management, have not always been appreciated by
public sector organisations.
1.4 Asset management development in the
public sector
Asset management evolution is investigated by examining the
forces that have driven the adoption of asset management by
public sector organisations. The evolution of asset management is
also considered by tracing the trends in the development of asset
management in the UK public sector and for similar institutions
internationally.
Asset Management Concept and Development in the Public Sector
9
1.4.1 Origins of asset management
There is a lack of consensus among researchers and commentators over the origins of asset management. However, there is
unanimity among commentators that asset management evolved
from other disciplines. For instance, Edwards (2010) argues that
the concept is a relatively new description of activities that have
been undertaken for many decades but until recently in a fragmented way. This argument is shared by Piling (2010), who states
that asset management is not a new discipline but rather a concept
that has evolved over a number of decades from the industrial
age. Throughout its development phases, asset management has
learned from and incorporated other disciplines and techniques.
Piling (2010) further argues that, over time, there has been a
gradual evolution of these different disciplines and techniques to
the management of the business and management systems and
frameworks that have supported them. However, from the 1970s,
realisation started to take hold in organisations that the effective
management of assets involved an enterprise-wide approach.
The enterprise approach is one where organisations look at
their entire asset portfolio and the interactions between asset
systems. This integrative and entrepreneurial-wide approach
is what is presently understood to be associated with asset
management.
However, there is no agreement over the nature and type of
business activities from which asset management originated.
Woodhouse (2009) is of the view that asset management evolved
principally from the UK’s North Sea oil and gas industry during
the late 1980s and early 1990s. The catalysts for the change
are said to have been the survival pressures of the late 1980s
following the Piper Alpha disaster and the crash in oil price
(Woodhouse, 2009). These events forced a rethink on the part
of these sectors. In response, the oil and gas industrial sectors
introduced an initiative known as CRINE (Cost Reduction in
the New Era). The initiative challenged many of the existing
practices culminating, for most of the industry players, in the
creation of business units with clear lines of budget authority
and performance accountability and given active encouragement
to challenge the status quo. The improvements that ensued led
to significant cost reduction and a management model akin to
what is now termed asset management arose (Woodhouse, 2009).
10
Public Sector Property Asset Management
There were certain features that characterised this management
model. The features included first, an increased focus on the role
of assets that supported the gas and oil business activities. Second,
there was increased interest in establishing how assets performed
in supporting such business activities. Third, the gas and oil
industries came to greatly recognise the role and creative input
of operators and technicians. Finally, the management of assets
supporting gas and oil activities came to be based on ‘whole life’
asset management plans. From these origins, asset management
continued to evolve and this resulted in growing interest from
organisations such as the Institute of Asset Management (IAM)
to codify best practice for managing assets. In 2004 there was an
initial attempt by the IAM to capture the minimum requirements
and best practices. The Institute of Asset Management (IAM)
and the British Standards Institution (BSI) launched a project
on a standard for the management of physical assets known as
BSI PASS 55. The BSI PAS 55 was, and is now increasingly seen
as, the framework for good asset practices, particularly in the
engineering and utilities sectors. BSI PAS 55 is still the ‘publicly
available specification’ for optimised management of physical
assets and infrastructure.
Edwards (2010) suggests that privatisation of the rail and
utility companies in the 1990s was a spur to asset management
in the UK. After privatisation, the rail and utility entities started
pursuing efficiencies through higher levels of productivity and
outsourcing of various services. Edwards (2010), further argues
that, with time, these types of efficiency savings of increased
productivity and outsourcing became harder to find. The rail
and utility organisations responded by starting to challenge
their asset renewal and maintenance activities to see if renewals
could be deferred or planned maintenance intervals extended.
In order to defer or plan maintenance, organisations needed
better asset knowledge and control over their work management processes. These organisations then began to develop
and implement asset registers and work management systems.
Although the initiatives led to improved asset registers, they did
not deliver the expected efficiency gains. Risk management and
cost control remained a problem. Understanding, quantifying
and managing risk, therefore, became increasingly important to
unlocking the efficiencies associated with optimisation of renewal
Asset Management Concept and Development in the Public Sector
11
and maintenance regimes. The demands of the regulators over
controlling longer-term risks associated with asset management
also led to pressures to provide better guidance on the holistic
management of risk. Edwards (2010) is of the view that the
need to holistically manage risks was one of the drivers for the
Institute of Asset Management and British Standards Institution
in developing BSI PAS 55. Regardless of the origins of asset
management, its beneficial impacts are increasingly being appreciated by organisations in both the public and private sector.
These beneficial effects are echoed by Piling (2010), for instance,
who argues that the integrative approach associated with asset
management has contributed to a situation where organisations
now see asset management as a powerful tool to help them
add value to a business, rather than as just a cost centre. Asset
management brings value addition to organisations because the
concept applies an enterprise-wide approach through the whole
asset lifecycle.
1.5 Chapter summary
In this chapter, it has been pointed out that while the exact origins
of asset management cannot be identified, they can nonetheless
be traced to the North Sea gas and oil sector or to the privatised
utilities in the UK. Despite lack of agreement over the origins of
asset management, there is consensus that the concept evolved
from other disciplines.
2
Practice of Asset
Management
Public Sector Property Asset Management, First Edition.
Malawi Ngwira and David Manase.
© 2016 John Wiley & Sons, Ltd. Published 2016 by John Wiley & Sons, Ltd.
13
14
Public Sector Property Asset Management
2.1 Introduction
Up to this point what has been stated is the theoretical process
of asset management. In this chapter, we give an evaluation of
how the process of asset management in the United Kingdom
and internationally is practised. The application of the theoretical
process of asset management by public sectors in the United
Kingdom and elsewhere has been aided by various asset management guidelines. Therefore, this chapter seeks to evaluate the
various guidelines that have been issued by central governments,
public sectors, professional bodies and associations. It also seeks
to evaluate the drivers in asset management reforms; trends in the
development of asset management; and the structure of operational assets in the public sector in the UK. This chapter considers
the role of external forces in contributing to asset management
reforms in public sector organisations. It concludes by appraising the use and development of asset management in various
parts of the world and also gives an explanation of New Public
Management (NPM), the ideology underpinning NPM, the
reasons for its emergence, and how it relates to asset management
reforms.
2.2 Drivers of asset management reforms
in the public sector
During the past two decades or so it has become more noticeable that there has been an increasing trend – with an international dimension – towards the adoption of asset management
approaches by public sector organisations (Kaganova, 2006). Two
types of reform drivers are behind the adoption of asset management practices by public bodies. The first set relate to the internal
factors associated with property management practices prior to
the introduction of asset management. The second concerns the
external forces that have impacted on public bodies and which
have forced such bodies to give greater attention to the way they
manage their property assets.
Practice of Asset Management
15
2.2.1 Internal factors behind asset
management reforms in the public
sector
Prior to the introduction of asset management, all public sector
organisations faced similar problems in managing their property
assets. These included a lack of a central policy framework;
fragmented management of public property assets; economic
inefficiencies associated with public property; a lack of information needed for managing property portfolios and a lack of
transparency and accountability (Audit Commission, 1988a).
Only in the past two decades or so have public sector bodies
begun to understand the full implications of managing their
property assets. Up until the late 1980s and prior to the adoption
of asset management approaches to property management,
Kaganova et al. (2006) observed that public sector organisations
tended to take incremental change actions associated with property management. Initially, public sector organisations responded
by questioning the processes associated with acquisition and
disposal of real property assets. The questioning of processes was
followed by interest on the part of public sector organisations
in outsourcing services such as property sales and property
maintenance. The focus on property management was principally
targeted at those responsible for managing properties. This was a
relatively small group of staff relative to the overall public sector
organisation machinery and its associated range of activities.
Kaganova et al. (2006) further note that only recently have
governments, including public sector organisations, begun to
realise the usefulness of implementing broad policies that address
the users as well as the managers of these assets. Kaganova et al.
(2006) further argue that, to be effective, such a broad policy
framework must come from the highest levels. In addition, the
policy framework must be driven by a clear understanding of why
a public sector organisation requires or retains real property and
what steps are required if that need no longer exists. Such a policy
framework involves utilising asset management approaches to
managing property assets (Kaganova et al., 2006).
16
Public Sector Property Asset Management
In recent years, Kaganova et al. (2006) report that the public
sector has come to appreciate the value of implementing broad
policies that address the users of assets as well as property
managers. The appreciation by public sector organisations of
the value of implementing such broad policies is as a result of
the problems they encountered in managing property assets
without such a framework, as observed by CIPFA (2008) who
state that: ‘in the past public sector organisations did not in any
systematic way consider how property assets had been used and
deployed. Issues about asset condition, asset fitness for purpose,
long term sustainability of assets, delivery outcomes, and how
assets were positioned relative to service user needs were hardly
considered.’ The absence of a strategic focus embodied in a
broad policy framework for managing property assets in public
sector organisations is emphasised by Gibson (1994) following a
study reviewing reports highlighting the inadequacies associated
with public sector property asset management. Gibson (1994)
concluded that the main criticism of these reports was that there
had been no strategic approach to management of public property
assets. The lack of strategic approach was further observed by the
Audit Commission (2000), commenting that: ‘across the public
sector, there appears to be a long way to go before it is general
practice for property assets to be routinely managed in a strategic
fashion. Property is a resource which, alongside others such
as ICT and staff, needs to be actively managed at both service
and corporate levels.’ It is now recognised that effective asset
management involves developing a broad policy framework for
managing property assets that addresses asset users as well as
property managers’ needs. According to Kaganova et al. (2006)
an asset management framework for managing public sector
organisation assets helps to achieve efficiency and effectiveness
through increasing the efficient use of facilities; minimising
operating costs; locating offices and services in functional and
not necessarily in prime areas; and by knowing the highest and
best use of assets among other benefits.
One of the consequences of not adopting an asset management
approach for managing public sector organisation properties was
that the management of such properties tended to be fragmented.
Fragmented management, according to Kaganova et al. (2006)
and Kaganova (2006), involved respective departments of public
sector organisations becoming involved in managing, financing
Practice of Asset Management
17
and using property assets. In the case of the majority of public
sector organisations in the United Kingdom, one of the reasons
individual departments became involved in managing properties
was because property was considered to be ‘owned’ by the individual service committees occupying it (Audit Commission, 1988b).
Such fragmented management of property assets was made worse
by a lack of public sector organisation-wide strategies, policies
and rules that are normally only available where asset management practices are in place. In practical terms, fragmentation
implies that criteria unrelated to asset management effectiveness
or efficiency split public property into many portfolios, and
these portfolios were managed quite independently. Even if
some departments of public sector organisations managed these
properties well, the overall result was that the performance
of property assets and management practices tended to be
suboptimal. In addition, as a result of fragmented management,
public sector organisations experienced economic inefficiencies
associated with the performance of their property assets. Such
inefficiencies included physical and economic underutilisation
as well as insufficient maintenance and repair. Worse still, as a
result of fragmented management, public sector organisations
could not promote and implement policies that encouraged
joint occupancy of properties with partners or other public
agencies. Furthermore, they could not readily exploit surplus or
underutilised property as there were no mechanisms to transfer
property between committees or to encourage the identification
of surplus property for disposal. This was due to the lack of asset
management approach. The weaknesses that emerged as a result
of the fragmented management manner in which public sector
organisations managed their property assets led to a number of
specific problems. According to the Audit Commission (1988a)
these specific problems included:
a) Public sector organisations not having adequate information
about their property. The fact that public sector organisations
did not have adequate information about property assets
meant they could not make informed property management
decisions.
b) There were no incentives for users to efficiently and effectively
manage the properties they occupied as they perceived little
benefit in surrendering ‘their’ vacant or underused properties
either for disposal or use by other service areas.
18
Public Sector Property Asset Management
c) Public sector organisations failed to carry out regular property
reviews, which are necessary if property is to be managed as a
dynamic rather than as a static resource.
d) The opportunity costs of holding property were not recognised, meaning that properties were not put to their highest
and best use.
e) There was a lack of coordinated maintenance strategy,
resulting in maintenance budgets being used for what public
sector organisations saw to be more pressing needs, with
few local authorities carrying out full condition surveys of
buildings to assess the scale of their maintenance backlog.
f) Public sector organisations did not have effective financial and
managerial procedures to aid proper accountability (Audit
Commission, 2000).
g) Evidence that in most public sector organisations there was
political apathy and opposition to change property management practices.
h) Public sector organisations did not challenge the need for
owning property or did not review the manner in which property services were organised and obtained. As a consequence,
most public sector organisations retained and maintained
buildings that were in the wrong place, of the wrong size, or
were otherwise unsuitable for their existing use.
According to the Audit Commission (1988a, 2000) the property
management problems identified and highlighted had unwelcome
consequences. These consequences included:
a) poor control of running costs;
b) badly utilised property tying up capital resources and diverting
revenue resources from areas of more immediate use;
c) failure to generate capital receipts as resources were unnecessarily tied up in property which could be released to generate
capital receipts;
d) holding of excessive vacant property; and
e) deteriorating building stock due to the accumulation of
backlog maintenance.
Figure 2.1 shows the inter-relationship between a lack of
strategic approach to property management and the resultant
problems and consequences. These management problems and
consequences arose because public sector organisations failed to
Practice of Asset Management
Fundamental weakness
Management problems
Inadequate management
information
19
Consequences
Poor control of running costs
Badly utilised property
No incentives to users
Inadequate
property
management
strategy
Failure to carry out
property reviews
Failure to generate capital
receipts
Opportunity cost of
holding property not
recognised
Excessive vacant
property held
Confused objectives
for tenanted /vacant
property
Full cost of providing
service unknown
Poor performance of
investment portfolio
No coordinated
maintenance strategy
Deteriorating building
stock
Figure 2.1 Lack of strategic approach to property management and
the resultant problems and consequences.
recognise the corporate aspects of property portfolio management which necessitate the need to adopt a strategic approach to
management (Audit Commission, 1988a).
The lack of a strategic approach to the way public sector
organisations managed their property assets and the resultant
management problems and consequences meant that property
management introduced economic inefficiencies. Economic inefficiencies included poor control of running costs; failure to put
properties to their highest and best use through poor utilisation;
and deteriorating building stock. According to Kaganova (2006)
such inefficiencies persisted in most public sector organisations
and led to an established belief, common amongst public bodies,
that property held by a government was a ‘free good’, owned by
20
Public Sector Property Asset Management
the taxpayers and not subject to economic rationalisation. The
failure on the part of public sector organisations to rationalise
their property asset holding had consequences. The consequences
included first, that public sector organisations seldom accounted
for the real cost of holding a property asset and the opportunity
cost. Second, public sector organisations incurred opportunity
losses stemming from economic underutilisation. Economic
underutilisation relates to failure on the part of public sector
organisations to capture the property’s highest and best use.
Apart from economic underutilisation, there was also physical
underutilisation where vacant or underutilised properties were
unnecessarily retained. Opportunity losses also stemmed from
deferring maintenance and repair of public sector organisation
properties leading to accumulation of deteriorated stock. The
lack of adequate and appropriate property information needed to
support asset management decisions has been an issue in most
public sector bodies. For instance, in a recent study Ngwira et al.
(2012) reported that less than half of the Scottish public sector
organisations indicated that they had sufficient data on property
sufficiency, usage, sustainability or condition. Furthermore, the
property systems of Scottish public sector organisations conveyed
inadequate information about the environmental performance
of buildings in terms of CO2 emissions, health and safety surveys, energy performance, required maintenance, maintenance
spending patterns, benchmarking, agreed performance targets
and processes for consulting with partners. There have been
other similar findings that Scottish public sector organisations
lacked reliable information in property asset registers to assist
with management decisions. For instance, following a study of
asset management practice in Scotland by the Audit Commission
(2009), it was reported that, ‘the majority of Scottish public sector
organisations report good arrangements for collecting property
data, but good operational data is not always used to support decision making’. Even on the world stage it is noticeable that public
sector organisations have difficulty introducing effective property
information management systems. For instance, Grubisic et al.
(2009) observed that despite the age of information technology
and worldwide computer use, many public sector organisations
still did not have asset registers that would enable them to have
a true reflection of the total value of assets owned, or their public
Practice of Asset Management
21
asset registers were incomplete making it difficult to monitor and
control the way public assets are used or misused. Kaganova and
McKellar (2006) cite the research by Bond and Dent (1998) who
state that as of 1996 only 65% of all public sector organisations
in New Zealand and 66% in England had their property records
computerised. As of 1997, Washington DC had duplicative and
inconsistent inventory records of buildings that the city owned
and a substantial incomplete inventory of in and out-leases.
The situation was no different in the case of the US federal
government that, in early 2002, had no reliable government-wide
data on property holdings. For example, Ungar (2003) states that
the US federal government’s worldwide asset register lacked such
key data as space utilisation and facility condition.
There is general agreement that where public sector organisations lack reliable information about their property assets
it means that revenues and expenses are not tracked on a
property by property basis mainly because this information
is not collected within public sector organisations’ budgeting
systems. Furthermore, the potential market value of operational
property assets is also frequently unknown or bookkeeping
values for property so outdated as to be meaningless. Kaganova
and Mckellar (2006) argue that where information management
systems do not have information about lease arrangements
or access to the information that a lease document provides,
effective property management practices cannot be instituted.
Since leases record space utilisation as well as operating costs,
detailed recordkeeping is essential to cope with owner–tenant
disputes, to ascertain market trends and set prices, to determine
values, and to compare performance against industry standards
and benchmarks (Kaganova and Mckellar, 2006).
Tanzi and Prakash (2000) argue that having reliable information in asset registers would increase public sector efficiency, and
could serve a number of other useful purposes. These purposes
include:
●
●
providing the value of the assets owned by a public sector
organisation or indeed central government that could help
rating agencies in determining credit ratings;
facilitating the calculation of the balance sheet or the net worth
of the public sector organisation;
22
Public Sector Property Asset Management
●
●
reducing the possibility that some public assets ‘disappear’; and
permitting a public body to impute capital charges to public
agencies, institutions or other public sector organisation
departments that use these assets and force them to use these
assets efficiently.
The lack of transparency associated with property asset
dealings in most public sector organisations was another consequence of not adopting an asset management approach to
operational property management. Kaganova et al. (2006) assert
that property asset dealings in most public sector organisations
were by no means transparent. This kind of lack of transparency
in property asset transactions created problems in most countries
and included suspect dealings, ‘insider’ transfers and other
abuses. The pressures for transparency reforms in public property
asset transactions therefore gained momentum, requiring that
property asset management practices be subject to codified
procedures and processes.
2.2.2 External forces behind asset
management reforms in
public sector organisations
The drive for reforms in property asset management has taken
place as an integral element of the major externally driven changes
that have affected the role of the public sector organisations.
These changes, known as New Public Management (NPM), have
emerged over the past three decades or so. Mackie (2005) states
that in the case of the UK, NPM related changes have taken place
since the election of Thatcher’s Conservative Government in 1979
and have been asset management drivers.
2.2.2.1
New Public Management (NPM): explanation
and ideological beliefs
Mackie (2005) explains what is meant by the concept of NPM
and states that it is a movement on the part of the public sector
to become more like private business, coupled with greater
accountability to funders, stakeholders and service users for
results achieved. There are certain ideological beliefs about the
provision of goods and services by public sector organisations
Practice of Asset Management
23
that drive the NPM movement. According to Dawson and Dargie
(1999) the movement believes that public sector provision of
services or goods is inefficient and often ineffective. In addition,
there is also a belief that public sector provision of such goods or
services leads neither to cost containment, nor quality improvement. Furthermore, the movement believes that the public
sector opens the way to undue influence for employees from their
membership of professional associations or mass trade unions.
Finally, the movement believes that if the public sector is left
unchecked to continue providing goods and services, this is likely
to result in unacceptable growth in publicly funded spending.
Growth in publicly funded spending, mostly by taxation, in turn
has consequences of an increasingly dissatisfied electorate and
declining standards of public service.
On the basis of these beliefs and the potential problems associated with cost containment, performance and public support
that can arise from public sector provision, the movement has
identified three goals as main drivers of public sector reforms.
The goals include containment of cost, securing of public support
and performance improvement (Dawson and Dargie, 1999).
The NPM movement believes in the merits of the private sector
and considers that these goals can be realised through market
mechanisms. The contention is that the private sector knows
how to engage in ‘turnaround management’, the objectives of
which are to cut costs, eliminate waste and instil competitiveness.
According to Hoque and Moll (2001) the introduction of NPM
in the public sector sought to bring about a turnaround by a shift
in management focus. The shift in management focus related to
moving from adherence to formalised procedures to an emphasis
on resource allocation and goal achievement. According to Dawson
and Dargie (1999), NPM’s intentions are to create an institutional
and organisational context that mirrors what are seen as critical
aspects of private sector models of organising and managing,
such as the construction of market mechanisms. A key feature of
the market mechanism was the creation of quasi-markets wherein
new organisations were created and a split imposed between
those public organisations that were to commission or purchase
public services and those organisations, private or public, that
were to be contracted to provide the services. Mackie (2005)
states that politicians in the UK and elsewhere came to accept the
24
Public Sector Property Asset Management
NPM doctrine that private sector management was superior and
whenever possible the public sector should emulate the private
sector or simply privatise the public function.
2.2.2.2
Reasons for emergence of NPM
According to Hoque and Moll (2001), three factors contributed
to the emergence of NPM as a movement. They were a concept
known as economic overload; the role of Public Choice Theory;
and the rise of Conservative Party ideology.
Economic overload relates to fiscal crisis of the state (Boyne,
2002). In the UK, fiscal crisis occurred in the mid 1970s. Massey
and Pyper (2005) have charted developments leading up to then.
According to them, in the period from 1945 to 1975 the size of
the peace-time public sector and the proportion of the economy
taken in taxes to fund it grew to nearly half the nation’s GDP.
The tax burden combined with a period of high inflation and
rising unemployment from 1974 brought about a fiscal crisis
of the state. This created a situation whereby a perception grew
among some US and British observers that the commitments
of the welfare state were outstripping the ability of taxpayers to
fund it, a concept known as economic overload (O’Connor, 1973).
Apart from the problem of meeting welfare commitments, the
UK also experienced other problems such as poor public service
provision and strikes because of the power of trade unions.
According to Dawson and Dargie (1999), free market politicians
faced with the problems of containment of cost, employee power
and poor public sector performance associated with economic
overload turned to private sector models on how to effect change.
Public Choice Theory was one such model/concept to which they
resorted.
According to Mackie (2005), Public Choice Theory encourages
the use of marketplace practices to improve public service
provision. The theory developed from three theoretically linked
schools of thought, namely the Chicago, Virginia and Austrian
schools. One of the main contributors to the Public Choice
theoretical arguments is the conservative market economist
Hayek (1944) of the Austrian school. The basic argument that
underlies Public Choice Theory is that government bureaucracy
(public sector organisations) restricts the freedom of choice
and power of the individual. In addition, Public Choice Theory
Practice of Asset Management
25
contends that the traditional public sector model of adherence to
formalised procedures does not provide an equivalent structure
of incentives and rewards to those of markets. Such a model
restricts the choice and power of individuals. In addition, the
monopoly situation associated with the traditional public sector
organisation model means that there is a lack of information
available on the extent to which the public service organisation is
delivering value for money.
According to Public Choice Theory (PCT), the restrictive and
monopolistic characteristics associated with public sector organisations make them inherently inefficient (Boyne, 2002). The inefficiencies are a result of the way public sector organisations are
owned, funded and controlled (Boyne, 2002). PCT entails that
common ownership, which is a hallmark of public sector organisations, ‘leads to lower efficiency since property rights in the public
sector are diffuse and vague’. In addition, the fact that public sector organisations are publicly funded makes them unresponsive
to the preferences of the people who receive their services. This
is because the service providers do not necessarily consider that
they are accountable to service users. Inefficiencies in public sector
organisations also arise as a result of the manner in which they are
controlled. Since public sector organisations are subject to political controls they are likely to face multiple choices of authority that
are potentially conflicting. Instead of public sector services being
provided via the traditional public sector model with its inherent
inefficiencies, PCT argues for the need for a public sector model
that emphasises resource allocation and goal achievement. Such a
model is found in private sector provision of public services on
the basis that markets are a more efficient way of allocating scarce
national resources. The theory assumes that by introducing competition in service provision followed by performance monitoring,
review and evaluation, public sector organisations can enhance
the value for money demonstrated by public service providers.
According to Massey (2005), the PCT arguments profoundly
impressed politicians, leading to the UK government – and
many others around the world who were faced with similar fiscal
crises, especially New Zealand, Australia and Canada – from
1975 onwards implementing what has been described as New
Public Management (NPM) (Massey, 2005). The pressures
for substantive changes in the funding and delivery of public
26
Public Sector Property Asset Management
services were intended to increase the efficiency, effectiveness
and responsiveness of service delivery to users (Crawford, 2003).
Since the 1980s, governments have responded to these pressures
by introducing political initiatives, such as the practices and
processes of the commercial marketplace, which have sought to
modify the manner in which public sector organisations operate;
and their organisational cultures changed (Baldry, 1998) and
ultimately improved performance (Hood, 1991).
2.2.2.3
NPM and asset management reforms
According to Massey and Pyper (2005) there are several linking
threads contained in PCT that are behind NPM ideology. These
are the threads or ideas that have influenced public sector
reforms, including property asset management reforms, in the
UK, New Zealand, Australia and the USA, among others. While
there is no formal definition of NPM, there are some most
commonly identified elements in the literature associated with
the implementation of key NPM initiatives. Such commonly
identifiable NPM initiatives include:
●
●
●
●
●
improved performance, especially financial efficiency and
cost-effectiveness, supported by performance monitoring and
incentives (Christensen and Laegrid, 2001);
a redefined and reduced role for the public sector in the
economy, including privatisation or commercialisation of previously public enterprises and services, increased contracting,
and application of private-sector management approaches to
the public sector (Sehested, 2002);
separation of policy-making and service delivery functions;
decentralisation or devolution of service responsibilities from
higher to lower levels of government; greater managerial
flexibility in financial management; and
greater accountability and transparency in government
operations (Hoque and Moll, 2001; Grubisic et al., 2009).
Externally led reforms in property asset management that have
forced public sector organisations to adopt asset management as
a framework for managing their property assets are said to firmly
belong to NPM (Organisation for Economic Cooperation and
Development (OECD), 1995). Some of these external influences
Practice of Asset Management
27
in NPM that have so significantly impacted public sector property
management include central government policies; budgetary
pressures; recognition of the financial payoff to better asset
management; and accounting reforms (Kaganova et al., 2006).
In the UK, since the 1970s, various central government-led
policies have been introduced to improve the way in which the
public sector organisations manage their services. These reform
initiatives have also affected property management through ideas
such as strategic asset management and best value regimes. The
best value framework requires public sector organisations to seek
to continuously improve service delivery while at the same time
pursuing better value for money in the management of their
resources (Scottish Executive, 2004). It has been recognised by
governments that property management reforms that seek to
ensure the efficient and effective management of the property
asset base are crucial to meeting rising public expectations of
improved service delivery. As has been observed and argued
by the Office of Government Commerce (OGC) (2003), public
services are evolving in the context of rising public expectation,
increasing focus on improving efficiency and value for money,
and the continuous emergence of new technologies. These services are underpinned by a huge asset base worth billions across
central and public sector organisations. This asset base needs to
develop to reflect and support service evolution. According to
OGC (2003), the efficient management of these property assets
is therefore crucial if the government’s strategy for increasing
efficiency in the public sector is to be realised.
It has been a common feature in recent years that lower tiers
of government, such as public sector organisations, have faced
continued pressures on their budgets. The effect of such budgetary
constraints has been to pressurise public sector organisations
to examine better ways of managing property assets necessary
to support service delivery functions and thereby raise revenue
from their property assets. These budget constraints may be a
result of lower overall public sector revenues, sometimes induced
by the deliberate choice to reduce taxes. These constraints may
also arise as a result of the devolution of service responsibilities
from central government to lower levels of government, without
commensurate transfers of revenue (Massey, 2005). Regardless
of the source of these pressures, public sector services have to be
28
Public Sector Property Asset Management
provided within a constrained financial regime. The consequence
of these budget constraints on public sector organisations has
been to accelerate approaches for better management of property
necessary for public organisations to function and raise revenues
from such assets. For instance, in recent years, the UK government
has commissioned a number of reports on operational property
assets (Lyons, 2004; Male, 2006). The reports have suggested that
effective and efficient management of property assets can free up
resources that can be ploughed back to support core services.
Male (2006) confirmed that savings on buildings of between
£410 and £660 million a year could be realised over a 10-year
period through effective and efficient management of central
government estate. Lyons (2004), on the other hand, reviewing
the government’s efficiency and relocation plans announced in
2004, suggested that savings of approximately £625 million a
year by 2010 to 2011 were possible through reducing central
government’s property requirements, excluding requirements by
the UK Ministry of Defence.
The reform of accounting practices in the public sector has been
another external force that has strongly influenced infrastructure
asset management in general and property asset management in
particular. A move to accrual accounting and Generally Accepted
Accounting Principles (GAAP) has spread across much of the
developed world. These changes, as noted by Kaganova and
Nayyar-Stone (2000), have had drastic implications for the way
real property assets are accounted for and the kind of information
flows that are needed to comply with new adopted accounting
standards. According to Kaganova (2010), accrual accounting
and GAAP standards bring greater clarity to how property related
costs and property values are recognised and measured over
time. Recognising and valuing public assets such as property,
Grubisic et al. (2009) argue, provides better information about
the management of public spending because it assures better
management of public assets, liabilities and costs. The adoption of
asset management by public sector organisations and other public
sector bodies is a global occurrence. However, as Hentschel and
Utter (2006) point out, despite the growing international interest
in asset management, it is noticeable that there are differences in
approach and a lack of uniformity in the pattern of development.
The differences in approach and lack of uniformity are evident
Practice of Asset Management
29
even in different parts of the UK, especially between English and
Scottish public sector organisations.
2.3 Trends in the development of asset
management in the UK public sector
Asset management development in the UK has had to react to similar internal and external forces and a discernible trend is noticeable. Harris (2010) argues that the early 1980s can be regarded
as the point at which the public sector in the UK started recognising the importance of a strategic approach to management of
operational property assets. Such recognition was prompted by
reports such as those by Davies (1982) on the NHS estate and
Lord Gowrie (1985) on central government office accommodation highlighting the ineffectiveness in the management of public sector property. The reports generated interest from the Audit
Commission and the National Audit Office. The two public watchdog organisations carried out studies on the subject leading to
the production of reports on asset management in public sector
organisations. One such report was that produced by the Audit
Commission (1988a) after carrying out a study of a public sector organisation’s strategic management of property assets in England and Wales. The study was prompted by two main factors.
First, there was at the time a growing interest in the importance of
strategic management of property assets. The Commission therefore wanted to establish whether public sector organisations had
knowledge about the value of their property assets as well as the
running costs of these assets. The Commission argued that knowledge about the value and running costs of assets are essential if
property assets are to be managed effectively and efficiently. The
Commission concluded that public sector organisations did not
have knowledge about the extent of their property holdings, nor
did they have any real knowledge about the value of these assets.
Similarly, it concluded that public sector organisations could only
estimate the costs of running their property asset base. The second
factor was that the Audit Commission wanted to assess whether
public sector organisations were applying the good property management principles necessary to withstand the various issues and
pressures they faced at the time. In these reports, the Audit Commission identified five issues and pressures that faced public sector
30
Public Sector Property Asset Management
organisations and that called for moves to more active property
management. The issues identified included:
●
●
●
●
●
rapid changes in demand for local council services;
tight capital controls on local capital and revenue resources;
deterioration of much of public sector organisation property
stock;
pressure to take a more active role in economic development
and to respond to changing needs for property in the economy
as a whole; and
legislative pressures, such as competitive tendering, increasing
financial delegation, and grant maintained status of schools.
The Audit Commission study also found that in the majority
of public sector organisations property was considered to be
‘owned’ by the individual service committees occupying them.
The implication of this was that property that was surplus to
requirements or underutilised by one service could not readily be
exploited by another. This was because there was no mechanism
to encourage joint occupancy, such as transferring property
between committees. In addition, there was no mechanism to
encourage the identification of surplus property for disposal.
According to the study this fundamental weakness arose because
such authorities failed to recognise the corporate aspects of
property portfolio management or lacked a strategic approach
to property management. The general conclusion of the Audit
Commission report was that property was an undermanaged
resource and that the strategic function was underdeveloped.
This emphasis on the management function itself was echoed in
a study by Avis (1990) on behalf of the Reading University which
concluded that:
a) the overall picture was one of a reactive rather than a strategic
planned approach to property management in both the public
and private sectors;
b) there was clear evidence that property was only seriously considered by organisations (both private and public sector) when
they were under severe profit or cost constraints; and
c) that both private and public sector organisations lacked
knowledge and understanding of the role of property and
had little knowledge of the contribution it makes to the
organisation.
Practice of Asset Management
31
The research and interest in property management then
moved from examining the role of property in an organisation to property management performance and how that was
monitored. In a study by Oxford Brookes University and the
University of Reading (1993), it was concluded that the whole
area of monitoring organisational property asset performance
was undeveloped and that efforts were needed to understand
best practice. Focusing on property management best practice in
public sector organisations in England, Gibson (1994) carried out
a study to evaluate the extent to which these organisations had
progressed in effectively adopting and implementing property
asset management and its associated strategies. The study’s
findings were that while there had been significant progress made
in capturing the quantity and quality information, there was
nonetheless a problem in making effective management use of
such information. Management could not make effective use of
information because there was no performance benchmarking
system with appropriate performance indicators. Performance
benchmarking helps to establish if property resources are being
managed in an efficient and effective manner.
The research undertaken by Gibson (1994) on behalf of the
Department of the Environment Transport and the Regions
(DETR) (1999) sought to investigate the extent and nature of
asset management and performance measurement in English and
Welsh public sector organisations focusing on asset management
planning, property information management and the use and
prioritisation of capital expenditure. The findings were that asset
management was still in an embryonic state in most public sector
organisations. The study recommended that public sector organisations pay greater attention to improving asset management
planning. The Audit Commission (2000) recommended that
greater attention be paid to the strategic management of property
assets. The study also reviewed public sector organisations’
progress in England and concluded that there had been little
progress made by public sector organisations and that property
was still not perceived as a strategic resource that needed to be
actively managed at both corporate and service levels.
The Audit Commission (2000) further stated that public sector
organisations still devoted insufficient attention to the use and
cost of property assets. The reasons for the minimal progress, the
Commission argued, were as a result of the barriers that public
32
Public Sector Property Asset Management
sector organisations encountered which prevented them from
obtaining best value from asset management. These barriers had
proved difficult to overcome due to a number of reasons which
included:
●
●
●
●
●
●
public sector organisations not always treating property as a
strategic resource;
failure to challenge the need for owning land and property, or
to review the manner in which property services are organised
and obtained;
public sector organisations not having sufficient data to make
informed property asset management decisions;
public sector organisations having poor financial and managerial procedures to aid property accountability;
political apathy and opposition to change on the part of public
sector organisations; and
legal and financial constraints.
In order to overcome the identified barriers, a number of
recommendations were made in terms of what needed to be
done. The recommendations were directed at public sector organisation managers, elected members and central government.
The Commission recommended that public sector organisation
managers should:
●
●
●
●
●
●
●
●
●
enhance awareness of property as a strategic resource that
needs to be actively managed at both corporate and service
levels;
identify responsibility for strategic asset management;
develop a council-wide property asset management plan
(AMP);
introduce property management information systems;
undertake regular review of assets and challenge decisions
about asset retention;
integrate property use in any best value service review;
explore innovative ways of service delivery;
pursue integrated service arrangements and inter-agency
property sharing;
undertake office accommodation reviews to reduce costs
through innovative work practices;
Practice of Asset Management
●
●
33
incentivise departments in order to see property as a corporate
resource; and
subject property services to best value by ensuring that property services are customer focused.
At the same time, the Commission made recommendations
directed at elected members urging them to:
●
●
●
●
●
recognise and fulfil their responsibilities over property;
seek to fully understand the role of asset management;
establish property as a strategic management issue headed and
supported by senior officers;
provide supportive leadership to issues of closure of facilities;
and
encourage and facilitate joint working and property sharing
with other local agencies.
The Commission recognised that the support of central government was pivotal if barriers to asset management development
were to be overcome. It urged central government to:
●
●
●
work to raise the profile of asset management in public sector
organisations through the introduction and enforcement of
AMPs;
take the lead in coordinating a common approach to data
collection and performance measurement; and
identify a small number of key national asset management
indicators to be included in the suite of best value indicators.
Up until the early 2000s, Harris (2010) argues that there
had been very little quantification of the scale of the potential
efficiency gains across the public sector that could accrue from
effective asset management practices. The first attempt at this
was in a report to the UK Government by Gershon (2004),
who recommended that annual efficiency savings of 2.5% in the
public sector were possible. The savings, he argued, could arise
from improvements in ‘back office’ activities, such as effective
use of space occupied by those that provide support to the
delivery of frontline services. Accepting the recommendations,
the government in the 2004 Spending Review set out agreed
34
Public Sector Property Asset Management
efficiency targets. In the budget of the same year the government
announced that it would cut administration costs in real terms
and achieve efficiency gains across the public sector of 2.5%
per year over the period of the 2004 Spending Review. This was
expected to deliver efficiencies of £20bn a year by 2007–08, for
redeployment to frontline public services.
The Gershon report was reinforced by one from Lyons (2004),
who argued for better management of central government
public sector assets. He stated that the asset base, then worth
around £658 billion across the central-government public-sector
underpinned public services, needed to develop to reflect and
support service evolution. He argued that through effective asset
management underpinning the central government’s efficiency
and relocation plans announced in 2004, taken as a whole savings
of approximately £625 million a year by 2010–11 could be secured
through a reduction in civil estate requirements. Lyons (2004)
argued that across the board, efficiencies in space utilisation
could give rise to over 250,000 square metres of space that was
no longer required. This amount of space, Lyons argued, could
potentially provide savings to the taxpayer of £135 million a year
by 2010–11.
The National Audit Office (2006) also carried out a study based
on a series of best practice case studies. The study demonstrated
how asset management could improve efficiencies, arguing that
annual savings of £1.5 billion to £2 billion were possible by
bringing occupancy density standards in line with good practice.
With the embedding of asset management in the public sector,
the need to measure the extent to which progress was being
made became more pressing. According to White (2011), the
momentum of property asset management activity picked up
from around 2004. The change in pace, according to White
(2011), followed the supportive and encouraging role played by
the Office of Government Commerce (OGC). From 2006, OGC
(2006) started developing asset management templates to be used
by government departments in preparing their own asset plans.
White (2011), through the University of Leeds, was commissioned by OGC to provide a baseline understanding of property
asset management in central government and to propose a model
of excellence. The study reaffirmed the importance of a strategic
approach to ‘business-wide’ resource management, including
Practice of Asset Management
35
real estate assets. The study recommended that if strategic
asset management was to become a reality, the government
needed to act on four key areas: leadership and integration;
benchmarking and standards; skills and capability; and review
and challenge. The study determined that action, in the form of
leadership and integration, was needed to address the fragmented
nature of ownership and responsibility for central government
civil property assets allied to a lack of strategic direction. In
addition, the study recommended that the government needed
to take action to develop property benchmarking and measuring standards with regards to its property assets because
there was a lack of such standards for asset management planning, capability requirements and aspirations for delivery of
property solutions. The study also established that there was
a lack of understanding in government of the property asset
management function and the capability required, particularly
at the strategic level. The study recommended, therefore, that
the government develop appropriate skills and capabilities.
Finally, the study recommended that the government should
develop a mechanism for reviewing, auditing and challenging
its property asset base portfolio since such a mechanism was
lacking. With regard to the likely outcome of implementing
a strategic approach to the central government property asset
portfolio, the report indicated that significant savings could be
realised. In particular, the report suggested that yearly savings
in central government operational property costs of over £150
million were possible with additional efficiency savings of
up to £380 million per annum from flexible workplace and
work style strategies. The four action areas – namely leadership and integration; benchmarking and standards; skills
and capability; and review and challenge – identified by the
Leeds University report formed the basis of the OGC’s own
asset management strategy entitled High Performing Property (HPP): A Route-map to Asset Management Excellence
(White, 2011). According to OGC (2006) High Performing
Property defined central government’s high level framework
and direction to achieve excellence in property asset management. HPP challenged government departments to deliver ‘a
step change in performance’, by promoting an approach in
which public sector asset management integrated a number of
36
Public Sector Property Asset Management
basic principles (Harris, 2010). These asset management basic
principles included:
●
●
●
●
the integration of property asset management in the organisation’s strategic business delivery and resource management;
having clearly defined and delivered asset management
responsibilities matched by skilled and capable staff and board
level representation, where appropriate;
use of performance measurement and management tools to
deliver continuous improvement in the management and
delivery of an organisation’s property assets and the central
government’s estate;
maximisation of the use and operation of an organisation’s
estate, including early identification and disposal of surplus
accommodation, optimum use of buildings and workspace
through the adoption of effective workspace strategies, and
optimum delivery against the government’s sustainability
targets.
The Routemap document was supported by two further
documents namely, ‘Property Asset Management (PAM) Maturity Matrix’ and ‘Better Measurement, Better Management’
produced by OGC (2006). The Property Asset Management
(PAM) Maturity Matrix defined levels of organisational maturity
and capability across all aspects of property asset management. It
was developed to underpin the Skills and Capability Component
of High Performing Property (HPP) and to support delivery of a
rationalised effective central government property asset portfolio.
The Maturity Matrix was designed as a profiling tool for understanding the total requirement for PAM capability. The application
of the Matrix was due to recognition that a range of factors impact
on the required levels of capability. The nine factors identified
were:
a) Corporate governance – the distribution of rights and responsibilities for PAM among stakeholders and participants.
b) Organisational structure, roles and responsibilities – the
management and sufficiency of PAM capability throughout
the organisational structure
Practice of Asset Management
37
c) PAM policy, objectives and strategy – how objectives in property asset-related matters are set.
d) PAM information systems and communication strategy – the
corporate systems for PAM information collection, access and
reporting.
e) PAM planning – development and implementation of formal
PAM plans linked to business strategies and corporate objectives. Includes the extent to which whole life performance, risk
management, prioritisation of investments and benchmarking
are brought together and documented.
f) Acquisition and disposal – how acquisition and disposal of
property within the organisation is evaluated and managed.
g) In-use performance – how operation, maintenance and performance of the retained property asset portfolio are managed.
h) Performance review – part of a continuous improvement
regime that an organisation has put in place.
i) PAM audit – includes audit of PAM policy and strategy, PAM
plans, the Matrix Profiles and Transition Strategy, skills and
training needs, approaches to risk management, quality of data
and use of technology and benchmarking.
An analysis of the capability descriptors allows an organisation
or department to target the profile to be developed and matched
against the existing profile and any identified shortfall can then
be addressed and progress towards maturity managed. The
capability descriptors for each of the nine aspects of PAM in
the Matrix typify each level of knowledge, understanding and
application of PAM. This can range from no knowledge to full
knowledge and application of excellent practice. At innocence, or
unawareness, level PAM planning and decisions are fragmented,
bottom up and inconsistent. At excellence level, PAM is led from
the top with a fully integrated approach.
The Office of Government Commerce (OGC) produced a
second report titled: ‘Better Measurement, Better Management’
(2006). The purpose of the publication was to emphasise the
link between performance measurement and better management (White, 2011). The link is emphasised by OCG (2006)
in the report, which states that: ‘Measuring efficiency and
effectiveness of property and facilities management is a critical
38
Public Sector Property Asset Management
component of better asset management and provides opportunities for increased productivity and delivery of savings.’
OGC (2006) justified the issuing of the publication on the
basis that while many government departments had systems
in place to measure how efficiently they were managing their
property portfolio, little had been done to measure the efficiency
and effectiveness of the central government property portfolio
as a corporate entity. The overall aim of OGC for promoting property performance measurement and benchmarking
was that these aspects should be embedded into the regular
management and reporting of overall business performance
in government departments. The Property Benchmarking
Service was set up by OGC to act as a catalyst by enabling
organisations to measure the performance of accommodation in relation to a number of key performance indicators of
both efficiency and effectiveness and to compare the performance against others in central government, with benchmarks
derived from other organisations elsewhere. In terms of the
specific property performance measurement and benchmarking
services, the Property Benchmarking Service was set up to
provide:
●
●
●
●
A best practice tool with key performance indicators (KPIs) to
enable departments to measure and manage their own property performance.
Consistent measurement of the efficiency and effectiveness of
management and use of the central government property asset
portfolio.
Identification against commonly agreed metrics of space
utilisation and ways in which management and use of the
central government property asset portfolio can be made
more efficient and effective.
Cross sector, national and international benchmarking as part
of a continuous improvement in the management and use of
the central government property asset portfolio (OGC, 2006).
In 2008, the RICS commissioned Jones and White (2008) to
prepare asset management guidelines for the public sector. The
guidelines were intended to set out the key features of good property asset management practice for RICS members and to explain
and identify the skills needed for effective asset management
in the public sector. There had been growing realisation that
Practice of Asset Management
39
the fast pace of change of the business environment in which
property operated was not matched by the slowness of land and
buildings – relative to other strategic resources – to respond
to change. The slowness of the public sector’s asset base to
respond to change, the RICS (2008) argued, ‘led to many parts
of the public sector property asset base underperforming in
non-financial and financial terms’. The RICS further concluded
that there was a need for change in a structured and programmed
approach to long-term change in the asset bases of public
sector organisations through a strategic approach to property
management.
Observing the limited progress in addressing property as a
strategic asset in the public sector, 4Ps (2007) sought to reinforce
the message in a report which stated that property ‘makes a
critical and very tangible contribution to the success of core
business’ and that it needed to be integrated in an organisation’s
overall corporate strategic planning. With regard to property
management in public sector organisations, the report emphasised the need to integrate property when preparing service
plans, arguing that as the public sector continues to evolve
and looks for new ways of working and service delivery these
changes have property implications. These changes can only be
properly addressed if the implications on property are reflected
in corporate, service and asset strategy plans. The importance
of making progress in asset management development in public
sector organisations continued to be emphasised by central
government. For instance, the Department for Communities and
Public Sector commissioned York Consulting (2007) to carry
out a study to evaluate the development and implementation
of corporate capital strategies and asset management plans
as well as to assess the policy’s impact on the efficiency and
effectiveness with which councils in England managed their
property and other capital resources. The study evaluated and
synthesised a number of similar studies on asset management
arrangements in English public sector organisations undertaken by the Department for Communities and Public sector
over a period of six years between 2001 and 2007. The study
concluded that there remained significant improvements to be
made in strategic asset management. The study re-emphasised
the need for effective utilisation and adoption of asset management processes as the policy had not resulted in public
40
Public Sector Property Asset Management
sector organisations making effective and efficient use of operational property assets. In order to improve the efficiency and
effectiveness with which public sector organisations managed
their property assets, the study recommended that councils
should:
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
periodically review the corporate management arrangements;
designate an elected member as the property portfolio holder;
seek to involve the scrutiny and review functions of elected
members;
strengthen the corporate component of property management
arrangements;
introduce corporate project management systems;
undertake post-implementation reviews for all capital
projects;
establish an ongoing process for the collection of relevant
property data and an effective mechanism for holding this
data;
collect and monitor a suite of the relevant property performance indictors;
engage with other organisations on their experience with asset
management;
consult with partners and other stakeholders;
develop a medium/long term property strategy;
develop a procurement strategy in line with modern good
practice;
establish clear strategic approaches to the utilisation of space
and flexible working, and co-location with partners and stakeholders;
undertake a formal programme of property reviews;
develop a formal corporate approach to option appraisal
(including whole life costing);
develop a formal corporate approach to the prioritisation of
capital projects.
The report produced by York Consulting (2007) was a prelude
to the report entitled ‘Building on Strong Foundations: A
Framework for Public Sector Organisation Asset Management’,
produced by the Department for Communities and Local
Government (DCLG) (2008). This report was intended to deal
with the issues raised in the York Consulting report. The DCLG
Practice of Asset Management
41
concluded that there remained issues related to asset management
in public sector organisations and as such the government felt
that it needed to reinforce the message about the significance
and need for asset management. There were four main issues
that affected asset management development. First, there was
growing realization on the part of the government of the vast
wealth tied up in public sector organisation property assets and
associated management costs. The government was of the view
that public sector organisations needed therefore to appreciate the
importance of effective management of these assets. For instance,
property assets owned and controlled by English public sector
organisations were estimated to be worth nearly £239 billion
in 2006/7. Second, York Consulting highlighted that English
public sector organisations did not fully appreciate the role of
asset management in supporting social objectives. Such a lack of
appreciation led to recognition by the government that it needed
to reinforce the message that property assets had a social role to
play. According to the DCLG (2008), effective asset management
could play a major social role in delivering better outcomes for
citizens, creating a sense of place and generating efficiency gains.
In the process, DCLG argued that asset management could help to
support government policy. In addition, the government wanted
to dispel the misconception among public sector organisations
that it had lost interest in asset management. The misconception
had arisen following the ending of the requirement for public
sector organisations to submit their asset management plans.
Finally, the government had persistent concerns about property
asset management among public sector organisations and was
keen to see improvements. The concerns stemmed from the
findings of a longitudinal study carried out by the Department
between 2001 and 2007 as reported by York Consulting (2007).
The study concluded that there remained significant improvements to be made in strategic asset management. Three main
reasons were identified as lying behind the lack of progress, and
these were:
●
●
●
lack of corporate culture in the authority;
minimal buy-in to the importance of strategic asset management from senior officials and members; and
lack of leadership across the authority.
42
Public Sector Property Asset Management
These three issues led the government to produce a ‘framework
for public sector organisation asset management’ aimed at senior
officials and elected members. The aim of the framework was
‘to bring together key policies and influences that shape public
sector organisation asset management’ as well as raise the profile
of public sector organisation asset management. The framework
highlights a number of policies that influence and shape public
sector organisation asset management. These policies include:
●
●
●
regeneration policies;
introduction of single regional strategies encouraging partnerships to utilise their local asset base to inform and achieve local
and sub-regional outcomes;
Multi-Area Agreements (MAA) where two or more councils
and their partners work together to deliver agreed economic
development or infrastructure outcomes.
According to DCLG (2008), all these influences give rise to
opportunities that become available to public sector organisations
when they are developing strategies for asset management. The
opportunities include:
●
●
●
●
potentials for partnership working, co-location and sharing of
services;
efficiency gains through better use of assets;
financing of new assets; and
sharing of knowledge.
According to DCLG (2008), public sector organisations have
certain responsibilities that come alongside opportunities. These
include:
●
●
●
●
●
●
ensuring that they have adequate systems in place to develop,
implement and review asset strategic asset management strategies;
the need to engage early with local communities when developing plans for asset management;
considering all options for under-used assets;
having a performance framework in place with appropriate
asset management indicators;
focusing on value for money and improving efficiencies; and
ensuring that that procurement of assets, maintenance and
management of assets are done sustainably.
Practice of Asset Management
43
The Audit Commission (2009) produced its third in a series of
reports on strategic asset management by public sector organisations in England. Like the previous reports, published in 1988b
and 2000, this was aimed at helping elected members and relevant
public sector organisation officials understand how a more strategic approach to asset management could secure better value for
the tax payer. The study findings were that councils had made only
modest progress despite the 1988 and 2000 reports. According to
the Audit Commission (2009) a number of internal barriers were
hindering progress on strategic asset management development
in English public sector organisations. These barriers included:
●
●
●
●
●
inadequate data and benchmarking arrangements;
unsuitable valuations and values that are published for
accounting purposes;
lack of collaborative arrangements;
inadequate property management capacity; and
stopping, in 2003, mandatory publication and submission of
asset management plans to central government.
The study made a number of recommendations directed
at councillors and senior public sector organisation officials,
in terms of what needed to be done to improve public sector
organisation property asset management. The recommendations
were that public sector organisations should:
●
●
●
●
●
●
●
improve their knowledge of their property asset portfolio and
their partners’ portfolio by collecting relevant data on size, use,
occupancy, condition, running costs and having an eye to the
open market value (at realistic alternative uses);
ensure that asset management plans include quantification of
the potential costs and benefits of proposals;
share information with other local bodies providing public
services;
collect data to populate the corporate value-for-money
indicators;
rationalise property holdings by identifying and disposing of
surplus or under-utilised property;
make appropriate changes to services and administration so
that they occupy less space;
consider tenure other than ownership where that gives demonstrably better value;
44
Public Sector Property Asset Management
●
●
●
●
●
introduce policies to motivate service managers who occupy
property to use it economically by implementing capital charging arrangements that make them accountable for the cost of
the capital they use; and allowing them to keep a proportion
of any sales proceeds;
develop the capacity needed by recruiting appropriately skilled
staff;
commission reviews from property professionals in the private
sector;
collaborate with local partners through sharing assets and
property data where beneficial; and
seek opportunities presented by the recession, such as acquiring property at reduced prices to satisfy future need and
employing high calibre staff newly in the employment market.
2.4 Asset management development
in Scotland
Contrasting the situation in Scotland to that of England, the emergence and adoption of asset management by Scottish public sector
organisations only took hold after 1997 following devolution and
the setting up of the Scottish Parliament. A number of influences
have contributed to asset management development in Scotland.
According to CIPFA (2008) such influences include the Prudential Code; publication of school asset management guidance by the
Scottish Executive; the decision by Audit Scotland to give time to
councils to prepare asset management plans; publication of ‘Value
for Money in Public Sector Corporate Services’ by UK audit bodies; and the statutory duty imposed on councils by the Scottish
Executive to achieve best value.
2.4.1 Prudential Code
In 2004 the Scottish Executive introduced a new capital
investment system that public sector organisations were required
to apply. Under the new system public sector organisations are
statutorily required to have regard to a Code of investment
practice, known as the Prudential Code, when determining
their capital expenditure (Section 35 of the Public Sector in
Practice of Asset Management
45
Scotland Act, 2003). The Code emphasised the importance of
asset management planning in making such determinations
and allows public sector organisations the freedom to invest
and borrow provided this takes place within the confines of
affordable limits. In order to be able to prove such affordability
the Prudential Code places a formal requirement on councils
to take more account of asset management planning and option
appraisal when agreeing capital investment proposals. In effect,
public sector organisations are required to evaluate affordability
of investment options by assessing the whole lifecycle costs.
2.4.2 Publication of the asset management
guidance by the Scottish Government
Asset management development in Scotland was further sparked
by the need to secure best value from the newly created education
assets (CIPFA, 2008). For instance, in 1998 the Scottish Executive
embarked on a massive programme of schools improvement,
initially costing £530 million and rising to £1.2 billion by 2002.
In order to ensure that these assets were created in a coordinated
manner and the investment achieved best value, the Scottish
Executive invested heavily in publicising best practice asset
management techniques for the school estate in 2003 (Scottish
Executive, 2003). According to CIPFA (2008) the Scottish Executive sought to support best practice in asset management by
increasing financial resource allocation for the schools fund. This
was in part used to produce asset management guidelines for the
preparation of annual detailed asset management plans and an
annual set of core facts. The asset management plan guidelines
were aimed at ensuring that the developed school estate was
effectively and efficiently managed (Scottish Executive, 2003).
From 2003 public sector organisations were statutorily required
to prepare and submit on an annual basis core facts relating to
condition, suitability and sufficiency of the education property
assets (Scottish Executive, 2003).
Condition deals with the state of repair of features or facilities
that exist as part of the building fabric and as part of its current
design (Scottish Government, 2008). According to the Scottish
Executive (2007), where a building’s current design or design
intent has been rendered inadequate or inappropriate by new
46
Public Sector Property Asset Management
requirements that apply retrospectively, then its condition has
been impaired. A building’s current design or design intent
can be rendered inadequate as a result of changed legislation
or regulations, or from regulatory or central government guidance. A typical situation that can affect a building’s design and
consequently impair its condition could be the need to improve
the general health and safety requirement to reduce the risk to
staff and the general public to a level that is as low as reasonably
practicable.
The definitions used by the Scottish Executive to grade building
condition are consistent with criteria set by the Royal Institution
of Chartered Surveyors nationally. The condition grades include:
●
●
●
●
A: building as new
B: building serviceable but in need of some repair
C: building in need of major repair immediately
D: building unsafe or not useable.
Sufficiency, according to CIPFA (2008), is about demand and
sustainability of the asset. The concern is with asset use both
now and in the future. According to the Scottish Government
(2008), becoming concerned with current and future asset use is
important because an asset should be able to be adjusted in a way
that better adapts to changing ‘demand’ (Scottish Government,
2008). Suitability, according to CIPFA (2008), is sometimes called
the ’fitness for purpose’ test and is purely concerned with how
well the asset is suited to its current purpose. With regard to
suitability, the Scottish Government (2008) states that this relates
to how the design, spaces and configuration of the building
impact on function. In addition, suitability is also affected by
ease of use and accessibility, especially in context of public sector
organisations’ ‘accessibility strategies’ and their responsibilities
under the Disability Discrimination Act (Scottish Government,
2008). The asset management plan guidelines were aimed at
ensuring that the developed school estate was effectively and efficiently managed (Scottish Executive, 2003). According to CIPFA
(2008), improvements in the management of school estate were
achieved by adopting asset management planning principles. The
improvements, according to CIPFA, created the momentum for
best practice procedures in the council departments.
Practice of Asset Management
47
2.4.3 Decision of Audit Scotland
Efforts to develop asset management practice in Scottish public
sector organisations were further assisted by the decisions of
the statutory body, Audit Scotland. According to CIPFA (2008),
Audit Scotland allowed public sector organisations some breathing space in the period 2005–08 to put in place proper asset
management and capital planning decision-making frameworks.
Instead of Audit Scotland undertaking an annual audit of such
frameworks, the organisation came to an understanding with
public sector organisations that a full audit of the frameworks
would take place after 2008.
2.4.4 Publication of ‘Value for Money’
by audit bodies
The development by the UK audit bodies of a publication entitled
‘Value for Money in Public Sector Corporate Services’ contributed to the development of asset management. According to
CIPFA (2008), the document was intended to help public sector
organisations understand, compare and demonstrate the value for
money performance of their corporate services. The publication
contains a section on ‘Estate Management’ that proposes a suite
of high-level performance indicators.
2.4.5 Duty by local authorities to achieve
best value
The Scottish Executive took the view that it would embed asset
management practice in the public sector by passing The Public
Sector in Scotland Act 2003 (Scottish Executive, 2004). The Act
places on public sector organisations a duty to secure best value
in the management of resources such as property assets. In order
for public sector organisations to be able to secure best value
from property asset management they are required to: keep a
considered and appropriate balance between cost, quality and
price; ensure that management arrangements secure continuous
improvement; and ensure that asset management decisions
contribute to sustainable development. Noting the dearth of best
practice asset management guidelines tailored to the Scottish
context, CIPFA (2008) produced asset management guidelines
48
Public Sector Property Asset Management
for Scottish public sector organisations. The guidelines, according
to CIPFA, were intended to ‘provide a common framework
for the progression of asset management and capital planning
arrangements and to complement existing asset management
guidance’. The framework set out in the guide was aimed at:
‘assisting Scottish public sector organisations to collect the right
information and have the right systems in place for effective asset
management’ (CIPFA, 2008).
In the years 1988, 2000 and 2009, the Audit Commission
carried out studies on asset management in English public sector
organisations. However, it wasn’t until 2008 that Audit Scotland
(2009), a wing of the Audit Commission, undertook similar
studies to examine asset management in Scottish public sector
organisations. Audit Scotland was motivated to carry out the
study in order to impress upon public sector organisations the
significance of property assets and, therefore, the need for their
effective and efficient management. In order to underscore such
significance the Commission pointed out that: ‘after employee
costs, the largest cost to public sector bodies is what they spend
on their fixed assets – councils spent around £1.1 billion on
property running costs in 2007–08. Good asset management is
therefore critical to a council being able to demonstrate that it is
providing best value.’
Audit Scotland carried out the study with the overall aim of
‘evaluating the extent to which councils managed their property
assets to ensure effective service provision and achieve value for
money, and to make recommendations for improvement’. The
study tackled a number of specific questions in order to address
the set aim. The questions included:
●
●
●
●
Whether public sector organisations were able to establish the
amount of property assets they owned, their value and information held about their condition and suitability.
What corporate and property organisational arrangements
public sector organisations had in place to ensure that service
needs drove their asset management strategies.
Whether public sector organisations’ asset management
arrangements led to increased efficiency.
Whether public sector organisations had effective arrangements for managing the performance of their assets.
Practice of Asset Management
49
The Audit Commission concluded that asset management
remained undeveloped in Scottish public sector organisations
and urged them to:
●
●
work together to implement a consistent methodology for
measuring building suitability;
ensure they have effective asset management plans and strategies for their property.
Effective asset management plans and strategies should:
●
●
●
●
●
●
●
●
●
●
set out how each type of asset will contribute to public sector
organisation objectives and service aims;
set targets for assessing progress, including the condition and
suitability of each asset;
describe an overall plan for achieving set targets;
ensure that asset information is up to date, complete, and held
in a form that allows the production of appropriate management reports;
establish robust monitoring and reporting procedures for asset
performance, to assess progress against their strategies;
formulate a long-term capital strategy, linked to achieving the
aims of their asset management strategies; this should include
a formal corporate approach to options appraisal for proposed
capital projects;
ensure that whole-life costs are taken into account in capital
and revenue planning;
consider issues of sustainability, such as CO2 emissions, when
evaluating and developing whole-life costing model for proposed capital projects;
ensure that elected members and public sector organisation
officers have transparent mechanisms for scrutinising property use and the cost of holding property. In order to do so,
elected members should regularly consider reports on the
condition, suitability and use of assets, property costs, and
estimates of the maintenance backlog;
where significant changes are planned to assets in an area,
or to a particular type of asset, ensure consultation with
stakeholders such as the local community is open about the
issues the public sector organisation is facing and provides
clear information about the options for change;
50
Public Sector Property Asset Management
●
●
agree with community partners arrangements for joint
property sharing; this should include identifying and tackling
the barriers to strategic joint working around public assets
and developing shared property databases to facilitate joint
working; and
make use of legislation that allows councils to sell assets at
below market value if it is for public benefit, where this is consistent with a published policy objective and would achieve
best value for the public sector overall.
2.5 Structure of operational property
assets in the public sector
Public sector organisations own and control a huge wealth of
property assets. The nature and type of property assets held by
public sector organisations is very diverse. The assets are held
for different reasons and with varying management objectives
associated with their ownership and use. These properties are
intended to support public sector organisations’ strategic and
operational objectives. The proliferation of different types of
property assets in the custody of public sector organisations, the
wide ranging reasons for holding them and different ways of
managing them, often in a non-strategic manner, have meant that
management problems have ensued (Phelps, 2009).
Public sector organisations in Scotland and England own
and control properties to support their principal objective of
service delivery. The properties vary in terms of scale and nature.
The Audit Commission (2000) distinguishes direct operational,
indirect operational and non-operational properties and gives a
definition of each. In this distinction, direct operational properties are the land and buildings used to deliver a direct service
to the public. These properties include, for example, education
assets such as schools, assets for delivering social services such as
elderly persons’ homes, and leisure and entertainment assets such
as public parks and libraries. Indirect operational assets, on the
other hand, are those assets that support service delivery in some
way. As an example such assets are most notably the town hall
and other local administrative offices. Finally, non-operational
properties are those assets held for investment reasons. Property
Practice of Asset Management
51
assets held for investment typically include shops and industrial
properties, for example.
Governments, including public sector organisations, own
and control a huge number of property assets. According to
Kaganova (2010), in most countries public sector organisations
own or control large holdings of land and built-up properties.
Citing Warsaw in Poland as an example, the public sector in
charge of the City of Warsaw owns 22% of the city’s territory and
11,312 built-up properties covering operational and a diversity
of non-operational properties. The properties range from markets and garages to sports and cultural buildings to industrial,
commercial, residential and administrative properties. The public
sector’s commercial or non-operational properties alone are said
to comprise about 10,000 shops. The land value makes up 80% of
all assets in the public sector’s consolidated balance sheet.
This type of manifestation, where public sector organisations
own vast property resources, is observable across other parts of
the world. Kaganova (2010) states that, on average, property assets
constitute 40–95% of everything public sector organisations own,
and that in many countries the value of urban land and property
under public sector organisations’ control exceeds their annual
budgets. The scale and nature of property assets held by public sector organisations in England and Scotland is equally impressive.
Relying on the data produced by the Chartered Institute of Public Finance and Accounts (CIPFA), the Audit Commission (2000)
reported that, as of 1999, public sector organisations in England
had a portfolio of assets that was valued in excess of £140 billion,
or £78 billion excluding council housing. Drawing on the figures
published by the UK National Accounts, Lyons (2004) provides
an overview of the total fixed assets held by public sector organisations. As of December 2003, public sector organisations in England held assets with a book value of £177.2 billion. Of the £177.2
billion, £86 billion represents the value of operational properties.
The size of the operational properties is an indication of the huge
jump from a figure of £67.7 billion for 1999 (RICS and ODPM,
2005). An indication of the scale of public sector assets in Scotland is given by Audit Scotland (2009) who state that in 2007/08
Scottish public sector organisations held fixed assets valued at £26
billion, of which property assets made up £21 billion or 81%. If
council housing is excluded, the figure stands at £13 billion or 50%
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Public Sector Property Asset Management
of the £26 billion. It was estimated that public sector organisations
spent around £1.1 billion on property running costs in 2007/08.
However, this amount was considered to be an underestimate due
to the different ways in which different classes of property assets
are valued. Some assets are valued on a market value basis and
others on historic cost.
2.6 Role of property assets
The huge asset base that is in the hands of public sector organisations underlines the important role property assets perform
in supporting public sector functions. Despite the significant
role of operational properties in terms of supporting public
sector organisations’ service delivery, a number of problems
have affected the management of these assets. The management
difficulties prompted public sector organisations to consider
a different framework for managing the operational property
assets they owned and controlled. Public sector organisations
adopted asset management as the framework for managing their
operational property assets.
2.7 Asset management development
in other parts of the world
2.7.1 Asset management development
in New Zealand and Australia
The development of asset management in New Zealand was
prompted by the need to tackle massive fiscal problems and
an inefficient economy that was negatively affected by huge
public sector involvement in economic activities. In response, the
country has, since the 1980s, undergone a period of far reaching
structural reform aimed at improving the internal efficiency of the
economy while simultaneously bringing greater stability to the
macro economy (Worley, 2000). With regard to the public sector,
reform was aimed at both reducing the role of government in
the provision of goods and services, and improving the efficiency
of the public sector. These reform measures also influenced the
development of asset management in public sector organisations.
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53
Worley (2000) states that there were a number of key influences
on the development of improved asset management practices in
the public sector in New Zealand. These influences included legal
reform in accounting practices, the need to curb public sector
organisation spending, a requirement on the part of public sector
organisations to produce asset management plans, and technological changes. Regarding legal reform of accounting practices,
statutes were introduced requiring public bodies – including
public sector organisations – to adopt accrual accounting
techniques as well as implementing transparent and prudent
financial management and long-term financial planning. These
changes in accounting practices contributed to asset management
development as it became a statutory requirement to recognise
the depreciation and replacement of assets in the accounts. The
growth in public sector spending further spurred asset management development in New Zealand. According to Worley (2000),
the government pressed public sector organisations to rein in the
growing proportion of public sector expenditure on replacement
and maintenance of ageing and decaying infrastructure assets
and concerns over asset failures and associated cost implications. Rather than the focus being on cost alone, public sector
organisations had to consider changes in management practice
to achieve the same asset management objective. Adoption of
asset management practices was also influenced by changes in
reporting in financial statements. It became a requirement to
include infrastructure assets in financial statements. Similarly,
the requirement for public sector organisations to produce and
adopt an ‘asset management improvement plan’ aided asset
management development in these organisations. Changes in
information technology also played a significant part in asset
management development in the public sector in New Zealand. In
particular, advances in information systems enabled public sector
organisations to collect and manage asset inventory information.
Australia, on the other hand, has not implemented economic
reforms to the degree that New Zealand has. However, both
federal and state governments have implemented strategies aimed
at securing gains in efficiency and productivity (Worley, 2000).
In Australia, the asset management concept was tied into public
sector organisations by the Australian Accounting Standard
(AAS27) Financial Reporting by Public Sector, which requires
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Public Sector Property Asset Management
infrastructure assets to be accounted for and included in financial
statements (Shah et al., 2004). This reporting requirement also
affected property assets and contributed to asset management
development in public sector organisations. The need to regulate
prices charged by public sector organisations was also a factor
in asset management development. Central government passed
legislation that regulated the pricing of municipal services. This
led to public sector organisations developing more robust asset
management practices and detailed asset management plans to
support pricing audits undertaken by government regulators.
Accounting standards and public sector financial reporting
requirements have been key drivers of asset management in New
Zealand and Australia. A key success factor in New Zealand,
and to a lesser extent in Australia, has been public sector-led
initiatives including guideline development, training and asset
management information systems development.
2.7.2 Asset management development in the
USA
According to Lloyd (2010), the emergence of asset management
has gained impetus from growing public and consumer scepticism and demands for greater accountability from the government
bodies responsible for major capital investments in infrastructure
and service provision, among others. In the USA this has led to
a more asset-based approach to state financial reporting of facility condition and asset valuation. The poor state of infrastructure
asset in the USA is considered to be a contributory factor towards
the development of asset management.
Cagle (2003) states that by the early 2000s the USA infrastructure asset base was characterised by deteriorated condition
requiring huge investment in excess of $900 billion to renew and
annually operate and maintain the assets. As a result of the huge
expected financial burden and the consequences of asset failure, a
number of forces coalesced to create the impetus for broad asset
management implementation in order to address the identified
problems. The forces included legal enforcements compelling
public sector organisations to remedy asset failures rather than
be penalised financially for breaches. The enforcement remedies
have included public sector organisations being asked to develop
Practice of Asset Management
55
asset registers, asset condition assessment, repair and maintenance plans and similar asset management solutions. In addition,
government regulation enabled public sector organisations to
design and implement best practice management systems rather
than be compelled to do so.
In addition, in the late 1990s, government legislation specified
some form of asset management as a precondition for receiving
federal funds for infrastructure investment by public sector
organisations. Further, adoption of the Government Accounting
Standards Board Statement (GASB) No. 34 in the 1990s by state
and public sector organisations requires the inclusion of all
infrastructure assets in their statements of net assets. Finally,
industry and professional associations strongly advocated asset
management to address problems associated with the decline
in infrastructure quality and condition and the growing financial burden. At federal government level, the risk of failure
of government assets was a spur to the development of asset
management. According to Nielsen (2007), in the early 2000s
the federal government of the USA became seriously concerned
that its vast property asset base, extending to 3.7 billion square
feet, was ageing and in deteriorating condition due to years of
underfunded maintenance. The deteriorated state of property
assets posed a serious risk of failure. In order to manage these
potential risks, in 2004 the President signed the Presidential
Executive Order (E.O.) 13327. The Order requires all federal
agencies to develop and implement AMPs. Through the Order,
federal agencies are obliged to manage their assets in the most
efficient and effective manner. The results of all these efforts are
that consensus is building on the meaning of asset management,
leading to the development of internationally accepted standards
for asset management practices. The consensus has helped in
understanding that organisational management theories are the
theoretical basis upon which asset management rests.
2.8 Chapter summary
This chapter has highlighted the main factors inherent in public
sector organisations that have contributed to the development of
asset management within them. Public sector organisations had
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Public Sector Property Asset Management
inadequate management practices because they did not have an
asset management approach for managing operational property
assets. The lack of such a management approach meant that
public sector organisations’ approach to property management
was fragmented. A number of management problems arose as
a result of this fragmentation and the consequences of these
included economic and physical underutilisation of property
assets. Public sector organisations adopted asset management in
order to improve property management practices and to mitigate
these problems. The adoption of asset management by public sector organisations has been influenced by two forces. First, public
sector organisations have come to recognise that their existing
practices for managing property assets were inefficient and led
to numerous problems that prevented them from achieving best
value. Following such recognition, public sector organisations
have come to appreciate the need to take a strategic approach,
characterised by asset management, for managing operational
properties. Second, public sector organisations have been led
to embrace asset management because of externally generated
forces. These forces range from New Public Management, to
accounting reforms and increased expectations of users.
3
Asset Management and
Organisational Management
Theory
Public Sector Property Asset Management, First Edition.
Malawi Ngwira and David Manase.
© 2016 John Wiley & Sons, Ltd. Published 2016 by John Wiley & Sons, Ltd.
57
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3.1 Introduction
This chapter gives an overview of the various theories and
practices embedded in organisational management theory. This
is followed by an explanation of the relationship between asset
management and various organisational management theories
and associated practices.
3.2 Asset management and organisational
management theories
Little is reported in literature about the theoretical basis upon
which asset management is founded. Of what is reported, it is suggested that the practice of asset management rests firmly within
the organisational management discipline (Tanfield and Denyer,
2004; Woodhouse, 2010). For instance, Audit New Zealand
(2010) argues that the notable practices of asset management
processes are encompassed within organisational management
issues; those issues of relevance to asset management can be
identified by relating asset management practice processes to
organisational management theory.
Management as a concept is, according to Mullins (2005),
concerned with activities for the carrying out of organisational
processes. These processes are carried out by individuals and
groups. It is through the process of management that the efforts
of individuals and groups are coordinated, directed and guided
towards the achievement of organisational goals. The activities
for carrying out organisational processes have to deal with
influences on organisational behaviour (Mullins, 2005). Such
influences emanate from individuals or groups associated with
particular organisations as well as the organisations themselves.
Furthermore, influences on organisational behaviour can also
be exerted by external and internal environmental factors.
Individuals bring organisations different sets of skills and
attributes, personalities, values and attributes, as well as needs
and expectations. Group dynamics is a main source through
which groups influence organisations and it relates to aspects
such as group structures and functions, role relationships within
groups and group influences and pressures. The organisation itself
Asset Management and Organisational Management Theory
59
can also be a source of behaviour that is influenced by the need
to respond to objectives and policy; technology and methods
of work; formalised organisational structures; as well as styles
of leadership. Finally, the external and internal environment
impacting on the organisation can also be a source of behavioural
influence. Within the organisational management framework,
there are various theories that seek to explain how these influences
operate and how they can be channelled to positively impact
on organisational performance. These theories are strategic
management theory, change management theory, management
theory, leadership theory and organisational structure theory.
3.2.1 Strategic management theory
Strategic management has been variously defined and a number
of theories that seek to explain the concept can be identified.
Mintzberg (1994) defines strategic management as a system
for producing strategies within an organisational infrastructure
responding to an environmental context. Strategies are actions,
often planned, for responding to environmental influences. There
are three commonly identified theories of strategic management.
These, according to French (2009), are classical, neoclassical and
post classical. The classical theory includes the design, planning
and position schools. The contingency and resource-based
schools relate to the neoclassical theory while the post classical
theory includes the learning and emergence schools. The classical
schools are based on concepts of planning and analysis that are
highly formal and therefore rigid, and include:
●
●
●
The design school: considers strategy as not just a plan but also
a pattern. A deliberately loose plan where the model of strategy
is not formalised is set and the role of management is to control
to the plan.
The planning school: developed from the idea that there was
a need to move away from the simple, conceptual, informal
plans associated with design school theory to sophisticated,
deliberate, highly formalised plans, developed by a specialist
team of planners.
The positioning school: is based on setting out a deliberate
plan designed to outperform the competitors in a marketplace.
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Public Sector Property Asset Management
Michael Porter (2002, 1985) and his Competitive Advantage
Model – also known as the Five Forces Model – is a classic
positioning strategy.
Neoclassical theory includes the resource-based and contingency schools:
●
●
The resource-based school: based on the premise that if
firms possess resources that are valuable, rare, unique and
non-substitutable, they can achieve sustainable competitive
advantageous position. Competitive advantages and disadvantages in resources are tantamount to strengths and weaknesses,
respectively, that engender cost and differentiation advantages
or disadvantages in competitive product markets.
The contingency school: contends that there is no ‘one best
way’ that an organisation should be structured. Instead,
contingency theory states that the most effective organisational structure is dependent on the circumstances in which
the firm operates. As such, the structure an organisation needs
to adopt is dependent or contingent on the circumstances it
faces.
Post classical theory includes the learning and emergence
schools:
●
●
The learning school: sees strategy as a battle to learn more
skills and so out-resource the opposition rather than a battle
for market share or position.
The emergence school: rejects the notion that organisations
behave in a linear, deterministic, regular fashion where
patterns of change do not allow room for novelty to occur,
a characteristic of the other schools. Instead the emergence
model is based on the fundamental philosophy that organisations are complex systems out of which it is not possible
to plan a strategy. Instead, in order for emergent strategy to
occur it must happen without ‘direction’.
Elements of all strategic management schools as presented in
the various asset management definitions can be found in the
strategic asset management process. However, the process of
Asset Management and Organisational Management Theory
61
asset management is quite closely identified with the strategic
planning school and its deterministic process. The processes for
formulating strategic planning match those for designing strategic
asset management. The processes, according to French (2009),
include: (i) establishing vision and mission; (ii) objective setting;
(iii) external environment scanning; (iv) internal environmental
scanning; (v) formulating strategic alternatives (crafting strategy);
(vi) strategy selection; (vii) strategy implementation; and (viii)
control. The asset management strategic planning process is
covered in Chapter 4.
3.2.2 Change management theory
Arnold et al. (1998) argue that change is an ever-present feature
of organisational life. The reason for change being ever-present
is that products or services produced by organisations, as well as
the markets or service recipient organisations serve, continually
change. Resistance to change is a common and natural phenomenon. Change can be threatening. It presents those involved
with new situations, new problems and challenges, and with
ambiguity and uncertainty (Buchanan and Hucycznski, 2002).
According to Kerzner (2003) individual resistance to change
can stem from potential changes in work habits, remuneration,
administrative arrangements and social groups; and is due
to embedded fears. Through stakeholder analysis it becomes
possible to identify the different individuals and groups likely to
be affected by the change and the different ways they are likely
to respond. It is crucial that the process of change is effectively
managed if organisations are to continue to thrive. Change
management and organisational structure theories provide the
basis for addressing environmental and organisational influences.
The management techniques, based on change management
and organisational theories, that can be used to manage change
include managers sharing their perceptions, knowledge and
objectives with those affected, utilising a participatory and
empowering approach in the design and implementation of
change, providing facilitation and support mechanisms, implementing change through negotiation and agreement as well as
using change agents.
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Public Sector Property Asset Management
Management draws upon these various theories to provide
integrative frameworks for ensuring that the best efforts of
individuals and groups are properly and effectively coordinated
(Mullins, 2005). Management as a concept is regarded as a
function for carrying out activities. Koontz and O’Donnell (1984)
state that, as a function, management is concerned with discrete
carrying out of functional activities that include planning,
organising, staffing, leading and controlling of activities in an
integrated manner to realise the objectives of the organisation.
3.2.3 Management theory
The definition of management as a function for carrying out
activities includes: planning, organising, staffing, leading and
controlling of activities. Specifically, these functions comprise: (i)
planning including setting of objectives; (ii) organising, which
involves building up the organisational structure, material and
human, of the undertaking; (iii) staffing including the development of people, motivation, communication; (iv) directing or
commanding, which relates to maintaining activity among staff
and all stakeholders; (v) leading or coordinating, which involves
binding together, unifying and harmonising all activity and effort;
and (vi) controlling, including measurement, which is about
ensuring that everything occurs in conformity with established
rule and expressed organisational policy (Lemak, 2004; Koontz
and O’Donnell, 1984; Stewart, 1963).
A number of management theories exist that seek to explain
how management functions are planned, organised, staffed, led
and controlled. The management theories, also known as classes
or schools of management and classified in the logical order of
development, include the classical, human relations, systems, and
contingency theories (Mullins, 2002). The classical school focuses
upon the purpose, structure, planning and technical aspects of
management. Organisations, and the people who work within
them, are regarded as machines/factors of production. The human
relations school, on the other hand, focuses on the human aspects
of organisations and their management, particularly on worker
behaviour and relationships. It seeks to increase productivity by
Asset Management and Organisational Management Theory
63
focusing on the human aspects of organisations, by humanising
the workplace and its effect on motivation, satisfaction, output
and performance. The systems theory sees organisations as complex social systems, responsive to a number of interdependent
and important variables such as people, technology, organisation
structure, and environment. Organisations in the systems theory
are therefore regarded as semi-open systems where the human
factors interface with the organisational ones, such as ICT technology, and organisations interact with their environment. The
role of management, therefore, is to ensure that the interactions
with the internal and external environments are managed to the
organisation’s advantage. The contingency approach accepts that
there is no one best way to manage. Instead, it depends on all the
variables that affect a particular organisation.
Dessler (2012) reviewed effectiveness and how widely the
various management approaches are utilised by organisations.
Following this review he made a number of observations. First,
he observed that all the management theories, or elements of
them, are practised by managers and exist in organisations today.
Second, that management theories and their ideas are not mutually exclusive. Furthermore, he observed that there is no ‘perfect’
theory of management; the best management is one that succeeds
in the particular circumstances, situation and people being
managed. Additionally, he points out that organisations need to
appreciate that the world and an organisation’s own situations
within it change. It is vital that management adapts accordingly
in the context of ever-present change by building on the best of
the past and introducing the new. Dessler (2012) also states that it
is evident from the various management theories that two main
focuses of management have emerged. One is concerned with the
organisation aspects, the other with people aspects. The classical
school places an emphasis on structure, systems and purpose
of the organisation based upon a logical and rational basis. In
contrast, the human relations school emphasises the importance
of people and their interaction with the organisation in order to
make it function and to achieve success. However, in reality a
contingent approach where both focuses are required is the most
successful management.
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3.2.4 Leadership theories
Mullins (2002) states that leadership is an inherent part of
management. Leadership is defined by Mullins (2002) as being
about gaining the commitment of subordinates to do things
willingly. Morden (1997) argues that since leadership is an intrinsic part of management, the greater the proportion of leadership
in management, the more successful the manager. The reason for
increased management success is because an increased level of
leadership engenders greater willingness and commitment on the
part of employees to achieve organisational objectives. Even
though leadership is intrinsic to management, not all management
functions require leadership. The management functions in which
leadership is required are planning, organising and motivating
staff. Leadership is required in planning in order to gain acceptance of the plans by the people or workforce who will be charged
with implementing them. Organising requires delegation, which
to be successful requires leadership as more leadership will
engender a greater willingness and an easier establishment of
the organisation. Leadership is most important in motivating
workers to accept and achieve the objectives set for the organisation. The functions of controlling and coordinating can be largely
systemised and thus require little or no leadership (Mullins,
2005). Belasen and Fran (2008) group leadership theories as
including (i) qualities or traits theory; (ii) functional or group
theory; (iii) leader as a behavioural category theory; (iv) styles
leadership theory; (v) contingency.
●
●
●
Qualities or traits theory: assumes that leaders are born, not
made, and that leaders have certain inherited characteristics
or personality traits.
Functional or group theory: centres on the functions that
the leader performs rather than on the characteristics of
the individual. By identifying these, the theory posits that
it should be possible to copy them and thereby create good
leaders.
Leader as a behavioural category theory: is founded on the
premise that effective leadership is dependent on principles
of behaviour of a leader. In other words it is based on the
idea that effectiveness in management depends on how far
Asset Management and Organisational Management Theory
●
●
65
a person keeps to certain principles of behaviour that are
regarded as most effective. Such principles include fairness,
justice, integrity and trust (Bandsuch et al., 2008).
Styles leadership theory: according to this theory, the style
of leadership adopted by a leader relates largely to how they
carry out the functions of leadership with respect to their
attitude and behaviour towards subordinates. There are three
commonly identified leadership styles and these are democratic, autocratic and laissez-faire. Democratic leadership has
its focus on people and the group, with many decisions being
made democratically in conjunction with the group; consultation and cooperation is high. Autocratic leadership style
has its focus on the leader, who retains all decision-making
power. All decisions are made by the leader, who exercises
tight control by specifying policy and procedures and by using
rewards and sanctions to ensure compliance. Laissez-faire
leadership is where the leader allows the team to organise
and run the operation. Power and decision-making is with
the group. The leader monitors and assists where required.
A more democratic style of leadership is most successful.
It produces greater satisfaction in the workforce, which in
turn leads to greater commitment, thus producing better
performance (Davis and Luthans, 1979). According to Handy
(1993), the reason for better performance is because the
style of leadership results in lower turnover and grievance
rates, lower inter-group conflict, and is the preferred style of
subordinates.
Contingency theory: recognises that there is no single ideal
form of leadership that is suitable to every situation (Sousa
and Voss, 2008). Instead, there is a particular style of leadership that can be designed to suit the circumstances of each
situation. In effect, elements of all leadership approaches are
valid. Successful leaders do not rely on only one leadership
style; instead they use all the available types, seamlessly and
in different combinations, to suit the situation. This requires
that in practice leaders must reassess their leadership for every
situation. A contingency approach to leadership is generally
accepted to be the most successful way to lead because it
draws upon the positive elements of all other leadership
styles, including recognition that the workforce needs to
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Public Sector Property Asset Management
participate in decision-making processes. A participative style
of management is effective as it is a very good workforce
motivator. Participation is a powerful motivator since it
engenders ‘ownership’ of any decisions or objectives. Ownership also instils a sense of responsibility and self-motivation to
ensure the success of the decisions or objectives. Participation
also engenders a feeling of belonging, which can be reinforced
by organising the workers into teams, in turn engendering
feelings of loyalty towards the team and team mates.
3.2.5 Organisational structure theory
An understanding of the structure in which management
functions operate and interact helps in their management. It
is essential, therefore, to design an organisation structure for
carrying out management functions which allows it to interact
with and respond to its external environment (Moore, 2002).
‘Such a structure will provide the framework within which the
other factors that influence the effectiveness of the management
functions have the best chance of maximum performance in
achieving objectives’ (Walker, 1989). Chua et al. (1995) cites
Galbraith (1971) who distinguishes three types of traditional
management structures, namely; the functional, the matrix
and the project team or project management structures. The
distinctions of these traditional management structures are based
on the relative influence of the project manager and functional
managers on the use of resources.
In a functional management structure, the management function – such as a project – is divided into segments and assigned to
relevant functional areas and/or groups within functional areas.
The function is often coordinated by functional and upper levels of management. In a matrix structure, staff involved in the
management of a function remain under control of the functional
manager, while another manager such as a project or asset manager is formally designated to oversee the functional activity across
different functional areas. For a project team function, a manager
is put in charge of a project team composed of a core group of
personnel from several functions assigned on a full-time basis.
In a recent study by Hyväri (2006) investigating the effectiveness
Asset Management and Organisational Management Theory
67
of organizational structures, the matrix and project team-based
organisations were found to be the most effective.
Regardless of the management structure – functional, matrix
or project team – most commentators advocate the setting up
of cross-functional teams as the most effective arrangement for
implementing management functions. However, the staffing of
such teams often involves bringing in individuals from different
groups and departmental functions. In such a team certain
conditions can be created that are more conducive to conflict
than to team work. Conflicts in a team can prevent participation
in activities by team members and make it impossible to mould
and maintain an effective team causing performance to suffer
(Gardiner and Simmons, 1992; Bowditch and Buono, 1990).
Effective leadership style, more specifically a participative and
supportive style of leadership that encourages empowerment and
delegation, has been found to be effective in managing team or
organisational conflict (Harrison and Lock, 2001; Mullins, 2005).
This style of leadership taps the ideas of people with knowledge
and experience, and involves them in a decision-making process
to which they then become committed.
3.3 Relationship between asset
management and organisational
management theory
The role of organisational management theory and the practices
associated with it are critical for effective asset management, as
emphasised by Woodhouse (2010) who states that there is now
general recognition and acceptance that asset management is
not primarily a technical subject. Instead, getting the human
factors right is even more important than the tools, processes and
technical ‘solutions’ that are adopted in asset management. The
human factors relate to aspects such as workforce motivation,
education or capacity building, communication, leadership,
team-working and sense of ownership. These human factors are
the critical enablers to the establishment of a joined up, sustainable approach to asset management. The theories that underpin
these human factors range from strategic management, change
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Public Sector Property Asset Management
management, team management, motivational management,
project management, organisational structure, leadership skills,
capacity building, motivation, stakeholder management and
value theory.
3.3.1 Significance of strategic management
approach in asset management
The significance of adopting a strategic management approach
to asset management is widely reported in the literature. For
instance Tanfield and Denyer (2004) state that there is now
widespread recognition and acceptance by organisations that
the management of infrastructure assets, such as operational
buildings, is an essential component of an overall organisational
strategy. Thus, regarding asset management as a component of
an overall organisational strategy entails adopting a strategic
approach. According to Yiu (2008) a strategic management
approach is concerned with formulating, implementing and evaluating cross-functional decisions that will enable an organisation
to achieve its objective. The recognition and acceptance that
operational property assets should be managed with a strategic
approach has been driven by cost implications and the important
support role of operational properties, as observed by Martin
and Black (2006) who state that owner occupied properties are a
major cost item for the organisation. They report that corporate
asset occupancy costs represent 40–50% of net operating incomes
and are often the third most expensive item behind labour costs
and IT. Additionally organisations have to appreciate that the
primary task of owner-operated real properties is to support the
organisation’s core objectives. Consequently, Too (2008) states
that those charged with the responsibility of managing such assets
have come to view them as an important organisational resource.
Perceiving assets as important entails managing them as a total
enterprise rather than from a traditional functional approach
since they are strategic resources on par with other important
assets such as finance, ICT and people. The argument that asset
management has a strategic focus has been advocated by other
commentators. For instance, the Audit Commission (1988b,
2000) argued that best practice property asset management
arrangement has a strategic focus.
Asset Management and Organisational Management Theory
69
While various strategic management approaches exist, there
is wide agreement that asset management is executed through
strategic planning process (Avis, 1990; Gibson, 1994). The strategic planning framework for the formulation, implementation and
evaluation processes associated with asset management involves
defined stages. The stages, according to Avis (1990), Gibson
(1994) and Tanfield and Denyer (2004), comprise corporate
strategy, asset strategy, asset knowledge and asset monitoring.
These are briefly described below:
a) Corporate strategy: is about understanding the overall organisational objectives. Understanding organisational objectives
is vital because it is from them that property objectives are
derived.
b) Asset strategy: determines how the derived objectives can be
achieved and includes planning for capital investment and
intervention decisions, and ongoing property management.
c) Asset monitoring: involves establishing a monitoring system to
check whether the objectives are being achieved.
d) Asset knowledge: specifies the information required to support
the property management function and to monitor its
performance.
A full coverage of the strategic asset management planning
process is undertaken in Chapter 4.
3.3.2 Asset management as a significant
change management event
The term strategic denotes magnitude or scale (Mullins, 2005).
The change from narrowly focused property management to an
asset management approach is considered to be of significant
scale. Asset management as a major change event is emphasised
by Tanfield and Denyer (2004) who state that: ‘the strategic
management of long-term assets (SMoLTA), such as operational
properties, has emerged as a change theme for organisations’.
The magnitude of change associated with asset management
is echoed by Male (2010). Male observes that the successful
implementation of asset management requires a concerted and
coordinated effort across any organisation and could involve
substantial organisational change.
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Public Sector Property Asset Management
3.3.3 Asset management team and project
management approach
Various commentators allude to the fact that cross-functional
team and project management approaches are the most appropriate frameworks for operational property asset management
(Woodhouse, 2010; Lloyd, 2010; Fisher, 2009). Organising asset
management under cross-functional team arrangements is
advocated by Woodhouse (2010). An asset management team,
according to Woodhouse (2010), needs to be a cross-disciplinary
management group with shared responsibility for assisting the
asset manager in the optimisation and delivery of the asset
management plan. A team approach to asset management is,
according to Lloyd (2010), not just desirable, but essential for
unifying asset management activities across organisations and
driving progress across departments or other organisational
boundaries. A team-based approach provides a way of overcoming fragmented thinking and attitudes and developing holistic
approaches, decision-making and practices.
According to Fisher (2009), for teams to be effective, the team
leader, often an asset manager or coordinator, needs to possess
the skills to manage cross-functional teams including teams in
a project management organisational structure setting. Lloyds
(2010) considers that such skills include effective leadership and
management skills. As for the characteristics of capably managed
asset management teams, Lloyds (2010) makes a number of
observations based on the observations of the US Environmental
Protection Agency (EPA). According to Lloyds (2010) successful
asset management teams are flexible; share ideas and information;
and engage in open and transparent debate; do not have a blame
culture; foster an atmosphere that minimises conflict; build trust
and develop partnerships.
3.3.4 Asset management and organisational
structure
The need for an effective organisational structure for the
successful implementation of asset management activities is
considered important. For instance, Ali et al. (2008) make the
point that: ‘the role of corporate real estate (CRE manager)/asset
Asset Management and Organisational Management Theory
71
manager (sic) is challenging, since asset management activities
comprise all aspects of real estate holdings in the organisation.
It is important therefore to have an appropriate structure which
ensures that there is effective communication.’ Ali et al. (2008)
go on to state that to ensure effective communication, the asset
manager should be functionally positioned at a strategic level and
close to the chief executive or top leadership. An asset manager
so positioned will have the necessary management authority to
provide the needed leadership role.
As regards the type of structure, Male (2006) argues that
the federal or functional structure within any government or
public sector department is a significant obstacle to rolling out
a coherent, consistent and common approach to property asset
management. Thus, having in place a property asset management
board with a strong matrix structure is most effective for implementing asset management in government bodies (Male, 2006).
Such a board is considered the most effective structure because it
brings together strategic and operational aspects of property asset
management into one organisational unit. Hierarchically, it could
in a typical management structure reside just below the executive
management board level and can have strategic and operational
management roles.
3.3.5 Asset management and leadership
skills
Effective leadership has a critical role in ensuring successful
development and implementation of asset management. The
underpinning role of leadership is, for instance, stressed by
Edwards (2010) who says that leadership and development of an
asset management culture are important in helping organisations
move from a departmental view or functional view of their
business towards a more integrated view centred on asset management. Furthermore, leadership skills are as important for the
middle managers as they are for the top team (Edwards, 2010). The
significance of leadership skills for those involved in assets at the
top leadership level is essential for enabling them to drive forward
the asset management agenda in an organisation (Male, 2004).
Similarly, it is important for an asset management coordinator or
manager to occupy a senior leadership position because this
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Public Sector Property Asset Management
enables sufficient authority and resources to drive through the
process and seek and obtain inputs from personnel across the
organisation (Edwards, 2010). Leadership skills are equally
important for middle managers because asset management often
starts in the middle of a business and it is the responsibility of
middle managers to communicate the benefits of an integrated
asset management approach both up and down the organisation
(Edwards, 2010).
3.3.6 Asset management and capacity
building
Like other aspects of generic management, there is emphasis
on building the capabilities of the workforce. This emphasis on
building capabilities is true of asset management. For example,
Edwards (2010) forcefully makes the point, commenting: ‘organisation and people aspects of asset management are about the
capability of an organisation and the individuals who work in it
to effectively implement all aspects of asset management’. The
capability of an organisation includes the development of asset
management roles and competences to ensure that individuals
have a wider understanding of how their role contributes to the
overall asset management goals and how the activities they are
responsible for integrate with other activities in the business
(Edwards, 2010).
3.3.7 Asset management and motivation
Recent research suggests that asset management practices can
have motivational influences upon occupiers of properties
(Martin and Black, 2006). Martin and Black (2006) point out that
real estate plays an integral role in either facilitating or hindering
human resources. Through the effective utilisation of real estate
workspace, real estate strategy can be incorporated within an
organisation’s corporate strategy to support human objectives
of staff loyalty, employee satisfaction and retention of staff as
well as increase workforce productivity. Effective utilisation of
workspace involves arranging it in such a way as to maximise and
facilitate the constructive interaction of the workers and relates
to facilities management, one of the two components of asset
Asset Management and Organisational Management Theory
73
management. Martin and Black (2006) cite Price (2002) who
states that maximising and facilitating the constructive interaction of the workers results in a number of motivational benefits.
These motivational benefits include reduced absenteeism; easier
recruitment of staff of the right calibre; reduced staff turnover;
improved staff morale and customer service; faster development
of new ideas and services or products; higher knowledge worker
productivity in terms of case loads; innovation; and reduced
costs.
3.3.8 Asset management and stakeholder
management
Management, especially in the public sector, is characterised by
the need to address stakeholder expectations. Stakeholder expectations, according to Kerley (1994), can be huge, multiple and
have contradictory objectives. The reason expectations are huge
and conflicting is because of the many and different communities
that expect service provision from public organisations. These
different communities will have different objectives, which often
are contradictory. The need for integrating stakeholder expectations in asset management, notwithstanding the contradictory
objectives, is emphasised. For instance, Too (2008) and Too
and Too (2010) make the point that it is vital that differences in
stakeholder expectations are recognised and addressed so that
in the end the goals and objectives arrived at are a result of the
interactions and consensus between various stakeholders. This is
important to ensure successful performance of assets to meet the
expectations of stakeholders.
3.3.9 Asset management and value theory
Management processes, if effectively executed, can add value to
an organisation. The value adding potential of strategic asset management has been emphasised by Too and Too (2010) arguing:
‘asset management is a value-adding pursuit when carried out
in a strategic approach’. In particular, Too (2008) cites Norton
and Kaplan, who state that value is enhanced by productivity
strategy processes and through effective and efficient use of an
organisation’s assets. Such productivity strategy processes include
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Public Sector Property Asset Management
those that are knowledge and capability based (Ma, 1999). The
knowledge and capability based strategies that add value are those
that enable the organisation to create, integrate and coordinate its
multiple streams of knowledge and competencies and reconfigure
and redeploy them along changing market opportunities or
service user expectations. Additionally, value is added through
technical capabilities. These are capabilities that enhance reactivity, efficiency, flexibility, speed, or quality in an organisation’s
service delivery process; and organisational capabilities that help
in mobilising employees, fostering organisational learning and
facilitating organisational change.
Figure 3.1 is a representation of how asset management
processes and practices support organisational goals to create
value for the organisation. Asset management goals support
broader organisational goals. In order to realise these goals, asset
managers need to make decisions that will maximise financial
performance or, in the case of public bodies, maximise cost
reduction, achieve excellence in service provision and minimise
asset risk. Asset risk is minimised by ensuring that the available
assets in which services are delivered are of the right quality,
reliable, the right asset capacity is available and that assets
comply with the relevant regulatory and legislative frameworks.
Create value to organisation (effective maximisation of overall
property asset performance or value)
Organisational goals
Meet user needs
(service levels)
• Quality
• Reliability
Asset management goals
• Availability
Asset utilisation
Improve cost
structure
• Capacity
matching
• Cost
efficiency
• Extend
service life
• Compliance
Figure 3.1 Asset management processes supporting value creation in
organisations.
Asset Management and Organisational Management Theory
75
Too (2008) cites Jones (2000) who argues that there is difficulty
in an organisation where the overall performance is centred
on an infrastructure asset base. The reason being that the three
components of financial performance (cost minimisation),
service (quality service provision) and risk (risk minimisation)
are not all independent but actually are all outputs of the same
infrastructure asset performance. It is not possible as a result to
have maximised cost performance at the same time as minimised
risk exposure and be excellent in service delivery. The three,
according to Jones (2000), have a measure of interpendency. Too
(2008) cites Jones (2000), Sklar (2004) and Humphrey (2003)
who advise that in an infrastructure asset-eccentric business or
organisation, even at a strategic level, it would be wise to seek an
understanding and interplay of the three parameters in order to
effectively maximise overall infrastructure asset performance or
value. Asset managers need to consider how to achieve the goals
by making a decision to balance the three. To achieve this balance,
the three goals should drive the core processes of infrastructure
asset management.
3.4 Chapter summary
This chapter reviewed the theoretical basis upon which asset
management is founded. The reviewed literature suggests that the
concept rests on organisational management theory modelled
on strategic planning. Its practice and processes utilise common
management principles, such as team working, leadership and
management, project management and organisational structure,
among others.
4
Strategic Asset
Management
Public Sector Property Asset Management, First Edition.
Malawi Ngwira and David Manase.
© 2016 John Wiley & Sons, Ltd. Published 2016 by John Wiley & Sons, Ltd.
77
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4.1 An overview of strategic asset
management
In Chapter 3, it was shown that asset management adopts a
strategic approach to management of operational property
assets. Variants of strategic management approaches exist, but
asset management is based on the strategic planning school.
The strategic planning school adopts a linear, deterministic
approach with identifiable steps (Avis, 1990; Gibson, 1994). The
asset management framework based on the strategic planning
school is also known as strategic asset management (Avis, 1990;
Gibson, 1994). Strategic asset management of land and buildings
is defined as: ‘a structured process that seeks to ensure best value
for money from property assets in serving an organisation’s
strategic needs’ (RICS, 2005). According to the IAM (2008)
there are two interlinked processes that together make up the
structured process of strategic asset management. The two
processes are strategic planning and asset management planning
(IAM, 2008). Both processes consist of specific activities (IAM,
2008). This chapter reviews the processes associated with the
strategic planning element of asset management. The second
element, asset management planning, is the subject of Chapter
5. According to Mintzberg (2000), the strategic planning process
comprises a number of recognised sequences of activities taken
in a very mechanistic fashion. The activities include identifying
the gap or levels of service to be realised, putting in place enablers
for asset management, and formulation of a strategic plan. These
identified activities and the sequence in which they take place is
also explained.
4.2 Strategic planning
According to IAM (2008) the strategic planning process
comprises a number of recognised sequences of activities taken
in a very mechanistic fashion. The activities include putting in
place enablers for asset management, formulation of a strategic
plan and identifying the gap or levels of service to be realised.
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4.3 Enablers of asset management
Enablers to asset management are those things that need to be
done early in the asset management process as well as the critical
success factors that are needed to support the process (DPLG,
2010). The essential initial activities include:
●
●
●
securing senior management buy-in;
establishing an asset management team with representation
across the council to steer the overall asset management
programme; and
awareness raising and training in asset management practice.
On the other hand, DPLG (2010) state that the factors that are
critical (critical success factors or CSFs) to becoming an effective
asset management organisation include:
●
●
●
●
having an organisational champion at the highest level;
the existence of a formally adopted asset management plan;
existence in the organisation of a continuous improvement
process; and
having a strong change management culture that ensures that
processes and data, once developed, become embedded as
‘business-as-usual’ rather than a one-off compliance exercise
to produce an asset management plan.
4.4 Formulation of strategic plan or
corporate asset strategy
Corporate asset strategy is the process of understanding the
overall local authority organisation’s objectives in order to derive
property objectives (Royal Institution of Chartered Surveyors
(RICS) & Office of the Deputy Prime Minister (ODPM), 2005).
Understanding the overall local authority organisation’s objectives requires establishment of the vision, mission and corporate
objectives it has for its property assets. In addition, the local
authority is also required to carry out a review of both its internal
and external operating environment in order to understand how
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Public Sector Property Asset Management
they impact on the organisation and implications for property
assets. Finally, knowledge about its asset base and whether it
fully supports the local authority’s overall objectives is critical in
assisting with the derivation of property objectives that are, in
essence, the strategic task or asset gap that needs addressing by
implementing an appropriate asset management solution, which
could be asset or non asset based (RICS & ODPM, 2005).
4.4.1 Development of vision, mission goals
and objectives
The role of the vision statement is, according to the Scottish
Executive (2003), to articulate the need for developing a property
asset strategy. Local authority organisation goals, according to
the RICS and ODPM (2005), may be varied but it is essential that
they are understood, together with their property implications.
Understanding council objectives, the Consortium of Local
Authorities in Wales (CLAW) (CLAW, 2003 p. 24) argues, should
naturally lead to the development of specific objectives for the
management of assets that satisfy broader corporate objectives.
4.4.2 Review of the organisation’s internal
and external operating environment
In order to gain a clearer picture of the potential future performance of the asset, it is also essential to review the internal and
external environmental factors impacting on the local authority
organisation and the implications of these factors on property. Reviewing the operating environment, both external and
internal, is meant to ensure that all elements such as corporate,
community, environmental, financial, legislative, institutional
and regulatory factors that affect the organisation’s activities have
been considered (IIM, 2006; RICS and ODPM, 2005).
The present and expected future state of the external environment affecting the organisation, and the suitability of an
organisation’s internal competences, are brought together in
strengths, weaknesses, opportunities and threats (SWOT) analysis (Figure 4.1). Strengths and weaknesses are internal to the
organisation while opportunities and threats are external and
outside the organisation’s control (Adams, 2005; Pfeffer and
Strategic Asset Management
Forces and Trends
(a) Political
(b) Economic
(c) Social
(d) Technological
(e) Legal
Key Resource
Controllers
Collaborators
(a) Service users
(b) Payers
(c) Stakeholder
(d) Elected members
(e) Regulators
(a) Collaborative
forces/partners
External Environment
Opportunities and Threats
Initial Agreement
• Readiness assessment
• Plan for planning
Strengths and Weaknesses
Internal Environment
Resources
(a) People
(b) Economic
(c) Information
(d) Competencies
(e) Culture
Present Strategy
Processes
(management
practices)
(a) Overall corporate
service strategy
(b) Department/
service strategy
(c) Business process
(d) Functional/
asset strategy
Figure 4.1
SWOT analysis.
Performance
Measurement
(a) Scorecard
(b) Indicators
(c) Results
(d) History
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Public Sector Property Asset Management
Salancik, 1978). It is upon the analysis of internal and external
environments that a local authority’s future strategies may be
formulated (Bryson, 2004). The exploration of the external
environment involves monitoring political, economic, social,
technological, legal and environmental (PESTLE) categories
(Nutt and Backoff, 1993; Johnson and Scholes, 2002).
Recent years have witnessed a number of external environmental forces that have impacted on local authorities. The forces have
had significant property implications and have been instrumental
in driving asset management development. The forces range
from political ones, for example new public management and
the best value regime, and devolution policies, for instance the
localism agenda. There have also been economic influences,
typically budgetary pressures and economic recession. As regards
socially driven forces, these include rising public expectations in
terms of services being delivered by local authorities. At the same
time there is growing public concern over environmental and
sustainability issues. The rapid advances in technology and the
implications for service levels delivered by local authorities has
also been an important factor. Legal influences have ranged from
accounting reforms, prudential code, various asset management
related statutes, Disability Discrimination Act (DDA) legislation
to asset management guidelines. Issues considered during the
analysis of the internal environment relate to the identification
and addressing of internal strengths and weaknesses of an organisation. Such an analysis involves the organisation monitoring its
resources, processes, performance, distinctive competencies and
culture (Poister, 2003).
Resources monitoring typically relates to the adequacy of the
right people and support to carry out asset management practices,
the availability of other resources, especially funding, information
and communication technology (ICT), and relevant information
systems. Successful asset management practice is also enabled
by ensuring that asset management roles and responsibilities
are appropriately assigned by setting up cross-functional teams.
According to the International Infrastructure Management
Manual (IIIM, 2006; Woodhouse, 2010; Lloyd, 2010; Fisher 2009)
an effective asset management team should be multidisciplined
and drawn from across the local authority organisation functional
departments.
Strategic Asset Management
83
The building of capacity in asset management is an important
practice. Staff skill and knowledge in asset management is
enhanced through training programmes which should be
embedded in an organisation’s capacity building programme
(Edwards, 2010). Furthermore, the organisation should have
a strong change management culture in place as an enabler to
the asset management process. A strong change management
culture ensures that there exists a continuous asset management
improvement process (Tanfield and Denyer, 2004). The existence
of a continuous improvement process makes it possible that
processes and data, once developed, become embedded as
‘business-as-usual’ rather than a one-off compliance exercise to
produce an asset management strategy (Male, 2010).
According to Bryson (2004), an organisation can be analysed
for its internal competences and for the external forces affecting it
using the SWOT analysis model (Figure 4.1).
The SWOT analysis model is a strategic planning model for
analysing and bringing together the internal appraisal of an organisation’s strengths and weaknesses and the external appraisal of the
opportunities and threats facing it. The aim of SWOT analysis is
to bring together those strengths and weaknesses that are believed
to underpin the particular local authority’s unique circumstances
and assess to what extent they ‘fit’ the environmental opportunities and threats as the basis for formulating a plan of action
or strategy.
4.4.3 Asset information, data collection
and asset knowledge
It is necessary to make an assessment of the existing property
assets and accommodation for their suitability to support the
local authority’s existing business, and any future demand. An
assessment of existing property assets and accommodation is
possible only if the local authority develops knowledge about
its assets. Asset knowledge development requires the collection
of appropriate data in order to generate information needed to
support and inform asset management decision-making (DPLG,
2010). The collection and conversion of data into meaningful
information requires that a local authority should have in place
a properly designed Asset Management Information System
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Public Sector Property Asset Management
(AMIS). Such a system has appropriate modules capable of
summarising the collected information and data to inform asset
management decision-making (NAMS, 2006a).
By interrogating the appropriate modules of the AMIS, data can
be reported in a way that is easily understood, with summaries for
asset types. In addition, interrogation of appropriate AMIS data
provides the ability to drill down to specific assets and prepare
appropriate reports. Such reports will enable the local authority to
have better knowledge about the performance of property assets
in terms of key datasets that comprise condition, suitability, sufficiency, accessibility and operating costs (DPLG, 2010; CIPFA,
2008). CIPFA (2008) provide the following explanation in respect
of key dataset elements.
●
●
●
●
●
●
Asset condition: relates to the physical condition and the
extent to which a property performs and operates efficiently.
Asset suitability: concerns a property’s ‘fitness for purpose’.
This relates to how well the asset is suited to its current purpose
and supports efficient and effective service delivery both now
and in the future. Suitability focuses on such factors as appropriateness of asset location; internal environment; safety and
security; image; facilities; as well as space and layout.
Asset sufficiency: the issues relating to asset sufficiency are
those about demand and sustainability of the asset. Sufficiency
is concerned with asset use in terms of whether there is underor overutilisation of the asset now or in the future.
Revenue costs: include the costs of operating or running an
asset. Some of operating property costs include water and
sewerage; heat and light; repairs and maintenance; facilities
management; rent; rates; premises insurance; security;
furniture and fittings.
Asset accessibility: can be on two levels. First, asset accessibility is linked to how much the asset is accessible to people
with disabilities. The second level is concerned with how well
located the asset if for access by service users or by those who
operate from it.
Asset value: relates to the capturing of various types of values
of assets. The values can act as a reliable inventory check. They
also ensure that an accurate and appropriate valuation type
is listed.
Strategic Asset Management
85
CIPFA (2008) states that besides capturing key datasets of
asset management there are additional support data that need to
be captured. The additional support data is on environmental
performance and sustainability of assets and includes: carbon
dioxide (CO2 ) emissions; asset usage in hours; energy usage;
water usage; asbestos content; health and safety surveys; water
hygiene information; fire risks; and energy performance (e.g.
BREAM, Energy Certification, Sustainability Code; as well as
whole life costing information (CIPFA, 2008; RICS and ODPM,
2005)).
4.4.4 Identification of size of strategic task
or service level gap
Through SWOT analysis and knowledge of assets it becomes
possible to identify current performance status. From property
performance assessment and analysis of management capabilities,
through asset knowledge and SWOT analysis, it then becomes
possible to establish whether there are any shortfalls with regard
to asset performance or management capabilities. The asset
performance shortfalls could be in terms of an asset being of
poor condition, not fit for purpose, of insufficient capacity,
having accessibility issues or being expensive to operate and run.
Management capability shortfalls relate to ineffective processes,
inadequate resources, ineffective performance systems or lack of
asset management culture.
The identified shortfalls are those that need to be quantified
as they then become the strategic tasks or service level gaps that
need to be met. The process of identification and quantification
of service level gaps (Figure 4.2) initially involves understanding
users’ needs and wants. As the Department of Provincial and
Local authority (DPLG) (2010) explains: ‘understanding users’
needs and wants entails understanding the service level gap, that
is, the gap between the service that is currently being provided by
the property asset and the service that is desired by users’.
Second, the process involves undertaking a meaningful consultation process with both internal and external stakeholders,
such as service users, elected members and those who deliver
services. The consultation is aimed at understanding users’ needs
and how they are likely to influence future demand for property
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Public Sector Property Asset Management
User needs
Stakeholder
requirements
Users
research
Legal
requirements
Political
requirements
Figure 4.2
Desired level of
service
Service
level gap
Asset
management
strategies to close
the gap
Current level of
service
The process for establishing levels of service.
and accommodation (IIM, 2006). The next stage involves understanding the political and legal requirements, as they impact on
service provision. These need to be established and evaluated.
Having undertaken the consultation process an evaluated the
legal and political impacts on service provision, the next step is
to establish desired performance targets or benchmarks based on
performance indicators (Male, 2006). Targets help set appropriate
expectations with service users and other key stakeholders. The
importance of establishing levels of service targets or benchmarks
has been emphasised by Nielsen (2007). Nielsen argues that
defining standard ‘Levels of Service’ is an essential element of
effective asset management planning. Service level targets are
essentially performance goals that provide a basis for implementing a clear and effective asset management strategy that optimises
organisation objectives. The defined levels of service targets are
a commitment to deliver service that meets specified and clearly
understood standards, which are presented as targets.
Having established the desired level of service target, the
penultimate step is measuring the performance in order to
determine the ‘current level of service’. The process concludes
by recording any level of service gap as the difference between
the current and target performance. The process for establishing
the service level gap is shown in Figure 4.2. The corporate asset
strategy process culminates in the identification and quantification of the service level shortfall. In this section the concepts
associated with corporate strategy formulation are identified and
the links between them are explained. A clear understanding of
Strategic Asset Management
87
an organisation’s vision and its corporate goals and objectives
inform the development of asset management objectives. Asset
management objectives are the performance shortfalls that need
to be addressed by asset management activities. Performance
shortfalls are identified through the process of SWOT and
analysis and Asset Knowledge. SWOT analysis reveals any
internal capability shortfalls and/or opportunities and threats
presented and needing to be addressed. Knowledge about assets
reveals the fitness for purpose of assets to support service delivery
functions.
4.5 Asset management planning
The definition and identification of the processes that comprise
asset management planning concepts are explained in this section.
In terms of definition, the National Asset Management Steering
(NAMS) Group defines property asset management planning as
being concerned with having the right property, in the right place,
maintained in the right state, performing in the right way, at the
right time and delivering the right benefits (NAMS, 2006a).
In effect, asset management planning is about developing asset
or non-asset strategies or plans. The developed integrated plans or
strategies are the mechanisms through which derived objectives
or needs or gaps are intended to be achieved. These mechanisms
either involve asset solutions (planned capital investment) or
non-asset solutions (demand management intervention decisions) and mechanisms for how improvements will be made to
ongoing property management. The asset management planning
process is crystallised into a formal document called the ‘property
asset management plan’. The property asset management plan
(AMP) is defined as: ‘a document which sets out the Asset Strategy in order to help determine which assets should be acquired,
renewed, improved, maintained or disposed of, once alternatives
to investing in property assets have been explored’. It involves
developing integrated plans or strategies for:
●
●
●
capital investment (acquisition/development);
asset maintenance;
asset disposal; and
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Public Sector Property Asset Management
●
workspace and accommodation plans (Local Government in
Scotland Act (2003): Asset Management under Best Value
Advisory Note).
The key stages involved in the preparation of an asset management strategy include:
●
●
●
●
●
●
putting in place an asset management team;
formulation of asset and non asset strategies to close the
service level gap;
evaluation and selection of strategy options;
implementation of selected strategy;
monitoring and control of implemented strategy; and
audit and review.
4.5.1 The asset management team
IIM (2006) argues that the successful implementation of asset
management (AM) requires a concerted and coordinated team
effort across all sections of an organisation.
An effective asset management team is one that is multidisciplined and drawn from across the local authority organisation functional departments. The AM team undertakes strategy
development and implementation following needs analysis; and
the development and implementation of the plan. Once the
plan has been implemented, the team’s post implementation
main activities relate to data collection, level of service review
and systems or plan development. During the asset operational
planning phase, the team’s principal tasks involve evaluation and
monitoring of asset management outputs.
4.5.2 Strategy formulation
The identification of the service level gap or strategic task is
followed by identification of improvement projects or tasks that
will ‘close the gap’ between current and appropriate practice
(DPLG, 2010). These tasks or projects either involve asset
solutions (planned capital investment) or non-asset solutions
(demand management intervention decisions) and also how
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improvements will be made to ongoing property management.
Asset solutions involve planned capital investment while
non-asset solutions are about the introduction of demand
management intervention measures.
Non asset-based strategies, also called demand management,
are about active interventions to limit use of property asset
services in response to the identified service level gap. The
objective of demand management is to actively seek to modify
user demands for services (NAMS, 2006b; DPLG, 2010). User
demand can be modified either through asset use regulation,
cooperating with asset users, or charging for the use of an asset.
These non-asset solutions are graphically explained in Figure 4.3.
Asset-based strategies to meet the identified service gap can
include constructing a new asset, asset upgrade, asset renewal,
designing strategies for operation and maintenance, as well as
the option of disposing of the asset. Each of these strategies is an
expenditure on assets.
Non-asset
solutions
Regulatory based
Restrictions
Demand substitution
Demand
management
options
Cost based
Incentive based
Co-operatively
based
Figure 4.3
Demand management options.
Educational
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4.5.2.1
Option appraisal
The identified projects or tasks, which could be asset or non-asset
based, form an improvement programme that needs to be
optimised by an option appraisal process (NAMS, 2006a). The
ultimate aim of an options appraisal process is to optimise
strategy selection. An optimal option is one that maximises value
for money in terms of having the least whole lifecycle cost and
maximum benefit (OGC, 2003). Assessment of benefits and costs
is based on multiple criteria including financial, legal, cultural
and social considerations. Optimised decision-making (ODM) is
a tool for supporting the option appraisal process (HM Treasury,
2003). ODM is defined in the NAMS guidelines as ‘a formal
process to identify and prioritise all potential solutions with
consideration to financial viability, social and environmental
responsibility and cultural outcomes’. The NAMS (2006a) ODM
Guidelines propose that there are two broad methods of carrying
out ODM, namely:
●
●
a financial assessment that assesses the benefits and costs in
monetary terms;
a multi-criteria analysis (MCA), whereby each project is
scored against a number of non-financial criteria, each with
different weightings, to come up with an overall ranking.
The optimised decision-making process results in the identification of optimal solutions that can be non-asset or asset based.
4.5.3 Strategy implementation
The prepared asset management improvement plan needs
to be implemented. According to RICS and ODPM (2005),
implementation of asset management improvement strategy
concerns setting out the organisational arrangements for asset
management. This relates to setting up arrangements at corporate,
property management and project management levels (DCLG and
York Consulting, 2007).
The appropriate arrangements at corporate level are about
developing corporate property management groups in order to
respond to the corporate capital and asset planning initiative.
In effect this is about having an effectively positioned asset
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management organisational structure, led by a senior manager at
corporate level and supported by senior management. DCLG and
York Consulting (2007) identified the following good practice
arrangements (Table 4.1) that need to be put in place in order to
develop effective corporate management groups.
The organisational arrangements for asset management at
property management level concern having appropriate management practices. According to DCLG and York Consulting
(2007) such practices include developing an effective organisation
Table 4.1
Good practice arrangements at corporate level.
●
That there should be a clear link between corporate
objectives and priorities and those of capital and asset
planning
●
Ensuring that the implementation of the property strategy
is fully integrated with the organisation’s corporate and
service plans
●
There is committed senior management involvement in the
asset management process of all key service areas in the
authority represented by officers at an appropriate level
●
There is a culture of challenge in relation to new capital
expenditure and use of existing assets
●
There exists at senior management level an officer to
champion a corporate and strategic approach to capital and
asset planning
●
There exists a property officer at corporate level to manage
the implementation of the asset plan
●
The local authority organisation structures its governance
arrangements so that it is better able to focus on strategic
property issues to improve decision-making capability
●
Elected members are engaged with property asset
management
●
That asset performance is regularly reviewed by members
●
Decisions on capital projects are based on a clear business
case, including options appraisal and whole-life costing
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of property management services; clearly setting out property
management responsibilities at a corporate and service level; and
adequately resourcing property management activity to carry out
property management functions.
The setting up of project management arrangements, on the
other hand, concerns the adoption of a project management
approach in the implementation of asset-based strategies. The
arrangements, according to York Consulting (2007), include:
●
●
●
●
●
●
identification of a person with understanding of project
management to be responsible and accountable for delivery
capital programmes;
setting up a subgroup responsible for capital projects;
setting up a common project and programme management
methodology and seeing that it is consistently applied across
the organisation;
developing internal project management capacity by establishing specialist teams with appropriate project management
training;
the existence of a formal Corporate Project Management
Approach to project management, based on the PRINCE2
gateway process or similar; and
an identifiable project manager or coordinator (DCLG and
York Consulting, 2007).
4.5.4 Asset monitoring and control
Asset monitoring and control determine the asset management
monitoring process. An effective asset management monitoring process requires that the local authority organisation
should benchmark its asset management practices. The DCLG
(2008) states that benchmarking is about learning from other
organisations and understanding what best practices of asset management are being utilised. Learning from other organisations can
be a useful input to establishing a realistic ‘appropriate practice’
target. The key prerequisite to benchmarking is the establishment
of a reasonably standardised basis for comparison, which in
itself is dependent upon establishment of a comprehensive and
relevant performance measurement and management system.
Effective performance management relies on the specification of
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two sets of performance measures, those for property and those
for management of property. The measures are intended to review
the performance of the operational properties and property asset
management practices (CIPFA, 2008). A review is undertaken
by comparing the performance of these two aspects against Key
Performance Indicators (KPIs) and KPI targets.
4.5.5 Asset management audit and review
The process of asset management audit and review is directed
at the implemented programme or strategy. The process
encompasses three interrelated elements. The first element is
about reviewing and evaluating the performance of the estate
and of property asset management practices in the organisation
against KPIs and KPI targets. The second element is concerned
with making sure that there is a clear statement of current
performance levels against KPI targets. The statement should
also include any relevant historic performance data and action
to be taken to improve performance (OGC, 2003). The final
element in the process of audit and review is to ensure that the
targets and review cover improved use of property and workspace
(Scottish Government, 2003). The good practice review process
of property management practices involves reviewing operational
management practices and workspace or accommodation.
4.6 Asset management outcomes
The impact of the activities and actions of strategic planning and
asset management planning are evidenced through outcomes. If
the asset management process is supported by effective property
management practices, this is likely to result in positive asset
management outcomes. Positive asset management outcomes
include the efficient and effective use of property assets as well
as the improved service delivery that will arise (DCLG & York
Consulting, 2007). Property rationalisation is the management
practice that ensures that there is efficient and effective use of
property assets. The property rationalisation process involves
challenging the need to hold property resulting in decisions to
consolidate or dispose of assets. The process results in reduced
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Public Sector Property Asset Management
property operating costs and increased staff efficiency (OGC,
2003). According to DCLG (2007), effective asset management
practices can result in improved service delivery. These asset
management practices include:
●
●
●
●
●
●
●
introduction of new work practices,
increased cross-service working,
increased compliance with legislation,
improved accessibility of services,
co-location and partnership working,
increased use of services, and
enhanced sustainability of property holdings.
The introduction of new working practices such as flexible
working and hot-desking, for example, can reduce office space
requirements. These working practices mean that staff do not
require as much office space as they had been utilising. The
practices in effect mean that the efficiency of office space use
is increased. The reduction in office space requirements due to
increased efficiency can lead to minimisation of operating costs as
the requirement to spend so much money meeting office running
expenses such as energy costs is reduced.
The structure and nature of the well-managed property
portfolio can be an important factor that can encourage
cross-service working. This is essential as local authorities need
to operate in a joined up way in order to provide modern and
flexible services. Well-managed properties encourage co-location
with partners/stakeholders, thereby providing an effective basis
for this partnership working. Collaborative working is essential
in meeting the emerging trend of local authorities increasingly
working with a wide range of partners and stakeholders in order
to deliver services. Properties that are well looked after are likely
to comply with statutes. Statutes could, for example, include
the Disability Discrimination Act, health and safety legislation
and energy performance legislation. Compliance with these
pieces of legislations could mean that the property becomes
easily accessible by all service users. Service delivery can also
be enhanced if a property is suitably located. A suitably located
property, just like one that complies with legislation, is easily
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accessed by service users. Suitably located properties from which
services are delivered are a key driver of the accessibility of
services to all groups of residents. The ease with which service
users access services is important as it helps to realise objectives of
equity or social inclusion that are important for local authorities.
In addition to location, the quality of the facilities from which
services are delivered has a significant impact on the usage of
services by residents. Buildings that are rundown and not fit for
purpose in relation to the delivery of modern services are unlikely
to attract high usage (Audit Commission, 2009).
The environmental performance of the property portfolio of
local authorities, for example the energy efficiency of buildings, is
a significant issue. Buildings that are well managed will perform
well environmentally. Buildings that perform well environmentally help to address wider concerns about climate change and
global warming. Efforts by local authorities to improve workspace
and accommodation arrangements, such as physical condition,
location and adequacy of accommodation, will result in improved
asset management processes. Improved asset management
processes are likely to lead to a positive impact on those using
and working in the building. As a consequence, efficiency and
effectiveness will improve, translating into improved productivity
of asset users. The inter-relationship between workplace and
productivity is, according to Thompson (2008), founded on the
premise that a satisfied employee will, through the mechanism of
being motivated to act, be more productive. In research by van
der Voordt (2004), it was shown that a physical workplace environment that has appropriate temperature, task lighting, noise
levels, air quality, ability to control working environment, good
workstation design and properly configured workspace – such as
open plan – that fosters communication and interaction, is likely
to enhance staff satisfaction and wellbeing.
Thomson (2008) cites the research by Clements-Croome
(2000) who states that productivity can increase by as much as
15% when workers are satisfied with their environment. The function of a building, therefore, is to ensure that it enables the people
in it and the processes contained to function as efficiently and
effectively as possible. If a building is able, through better design
and management, to increase the productivity and wellbeing
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Public Sector Property Asset Management
of staff, visitors and other users, then it is reaping rewards for
the organisation by increasing the operational efficiency and
effectiveness (CIC, 2002).
Apart from air, sound and quality, the indoor environment
is also influenced by the building space, also known as the
spatial quality, in terms of the size and shape of a property. CIC
cite the work by Leaman and Bordass (1998, 2000, 2001) who
identified ‘building depth’ and ‘work groups’ as the two most
important variables that affect the spatial quality of a building.
The management and maintenance of the spatial quality of the
building has a significant impact on the productivity levels of
occupants. There is a relationship of 1:5:200 between construction
costs, maintenance and running costs, and business operating
costs respectively (Evans et al., 1988). The ratio shows that the
costs incurred in constructing, maintaining and running the
building are insignificant in financial terms compared to the costs
of running the business in the building. The challenge therefore is
to ensure that the building can be run and maintained to enhance
operational performance.
Buildings that are well managed will have a better quality indoor
environment and indoor workspace. This results in greater productivity and quality of life which in time ‘will translate into
value for building owners, occupiers and investors’ (RICS, 2009;
UK Green Building Council, 2011). It is clear, therefore, that the
functions a building performs and the benefits arising from it
as well as the cost of performing such functions are important
determinants of value to owners or users.
The effective utilisation of accommodation and workspace
practices is evidenced by a number of property performance
indicators at asset level. The indicators are evidence of efficient
and effective use of property and workspace. The indicators,
according to DCLG and York Consulting (2007), include:
●
●
●
●
property being in the right physical condition;
property is fit for purpose;
property is accessible; and
property is not expensive to operate and maintain.
Evidence of reduction in the level of required maintenance as
a result of properties being in good condition is an important
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indicator for local authorities. According to the Audit Commission (2009), the level of required maintenance is a major issue
for many local authorities. This is generally not an issue that can
be addressed solely through increased expenditure on repair and
maintenance, but requires a significant change in the structure
and scale of the property portfolio. Furthermore, assets that are
well managed will have reduced annual revenue costs. This is
significant as operating cost reduction is a central element of
achieving a more efficient use of property assets. Reduction in
the annual operating costs of the property portfolio include, for
example, reduced management costs, energy costs, water costs
and sewerage costs. In addition, well-managed properties are
likely to be of sufficient capacity or size to meet current and any
future demand as well as be fit for purpose.
4.7 Chapter summary
This chapter reviewed the strategic planning element of the
strategic asset management process. It has been shown that the
strategic planning process comprises a number of recognised
sequences of activities that are undertaken in a very mechanistic
fashion. The activities include identifying the gap or levels of
service to be realised, putting in place enablers for asset management and formulation of a strategic plan. SWOT analysis
is a technique utilised to identify gaps or inadequacies in the
levels of services delivered by an asset. The inadequacies could be
management practices at organisational level or those associated
with the asset itself. Enablers of asset management needed to
underpin the strategic planning process are the critical success
factors needed to support the asset management process as well
as those things that need to be done early in the process, such
as senior management buy-in, assemblage of an appropriate
team and allocation of responsibilities. As regards formulation
of a strategic plan, this concerns development of vision, goals
and objectives for an organisation’s asset base as well as having
knowledge about assets.
5
Asset Management Planning
Public Sector Property Asset Management, First Edition.
Malawi Ngwira and David Manase.
© 2016 John Wiley & Sons, Ltd. Published 2016 by John Wiley & Sons, Ltd.
99
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Public Sector Property Asset Management
5.1 Introduction
In this chapter the second element of asset management, namely
asset management planning, is examined. The examination
includes defining the concept and identifying the process elements that comprise it. The processes associated with asset
management planning are identified as including formulation
of asset management policy and strategy development; putting
in place an asset management team; asset management tactical
planning; and operational planning. Asset management planning
is the vehicle that ensures better use and management of assets as
it is concerned with optimising the utilisation of assets in terms
of service benefits and financial return (NAMS, 2006b).
5.2 Formulation of asset management
policy
DPLG (2010) defines an asset management policy as being a
policy statement that provides the overarching principles and
organisational objectives for managing the council’s property
assets to give effect to its vision. Most councils have other overarching policies such as a financial policy, human resource policy,
corporate policy or community plan that can be supported by a
property asset management (AM) policy. This focuses specifically
on the management of property assets. The need to have a policy
focused on property assets is, according to IIAM (2010), justified
for a number of reasons that encompass the critical importance
of infrastructure assets to service delivery, their substantial
value, and the relatively long expected lives of property assets.
The property AM policy specifies the council’s policy principles.
The policies could include:
●
●
●
●
●
●
effective governance;
sustainable service delivery;
social and economic development;
custodianship;
cost-effectiveness and efficiency; and
transparency.
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The asset management policy indicates how the council will
give effect to these management principles through such measures
as the preparation of AM strategies and plans (Audit New Zealand,
2010).
5.3 The asset management team
IIM (2006) argues that the successful implementation of AM
requires a concerted and coordinated effort across all sections
of an organisation. The strategies relating to coordinating asset
management activity within a public sector organisation include,
for example, establishing a strong coordination structure with
clear responsibilities; ensuring that the required resources are
available to implement the asset management programme; having
a strong training programme to ensure staff are able to develop
effective asset management plans and are confident in making
the required organisational/process changes.
An effective asset management team should be multidisciplined
and drawn from across the public sector organisation functional
departments. The major benefits of such a collaborative team
are that it ensures demonstration of corporate support for asset
management; encourages corporate buy-in; allows for better
coordination of activities; allows information sharing; promotes a
corporate pool of AM expertise; champions the AM process and
ensures that there is wider accountability. The AM team plays a
role during all three phases of asset management programmes.
These roles cover strategy development and implementation
following needs analysis; and the development and implementation of the plan. The main activities during the second phase
are data collection, level of service review and system or plan
development. The final phase is operational planning where the
main activities are evaluation and monitoring of outputs.
5.4 Asset management tactical planning
Asset management tactical planning is described by NAMS
(2006a) as being concerned with the application of detailed asset
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management processes, procedures and standards to develop
sub-plans that allocate resources to achieve strategic goals through
meeting defined levels of service. There are two key processes
involved. The processes are asset management improvement
planning and the preparation of an asset management plan.
The rest of this chapter is about asset management improvement
planning. The preparation of an asset management plan is covered
in Chapter 6.
5.4.1 Asset management improvement
planning
There are specific activities that are involved in asset management
improvement planning. These activities comprise:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
assessment of current asset management status;
identifying gaps;
closing gaps with appropriate improvement projects;
option appraisal;
implementing the improvement programme;
monitoring and control of implemented programme; and
undertaking asset management audit and review.
5.4.1.1
Assessment of current asset management
status
Assessment of current asset management status involves reviewing in a structured manner all processes that relate to the
management of the assets. The intention is to form a clear picture
of how well the public sector organisation is performing in each of
the processes. The assessment focuses on four broad areas, namely
asset management practice processes, data and information,
information systems, as well as organisational and people issues.
The assessment of asset management practice processes
involves reviewing the analysis and evaluation techniques needed
to support effective lifecycle asset management. Table 5.1, according to NAMS (2006a), shows the factors that are considered in
the analysis and review of asset management practice processes,
data and information, and information systems.
The review and analysis of organisational and people issues is
directed at four main areas. According to DPLG (2010), these
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Table 5.1 Factors considered in the review and analysis of
asset management practice processes, data and
information and information systems.
(a) Factors considered in the review and analysis of asset
management practice processes
∘ establishing level of service
∘ establishing knowledge of assets
∘ asset condition assessment
∘ determining asset utilisation including rationalisation,
operations and maintenance
∘ monitoring asset performance
∘ optimisation of an asset’s lifecycle strategy
∘ asset strategy design and project management
∘ ensuring a programme of asset management
continuous improvement
∘ asset management audit and review
(b) Factors considered in the review and analysis of data
and information
∘ classification and identification of assets
∘ historical condition maintenance data
∘ lifecycle costing data
∘ asset benchmarking data
(c) Factors considered in the review and analysis of
information systems
∘ Ascertaining the existence and adequacy of:
∘ asset registers
∘ financial system
∘ maintenance management system
∘ condition monitoring system
∘ process for ascertaining service user requirements
∘ risk management system
∘ optimised renewal strategy
∘ plans and records
∘ operations and maintenance
∘ geographic information systems (GIS)
∘ process for ascertaining levels of service
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Public Sector Property Asset Management
include a review of the public sector organisation’s organisational
and leadership commitment to supporting asset management.
The second area on which the review and analysis process focuses
is the asset management’s roles and responsibilities. The review
and analysis of roles and responsibilities seeks to determine
how the organisation defines asset management roles and how
responsibilities for the tasks are allocated. The third area in the
review and analysis of organisational people issues is directed at
staff skills and knowledge. This focuses on establishing whether
staff involved in the asset management process possess the
relevant skills and knowledge. Finally, the review and analysis of
organisational and people issues is focused in the area of training
programmes to establish whether the organisation has an asset
management training programme in place.
Following review of its current property asset management
status, a public sector organisation should form a clear view
about its current property portfolio and its performance against
key requirements. Review of current property asset management
status is in effect about becoming aware of the performance of
the asset base in terms of sufficiency, suitability and condition
(CIPFA, 2008). The review of performance of the asset base
should, according to the Scottish Executive and COSLA (2003),
include the information shown in Table 5.2.
The asset management status review process should be
supported by appropriate data, information and information
management systems. The Scottish Executive and COSLA
(2003) state that appropriate data, information and information
management systems are only possible where there is a rigorous
process of data validation within the public sector organisation. Data validation is necessary as it gives confidence that
decision-making is founded on sound information (Scottish
Executive and COSLA, 2003). The process includes the collation
of accurate data in relation to the property asset portfolio and this
relies on carefully specified and maintained corporate databases
linking all relevant asset information (Scottish Executive and
COSLA, 2003). A property asset register, linked to a corporate
database that includes an asset management information system,
ensures that a public sector organisation knows what property it
has, where it is, what its condition is, and what the demand for it
is (CIPFA, 2008). A public sector organisation armed with such
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Table 5.2 Information considered in the review of the
property asset base.
Item
No.
Asset aspect to be reviewed
i.
General description of the portfolio by category of
property, such as school and community use
ii.
Overall condition of the property by category
iii.
Overview of running costs by category of property,
including maintenance
iv.
Utilisation in relation to defined requirements
v.
Value of portfolio
vi.
Review of any capital projects completed since the
last review, focusing on their performance
vii.
Review performance of each category of property, in
relation to existing standards and targets
viii.
Degree to which service and financial objectives are
currently being met by category of property
ix.
Improvements in performance since last review
x.
Areas requiring improvement before next review.
xi.
Condition of property as per national requirements
xii.
Information on backlog of maintenance
xiii.
Core/basic data on property e.g. location, age,
ownership, occupancy, valuation
xiv.
Suitability information (‘fitness for purpose’)
xv.
Sufficiency information (quantum)
xvi.
Energy/water usage (consumption) and performance
(bream, energy certification, sustainable building
code)
xvii.
Accessibility issues
xviii.
Legislative information such as asbestos and
legionella details, health and safety/fire issues
xix.
Space and temporal utilisation information
xx.
Maintenance spending patterns (e.g., reactive versus
planned spending)
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Public Sector Property Asset Management
information can then make an assessment of the existing property
assets and accommodation for their suitability to support the
organisation’s business, property objectives and future demand.
The gap between the organisation’s vision for its property asset
base and its existing property supply can then be expressed in
quantifiable terms. As a minimum this should include quantity
(including over supply), location, functionality, quality and cost.
Where appropriate, benchmarked performance data should be
used. Where property assets fail to meet any objective(s) the
reason(s) for the gap should be analysed and a broad strategy
or broad strategy options should be clearly identified to close or
narrow the gap (OGC, 2003).
5.4.1.2
Identification of asset gaps
The process involved in the identification of asset gaps is covered
in Chapter 4. Nonetheless, the outcomes of the gap analysis should
be in a form that indicates clearly the priority actions necessary to
achieve corporate goals. The priority actions are the needs identified following the review process of asset management status. The
identified needs are areas of concern and key areas for change.
5.4.1.3
Closing gaps with appropriate improvement
projects
The basis of the improvement planning process is a needs analysis
undertaken to identify the gap between current and appropriate
asset management. The council then needs to identify projects
or tasks that will ‘close the gap’ between current and appropriate
practice. The improvement tasks or projects are the mechanisms
through which the identified needs or gaps are intended to be
closed (DCLG, 2008). These tasks or projects either involve asset
solutions (planned capital investment) or non-asset solutions
(demand management intervention decisions) and how improvements will be made to ongoing property management. Asset
solutions involve planned capital investment while non-asset
solutions are about the introduction of demand management
intervention measures. Non-asset based strategies are also known
as demand management and are about active interventions
that limit usage of property asset services in response to the
identified service level gap. The objective of demand management
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is, according to DPLG (2010), to actively seek to modify user
demands for services in order to:
●
●
●
●
●
optimise utilisation/performance of existing assets;
reduce or defer the need for new assets;
meet the organisation’s strategic objectives, including social,
environmental and political;
deliver a more sustainable service; and
respond to user needs (NAMS, 2006; DPLG, 2010).
Demand management should consider, on balance, both
supply-side and demand-side measures. Supply-side measures
focus on the analysis and management of factors that result in
capacity loss, such as property defects/condition, which may limit
property usage. There are three types of demand management
options. The options, shown in Figure 5.1, are those based on
regulation, cost-based options and options that rely on cooperation. Regulatory based demand management options rely on
the imposition of restrictions on the use of an asset. Cost-based
options manage demand in two ways: either through asset substitution or through the introduction of incentive mechanisms. The
third demand option relies on cooperation measures to manage
Non-asset
solutions
Regulatory based
Restrictions
Demand
substitution
Demand
management
options
Cost-based
Incentive-based
Co-operatively
based
Figure 5.1
Demand management options.
Educational
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Public Sector Property Asset Management
demand. A cooperative approach to demand management
involves educating asset users and other community stakeholders
about the importance of appropriately and responsibly using
assets.
Asset-based strategies to meet the identified service gap include
constructing a new asset, asset upgrade, asset renewal, designing
strategies for operating and maintenance, as well as the option to
dispose of the asset. Each of these strategies is an expenditure on
assets. In terms of classification of different types of expenditure
on assets, DPLG (2010) and NAMS (2006a), classify it into five
categories described below:
●
●
●
●
●
Operations – operational activities that have no effect on
asset condition but are necessary to keep the asset utilised
appropriately. Examples include power costs, overhead costs
and inspections.
Maintenance – the ongoing day-to-day work required to keep
assets operating at required service levels. Examples include
repairs and minor replacements.
Renewal – significant work that restores or replaces an existing
asset towards its original size, condition or capacity.
New work – works to create a new asset, or to upgrade
or improve an existing asset beyond its original capacity
or performance in response to changes in usage, customer
expectations, or anticipated future need.
Disposal – any costs associated with the disposal of a decommissioned asset.
5.4.1.4
Option appraisal
The identified projects or tasks, which could be asset or non-asset
based, form an improvement programme that needs to be
optimised. Optimising the asset improvement programme
involves a benefit and cost analysis of options which in turn is
an evaluation of the extent to which deficiencies in current asset
management practice are closed. It is also about the determination of the timing of improvement projects. The optimisation
of options is done through an option appraisal process (NAMS,
2006), the ultimate aim of which is to optimise strategy selection.
An optimal option is one that maximises value for money in
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terms of having the least whole lifecycle cost and maximum
benefit (OGC, 2003). Assessment of benefits and costs is based
on multiple criteria. These include financial, legal, cultural and
social considerations. Various tools and techniques are used to
support the option appraisal process and are discussed in the
next sections.
5.4.1.4.1 Optimised decision-making
Optimised decision-making (ODM) is a tool for supporting the
option appraisal process (HM Treasury, 2003) and is defined in
the NAMS guidelines as ‘a formal process to identify and prioritise all potential solutions with consideration to financial viability,
social and environmental responsibility and cultural outcomes’.
The NAMS (2006a) ODM Guidelines propose that there are two
broad methods of carrying out ODM, namely:
●
a financial assessment that assesses the benefits and costs in
monetary terms. In some cases the result of this financial
assessment will be a method of prioritising projects, such as
by selecting projects in order of highest benefit–cost ratio
(BCR). The BCR measures the extent by which the discounted
net benefits exceed the discounted investment cost. It is found
by the following formula:
BCR = (PV of Net Benefits)∕(PV of investment costs)
●
a multi-criteria analysis (MCA) whereby each project is scored
against a number of criteria, each with different weightings,
to come up with an overall ranking. Usually the results of the
financial assessment are one element in the MCA.
The ODM process results in the identification of optimal solutions that could be non-asset or asset based. Where asset-based
solutions are being considered, the options could involve a
requirement to create new or upgrade existing property assets.
Each of these projects will typically require a capital investment,
after which the asset will require operational expenditure to
protect the condition of the asset and to provide service benefits,
as well as periodic renewals that require further capital injections
(DPLG, 2010).
110
Public Sector Property Asset Management
The public sector organisation, therefore, needs to be sure that
it can afford all the lifecycle costs that will be incurred by the
asset, not just the up-front investment. For this purpose, every
project proposal must be accompanied by a financial forecast to
determine the financial sustainability of the asset. This involves
assessing the lifecycle costs that will be incurred by the asset
(Office of Government Commerce, 2003a). The public sector
organisation must also consider broader matters or non-financial
objectives, such as the achievement of social or environmental
sustainability objectives. A financial forecast will illustrate all the
expenditure to be incurred during the asset’s lifecycle, and any
revenue that will be realised as a result of the asset being operated.
Included in the financial forecast should be all details of sources
of funding and any loan obligations. Additionally, all lifecycle
operations and maintenance forecasts should also be included.
Furthermore, renewal forecasts should also be shown. Finally,
the financial forecast should record any revenue associated with
the project. All financial forecast figures should exclude inflation.
The period for compiling forecasts is normally taken to be around
20 years. All forecasts should be compiled for a period of about
20 years. During financial forecasting there is an appraisal of
each option using economic evaluation techniques where each
asset-based option is considered in terms of costs and benefits
leading to the identification of the option that offers the best
solution. The outcome is a prioritisation of the most serious and
urgent needs option(s) to meet the objectives. Each of the options
identified should be considered against the baseline ‘do nothing’
option. Appraisal should be carried out in accordance with the
appraisal guidance, popularly called ‘The Green Book’, produced
by the UK Government’s Treasury Department (HM Treasury,
2003). The following section expands on the steps involved in the
ODM process.
5.4.1.4.2 ODM process
OGC (2003) stress that in planning capital expenditure, public
sector organisations should identify projects that deliver value for
money. Projects will deliver value for money if they are sustainable
and accord with a public sector organisation’s corporate priorities. Furthermore, projects will deliver value for money if they
Asset Management Planning
111
have been prioritised using a simple and explicit methodology.
NAMS (2006a) recommends the use of ODM as the appropriate
methodological approach for prioritising projects. It is based on
assessing multiple proposed options, such as acquisition, disposal,
development, asset maintenanc, as well as workspace and accommodation plans, and eliciting the most sustainable alternative
through benefit–cost analysis (BCA) and multi-criteria analysis
(MCA) decision-making processes. BCA analysis is first used to
evaluate economic and financial factors and then the results are
scored for inclusion in the MCA. The ODM process is shown in
Figure 5.2.
BCA involves quantifying and comparing benefits and costs
over a period of time, typically over 20 years. The NPV for each
• Legislative
requirements
Decide on ODMP system
for project evaluation
• Public sector
organisation vision
and mission
• Property asset
management policy
• Users and
stakeholder needs
• Legislative
compliance
• Technical needs
(i.e. refurbishment,
technological
improvements)
Prepare project proposals
for initial evaluation
Initial sifting of project
proposals
Feasibility study
Detailed assessment of
selected individual-project
proposals
Prepare revenue and
expenditure forecasts
Perform financial
analysis
Selection of final list of
municipal-projects based
on financial, legal, and
social considerations
Budget
constraints
Include projects in public
sector organisation work
programme
Figure 5.2
Optimised investment decision-making process.
112
Public Sector Property Asset Management
option is calculated, using discounted cash flow (DCF) (NAMS,
2006a). Kishk et al. (2002) state that the economic evaluation
methods most commonly used in BCA analyses are Net Present
Value (NPV) and Internal Rate of Return (IRR). The most
common approach, though, is the NPV method.
5.4.1.4.3 NPV
The NPV investment appraisal method works on the principle that
‘an investment is worthwhile undertaking if the money got out of
the investment is at least equal to, if not greater than, the money
put in’ (Lumby, 1994).
The NPV is expressed as the sum of its net discounted future
cash flows:
n
∑
At
(1
+
r)t
t =o
where
At
n
r
is the project’s cash flow (either positive or negative) in
time t and t takes on values from year 0 to year n;
represents the point in time when the project comes to
the end of its life; and
the annual rate of discount or the time value of money.
If the NPV is zero or positive then the project is worth undertaking.
The choice of an optimal option can be based on whole life
costs (WLC) as represented by the NPV of various competing
alternative options. The NPV of an alternative i, NPV, is defined
as the sum of money that needs to be invested today to meet all
future financial requirements as they arise throughout the life of
the project.
Example 1
The data are as in Example 3 and the cash flow is as tabulated in
Table 5.3. The receipts are discounted using present value tables,
at a 10% rate of interest.
Thus, the present value of the income is £75,463, against
£75,000 outlay. The surplus of £463 is what is usually referred
Asset Management Planning
Table 5.3
Year
113
Example 1: NPV Calculation.
Cash
Inflow
0
Cash
Outflow
Net
Cash
Flow
Present
Value
at 10%
75,000
£75,000
1.0000
Net
Present
Value
-£75,000
1
30,000
3000
27,000
0.9091
£24,545.7
2
30,000
4000
26,000
0.8264
£21,486.4
3
26,000
6000
20,000
0.7513
£15,026
4
20,000
8000
12,000
0.683
£8196
5
15,000
10,000
5000
0.6209
£3104.5
5000
0.6209
5000
£3104.5
£75,363
Net Present Value (NPV)
Net
Present
Value
£75,463
£463
to as the project’s NPV. It means that the future income will
both pay back the capital investment and provide a surplus on
the investment. In this example it means that if the £75,000 is
borrowed at 10%, the project option will realise a profit of £465.
Alternatively, if the organisation is applying its own funds, it will
receive a return equal to 10% on capital (as well as a return or
repayment of capital) and a surplus of £465. A project option is
viable if the sum of the present values of income benefits is equal
to or exceeds the present cost of the investment. In this example,
if 10% return is adequate, the project will be accepted. However,
where there are competing project options, the best alternative
is the one with maximum NPV. Because WLC focuses on cost
rather than income, it is usual practice to treat costs as positive
and income as negative (Fraser, 2004).
5.4.1.4.4 Internal Rate of Return (IRR)
The IRR is the ‘discount rate which, when applied to the future
cash flows, will make them equal the initial outlay’ (Attrill and
McLaney, 1999). In Example 1 (reproduced below: Table 5.4), the
NPV having discounted the amounts at 10%, came to +£463, so
the internal rate of return is likely to be just over 10%. Example 2
(Table 5.5) has discounted the same figures at 11% giving an NPV
of -£964.
114
Public Sector Property Asset Management
Table 5.4
Year
Example 1: low trial rate of 10%.
Cash
Inflow
0
Cash
Outflow
Net
Cash
Flow
Present
Value
at 10%
75,000
-£75,000
1.0000
Net
Present
Value
-£75,000
1
30,000
3000
27,000
0.9091
£24,545.7
2
30,000
4000
26,000
0.8264
£21,486.4
3
26,000
6000
20,000
0.7513
£15026
4
20,000
8000
12,000
0.683
£8196
5
15,000
10,000
5000
0.6209
£3104.5
5000
0.6209
£3104.5
5000
Net
Present
Value
£75,363
Net Present Value (NPV)
£75,463
£463
Example 2
Table 5.5
Year
Example 2: high trial rate of 11%.
Cash
Inflow
0
Cash
Outflow
75,000
Net
Cash
Flow
Present
Value
at 10%
Net
Present
Value
-£75,000
1.0000
1
30,000
3000
27,000
0.901
24,327
2
30,000
4000
26,000
0.812
21,112
3
26,000
6000
20,000
0.731
14,620
4
20,000
8000
12,000
0.659
7908
5
15,000
10,000
5000
0.593
2965
5000
0.593
2965
5000
Net
Present
Value
-£75,000
74,036.5
Net Present Value (NPV)
-£964
A negative NPV entails that the 11% is too high, while a positive
NPV indicates that 10% is too low a discount level. Sufficient accuracy can be obtained by interpolation of the two figures. This can
be done by substituting the values in the following formula:
Asset Management Planning
IRR
=
where: iL
iH
NPVH
NPVL
IRR
iL + (iH − iL )
x
=
=
=
=
=
=
=
=
115
{NPVH }
{NPVH + NPVL )
lower discount rate
higher discount rate
higher NPV (result of applying iL )
lower NPV (result of applying iH )
10% + (11% - 10%) × (463)
(463-(-964)
10% + (11% - 10%) × 0.324456903
10% + 1% ×
0.32
10.32%
In terms of the application of IRR for decision-making, this can
be done in two ways. First, if the IRR is greater than the organisation’s target rate then the project is worthwhile. A target rate can
be the organisation’s borrowing cost or opportunity cost (Lumby,
1994). For example if, from the above examples, it is found that the
IRR rate is 10.32% and the firm’s borrowing cost or opportunity
cost of capital is less than IRR, then the project will be accepted.
Second, IRR can be used to choose between two investments.
This is done by finding the IRR of each and the preferred project
option is the one that has the maximum IRR.
5.4.1.4.5 Comparison: NPV and IRR methods
There are weaknesses, however, associated with both NPV and
IRR. According to Damodaran (1997, p. 180) the limitations
of the NPV method include stating the NPV in absolute rather
than relative terms. The project with the highest absolute NPV
amount would be preferred. By so doing the technique does
not, therefore, factor in the scale of the projects. It is quite
possible that a low level of NPV could be perfectly acceptable
for large-scale projects and vice versa. The IRR method also
has flaws. These include IRR being a scaled measure: there is a
tendency to bias decision-makers towards smaller projects that
are much more likely to yield high percentage returns over larger
ones (Damodaran, 1997). Second, IRR does not address the
issue of wealth maximisation (Attrill and McLaney, 1999). Third,
the technique can produce multiple internal rates of returns
116
Public Sector Property Asset Management
Table 5.6
Advantages and disadvantages of NPV and IRR.
Advantages
NPV Takes account of time value of
money
Disadvantages
Assumes perfect capital markets
Theoretically superior; measures Not understood by management
increase in shareholders’ wealth
Allows direct comparison of two
projects
Possible adverse effect on profits
in short run
In simplest form assumes cash
flows at year end
IRR Takes account of time value of
money
% readily understood by
management (more commonly
used)
For uneven cash flows, calculated
by ‘trial and error’
Technical problems; multiple
IRRs; mutually exclusive projects
for a project and these are not easy to deal with (Damodaran,
1997). Table 5.6 shows the advantages and disadvantages of both
techniques.
Despite each method having weaknesses, it is generally agreed
that NPV is superior to IRR for a number of reasons (Lumby,
1994; Fraser, 2003). First, NPV is considered to be technically
superior to IRR and is simpler to calculate. Second, where cash
flow patterns are non-conventional, IRR may be impossible to
apply. Third, NPV is superior for ranking investments in order
of attractiveness. Fourth, with conventional cash flows both
methods give the same accept/reject decision. Finally, where
discount rates are expected to differ over the life of the project,
such variations can be readily incorporated in NPV calculations,
but not so in the case of IRR.
The following Example 3 demonstrates how the benefit–cost
analysis using the NPV method is undertaken.
Example 3: Benefit–cost analysis: Using NPV
method
The asset management team of a public body has just conducted a
review of its operational property asset portfolio (Tables 5.7–5.10).
Asset Management Planning
Table 5.7
117
Cost profile.
Option
Capital
Spend
Period
Do
Minimumm
Lease
Construction Years 0
Cost
Refurbish
New Build
£4,000,000
Now (Year 0) £1 million
Year 10
£500,000
Residual
Value
Year 15
£3 million
Replace
Boiler
Year 10
£500,000
Replace
Lift
Year 12
£400,000
Fitting out
Costs
Now (Year 0)
£5,000,000
75,000
Dilapidations Year 15
£500,000
ICT &
Now (Year 0)
Communications
£20,000
£100,000
£70,000
Revenue /
Running
Costs
Rent
Years 1–5
£80,000 p.a
Years 6–10
£90,000 p.a
Years 11–15
Rates
£100,000 p.a
Years 1–5
£80,000 p.a
£40000 p.a
£180,000 p.a
Years 6–10
£120,000 p.a £50,000 p.a
£200,000 p.a
Years 11–15
£150,000 p.a £60,000 p.a
£220,000 p.a
Running
Costs
Years 1–15
£25,000
£15,000 p.a
£20,000 p.a
Insurance
Years 1–15
£1,000
£750 p.a
£1000 p.a
Energy
Costs
Years 1–15
£4,500
£2000 p.a
£2500 p.a
£45,000
£5,000 p.a
£5000 p.a
Maintenance Years 1–15
Repairs
The worked example showing how to use NPV to calculate the Net
Present Cost is shown below.
£-
£-
Energy Cost
Maintenance
Repairs
£45,000
£4,500
£1,000
£25,000
£80,000
£-
£45,000
£4,500
£1,000
£25,000
£80,000
£-
£-
£-
£-
2
£45,000
£4,500
£1,000
£25,000
£80,000
£-
£-
£-
£-
3
£45,000
£4,500
£1,000
£25,000
£80,000
£-
£-
£-
£-
4
£-
£-
£-
£-
6
£-
£-
£-
£-
7
8
£-
£-
£-
£-
YEAR
£-
£-
£-
£-
9
£45,000
£4,500
£1,000
£25,000
£45,000
£4,500
£1,000
£25,000
£45,000
£4,500
£1,000
£25,000
£45,000
£4,500
£1,000
£25,000
£45,000
£4,500
£1,000
£25,000
£80,000 £120,000 £120,000 £120,000 £120,000
£-
£-
£-
£-
5
£45,000
£4,500
£1,000
£25,000
£120,000
£-
£ 500,000
£-
£ 500,000
10
£ 400,000
£-
£-
£-
12
£-
£-
£-
£-
13
£-
£-
£-
£-
14
£45,000
£4,500
£1,000
£25,000
£45,000
£4,500
£1,000
£25,000
£45,000
£4,500
£1,000
£25,000
£45,000
£4,500
£1,000
£25,000
£150,000 £150,000 £150,000 £150,000
£-
£-
£-
£-
11
£45,000
£4,500
£1,000
£25,000
£150,000
£-
£-
-£3,000,000
£-
15
.9019
.8714
.8420
.8135
.7860
.7594
.7337
Present Cost)
£1,000,000 £150,242 £145,161 £140,252 £135,509 £130,927 £159,039 £153,661 £148,465 £143,444
.9335
£2,350,036
.9662
NPC (Net
1.000
TOTAL
Rate 3.50%
Discount
£847,512
.7089
.6618
.6394
.6178
.5969
£154,455 £413,945 £144,186 £139,310 -£1,656,073
.6849
Spend Profile £1,000,000 £155,500 £155,500 £155,500 £155,500 155,500 £195,500 £195,500 £195,500 £195,500 £1,195,500 £225,500 £625,500 £225,500 £225,500 -£2,774,500
£-
Insurance
Running Costs
Rates
£-
£-
Replace Lift
REVENUE
£-
Replace Boiler
£-
£-
£-
£-
Residual
Value
0
Refurbishment £ 1,000,000
CAPITAL
1
Net present cost calculation (do minimum).
Discount Rate 3.50%
Table 5.8
118
Public Sector Property Asset Management
0
ICT &
£0
£95,000
1.000
Maintenance
Repairs
Spend Profile
Discount
NPC (Net
Present Cost)
£95,000
£2,241,619
TOTAL
Rate 3.50%
£0
Energy Cost
£5,000
£2,000
£750
£15,000
£40,000
£80,000
2
£5,000
£2,000
£750
£15,000
£40,000
£80,000
3
£5,000
£2,000
£750
£15,000
£40,000
£80,000
4
£5,000
£2,000
£750
£15,000
£40,000
£80,000
5
£5,000
£2,000
£750
£15,000
£50,000
£90,000
6
£5,000
£2,000
£750
£15,000
£50,000
8
£5,000
£2,000
£750
£15,000
£50,000
£90,000
YEAR
£90,000
7
£5,000
£2,000
£750
£15,000
£50,000
£90,000
9
£5,000
£2,000
£750
£15,000
£50,000
£90,000
10
12
13
14
£500,000
15
£5,000
£2,000
£750
£15,000
£60,000
£5,000
£2,000
£750
£15,000
£60,000
£5,000
£2,000
£750
£15,000
£60,000
£5,000
£2,000
£750
£15,000
£60,000
£5,000
£2,000
£750
£15,000
£60,000
£100,000 £100,000 £100,000 £100,000 £100,000
11
.9335
.9019
.8714
.8420
.8135
.7860
.7594
.7337
.7089
.6849
.6618
.6394
.6178
.5969
£137,923 £133,259 £128,752 £124,398 £120,192 £132,397 £127,920 £123,594 £119,415 £115,377 £125,174 £120,941 £116,851 £112,900 £407,527
.9662
£142,750 £142,750 £142,750 £142,750 £142,750 £162,750 £162,750 £162,750 £162,750 £162,750 £182,750 £182,750 £182,750 £182,750 £182,750
£5,000
£2,000
£750
£0
Insurance
£40,000
£80,000
£15,000
£0
Running Costs
£0
Rent
Rates
REVENUE
Communications
£0
£20,000
Dilapidations
Fitting Out Costs £75,000
CAPITAL
1
Net present cost calculation (lease option).
Discount Rate 3.50%
Table 5.9
Asset Management Planning
119
0
£0
£0
£0
Insurance
Energy Costs
Maintenance
Repairs
4
5
6
7
YEAR
8
9
10
11
12
13
14
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£5,000
£2,500
£1,000
£20,000
£220,000
-£5,000,000
15
1.0000
1.0000
1.0000
1.0000
1.0000
1.0000
1.0000
1.0000
1.0000
1.0000
1.0000
1.0000
1.0000
Present Cost)
£4,170,000 £208,500 £208,500 £208,500 £208,500 £208,500 £228,500 £228,500 £228,500 £228,500 £228,500 £248,500 £248,500 £248,500 £248,500 -£4,751,500
1.0000
£2,597,500
1.0000
NPC (Net
1.000
Total
Rate 3.50%
Discount
3
£180,000 £180,000 £180,000 £180,000 £180,000 £200,000 £200,000 £200,000 £200,000 £200,000 £220,000 £220,000 £220,000 £220,000
2
£4,170,000 £208,500 £208,500 £208,500 £208,500 £208,500 £228,500 £228,500 £228,500 £228,500 £228,500 £248,500 £248,500 £248,500 £248,500 -£4,751,500
£0
Running Costs
Spend Profile
£0
Rates
REVENUE
Communications
£70,000
Fitting Out costs
ICT &
£0
£100,000
Residual Value
1
Net present cost calculation (new build option).
Construction Cost £4,000,000
CAPITAL
Table 5.10
120
Public Sector Property Asset Management
Asset Management Planning
121
The review has revealed poor performance of the office property
it owns, which is currently occupied by its Social Services department. The property was erected in the 1970s. The review has
revealed that the property’s layout and quality of accommodation
are poor. In addition, a recently conducted survey of staff opinion
has revealed widespread dissatisfaction with the property’s
facilities. Furthermore, the location of the property is not easily
accessible by various forms of transport and its environmental
and sustainability credentials are poor. In general the building
does not meet the organisation’s corporate objectives. The Asset
Manager and his/her team along with the Social Services staff are
now exploring the options for providing future accommodation
needs. The asset gap or need that has been identified, therefore, is
to provide modern office accommodation for the Social Services
staff in a manner that represents value for money and meets
wider organisational objectives. The asset management team in
consultation with the Social Services department has considered
a number of options and has decided that three warrant further
evaluation. The options, and their respective capital and operating
costs, are as follows:
Option 1: ‘do minimum’ – refurbish
This entails refurbishing the current property at a cost of £1
million. It is likely that there will be need for further minor
refurbishment of the building in 10 years’ time at a cost of £0.5
million. It is also anticipated that there will be requirement to
replace the boiler and lift at a cost of £350,000 and £400,000
respectively in years 10 and 12. The proposed refurbishment
will make a minor difference in terms of addressing the existing
inadequacies. The property is expected to have a residual value of
around £3,000,000 in 15 years’ time.
Option 2: lease new office block from a developer
The department moves into a new, city centre, privately owned
office block, to be completed soon, situated next door to a rail and
bus terminus. The developer would be prepared to accept a 15 year
122
Public Sector Property Asset Management
full repairing and insuring lease for the property. The initial rent
can be agreed today at £80,000 per annum subject to upwards-only
rent reviews every five years. After five years the rent is expected go
up to £90,000 per annum and during the last five-year period the
rent will be £100,000 per annum. Having assessed the proposed
rental pattern you have confirmed that the rent and other terms
generally reflect current market conditions.
Option 3: build new offices
The department would move to a new office property that the
organisation would construct on a site it owns. The project
would cost £4,000,000. The organisation will use own funds to
develop the property. The site is within the city centre but is not
easily accessible by public transport and parking for staff is not
very good. The property is expected to have a residual value of
£5,000,000 in 15 years time. A summary of the cost profile is
shown in Table 5.7 below.
5.4.1.4.6 Information about risk and uncertainty of the
options
The Asset Management team, relying on years of experience of
procuring projects, realise that calculated Net Present Costs can be
affected by risk and uncertainty. Considering this, the team consider that there is a 60% probability that the calculated Net Present
Cost represents the best outcome. On the optimistic side, the team
considers that the calculated NPC could be further reduced by
30% but that the probability of achieving this is only 30%. The
worst case, pessimistic, scenario, is that costs of materials and running costs are likely to rise and that the calculated NPC will go up
by 50%. The team estimates that the probability of this happening
is 10%.
Question
Calculate the expected net present cost value for each of the three options
and rank them accordingly (Table 5.11).
Asset Management Planning
123
Table 5.11 Total expected net present cost (net present cost adjusted
for risk and uncertainty).
Do Minimum Option
∗
Optimistic
NPC
£2,350,036
Best Guess £2,350,036
Pessimistic £2,350,036
NPC
Variability
(%)
30%
Reduction
No Change
40%
Increase
Calculated
NPC
Probability
Expected
Values
£1,645,025
30%
£493,507.56
£2,350,036
£3,290,050
60%
10%
£1,292,519.80
£329,005.04
Total
Expected
Net Present
Cost
∗
£2,115,032
NPC = Net Present Cost
Lease Option
NPC
Optimistic
£2,241,619
Best Guess £2,241,619
Pessimistic £2,241,619
NPC
Variability
(%)
30%
Reduction
No Change
40%
Increase
Calculated
NPC
Probability
Expected
Values
£1,569,133
30%
£470,739.99
£2,241,619
£3,138,267
60%
10%
£1,232,890.45
£313,826.66
Total
Expected
Net Present
Cost
£2,017,457
New Build Option
NPC
Optimistic
£2,094,473
Best Guess £2,094,473
Pessimistic £2,094,473
Total
Expected
Net Present
Cost
NPC
Variability
(%)
30%
Reduction
No Change
40%
Increase
Calculated
NPC
Probability
Expected
Values
£1,466,131
30%
£439,839.33
£2,094,473
£2,932,262
60%
10%
£1,151,960.15
£293,226.22
£1,885,026
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Public Sector Property Asset Management
5.4.1.4.7 Non-financial evaluation in option appraisal
The use of discounted cash flow (DCF) techniques, to which NPV
and IRR belong, only focus on the financial return or technical
performance of a building at the expense of non-financial
benefits, especially sustainably introduced benefits (Atkinson,
2000). These benefits could be intangible, such as environmental,
social, cultural and economic. It is necessary that the sustainable
benefits of property assets are incorporated when appraising
options because one of the aims of asset management is to have a
sustainable property asset portfolio.
According to Edwards (1998), striving for sustainably built
buildings is a result of the growing evidence that buildings
affect the social and environmental footprints of individuals and
organisations. In the UK alone, the social and environmental
impact of buildings:
●
●
●
●
account for about 50% of all energy use;
contribute about 50% to climate damaging CO2 emissions;
construction uses nearly 50% of all raw materials used by
industry; and
consume 40% of the UK’s water (Edwards, 1998).
The operation of buildings also affects the health of occupants.
Joyner and Raiborn’s (2005) estimates suggest that as many as
30% of new and refurbished buildings worldwide may generate
excessive complaints related to indoor air quality. Furthermore,
Atkinson (2000) points out that the costs of building related
illnesses exceed billions of dollars annually. These social, health
and environmental impacts of buildings have had a profound
influence on organisations. Most have come to accept that
they have corporate responsibilities towards society and the
environment to ensure that the buildings they own or control
should be sustainable in order to minimise these adverse impacts
(Atkinson, 2000; Joyner and Raiborn, 2005).
The minimisation of adverse impacts arising from buildings
can be achieved by enhancing sustainability. Enhancement of sustainability, Kats et al. (2003) argue, is secured through attainment
of a triple bottom line approach of (i) minimising environmental
impact, (ii) maximising economic benefits and (iii) minimising
adverse socio-cultural impact. Buildings that are sustainable have
Asset Management Planning
Table 5.12
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
125
Benefits of sustainable buildings.
more cost and energy efficient
functionally effective
profitable and marketable than conventional buildings
increased functionality, serviceability, adaptability
increased comfort and wellbeing of occupants
reduced negative impacts on the natural environment
increased investor and tenant demand
lower operating costs
increased accountability
increased performance measurement
improved rating systems
improved staff retention
reduced employee absenteeism
lower staff turnover
a healthier working environment
enhanced corporate social responsibility (CSR)
increased demand for sustainable accommodations
lower level of obsolescence
increased net operating income
increase the overall value of the commercial building
a number of financial and non-financial benefits. These benefits
are shown in Table 5.12 (Heerwagen and Heerwagen, 2002;
Mills, 2003; Lorenz et al., 2007; Royal Institution of Chartered
Surveyors, 2004, 2005; Wilson et al., 1998).
Apart from the problem of only focusing on the financial return
or technical performance at the expense of non-financial benefits,
NPV and IRR have three other major flaws. First, DCF techniques
are inherently uncertain. This is because, by definition, they deal
with the future and thus uncertainty is endemic to them. Second,
DCF techniques are unable to deal with non-financial factors
when evaluating investment options. The problem arises from the
way decisions are made in organisations. Asset capital investment
selection decisions can often be taken based on factors other
than cost criteria. These non-cost factors can include social considerations, regeneration, health and environmental protection,
safeguarding of use, energy saving, durability and utilisation
(Bogenstatter, 2000). Most of these factors cannot be assessed in a
strict DCF framework using NPV or IRR. This is mainly because
126
Public Sector Property Asset Management
either they are in conflict with the main DCF objective or they are
mostly non-financial. Some of these factors are even intangible,
such as aesthetics or image. In many cases, these intangibles are
also in conflict with the results of DCF analyses (Wilkinson, 1996;
Kirk and Dell’lsola, 1995; Kishk et al., 2002).
5.4.1.4.8 Utilisation of multi-criteria analysis (MCA) to
evaluate non-financial factors
The third problem concerns the practical issue of incorporating
multiple factors – such as social, environmental, cultural and
economic considerations – into investment decision-making
processes. In order to incorporate the multiplicity of factors, a
set of criteria – unique to social, economic, cultural and environmental factors – need to be determined. According to Bazerman
and Moore (2009), dealing with a number of criteria to evaluate
investment options results in an irrational decision-making
process. The numerous criteria are complex to evaluate due
to the information processing limitations of the human brain.
Decision-makers resort to using heuristic strategies, which are
when decision-makers utilise fairly simple procedures and rules
in order to reduce mental effort. Such decisions (March and
Simon, 1958; Simon, 1975; Bazerman and Moore 2009) tend to be
illogical and suboptimal. However, an optimised decision-making
framework is able to deal with multiple criteria and combines
the BCA and MCA decision-making procesess. A BCA analysis
is first used to evaluate economic and financial factors. MCA is
used to evaluate a range of criteria.
For MCA, a range of criteria is chosen to represent the different
outcomes or aspects of each option being considered. The
criteria should be sustainable, accord with corporate priorities
and address the desired changes (asset gap). The criteria could
therefore be social, environmental, economic or cultural benefits.
The criteria are weighted to reflect the public sector organisation’s
objectives and an overall score is given to each alternative strategy
option (NAMS, 2006b).
5.4.1.4.9 Analytic hierarchy process (AHP): MCA technique
The analytic hierarchy process (AHP) developed by Saaty (1980)
is the most commonly used MCA technique. The technique
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127
is designed to solve complex problems involving a number of
criteria. The process requires the decision-maker to provide
judgements about the relative importance of each criterion and
then specify a preference on each for each decision alternative.
The output of AHP is a prioritised ranking indicating the overall
preference for each of the decision alternatives (Anderson et al.,
2001).
AHP includes the eight rational decision-making steps
advocated by Bazerman and Moore (2009). The steps are:
a)
b)
c)
d)
e)
developing the hierarchy overall goal;
specifying the evaluation criteria;
deciding on the decision options;
establishing priorities;
criteria weighting, where each criteria is evaluated relative
to other criteria to establish relative importance of the
criteria;
f) undertaking pairwise comparison where each option is
evaluated relative to each criteria;
g) synthesisation to provide the relative priorities for the options
with respect to the criteria; and
h) deciding on the preferred option or options ranking.
The AHP principle is explained using Example 4. This is an
extension of Example 3.
Example 4: The Use of AHP to Assess non-financial
factors
Scenario
Example 3 demonstrates how the financial appraisal of asset
strategy options takes place. Financial evaluation of options is
but one of the two strands for evaluating options. The other
strand is the evaluation of options for non-financial factors. In
Example 4, it is demonstrated how non-financial evaluation is
carried out where it is considered that these, along with financial
considerations, are important for an organisation and therefore
need to be taken into account when choosing an asset strategy
option.
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Public Sector Property Asset Management
5.4.2 Non-financial factors
In the previous section’s fictitious example the organisation
considers it important that the appropriate option is one that
apart from being financially beneficial should also be able to meet
non-financial objectives. In particular the option should support
core service delivery of the relevant department being considered.
Second, the option should be able to meet the wider strategic
objectives of the organisation. Consideration of non-financial
factors is therefore important. The Asset Management team, in
consultation with relevant stakeholders and making reference
to the organisation’s corporate objectives, have identified three
non-financial factors. These factors need to be considered along
with the NPC in the evaluation of each option.
The following are the relevant non-financial factors and their
respective criterion:
5.4.2.1
Appropriateness for service delivery
This criterion relates to the appropriateness of the location to
enable effective delivery of the organisation’s services. Key areas
for consideration include
●
●
●
suitability for staff as a location,
suitability for the public as a location,
accessibility (accessibility by public and private transport).
5.4.2.2
Operational suitability
This criterion relates to the suitability of the building to meet the
organisation’s current and planned operational requirements. Key
areas for consideration include:
●
●
●
●
the quality of building/floor space and the general working
environment,
likely flexibility of the floor space/building to meet future
operational requirements,
identity of the property as the organisation’s main office
location,
design quality.
Asset Management Planning
5.4.2.3
129
Ability to meet corporate objectives
This criterion relates to the ability of the location/building to align
with the additional strategic objectives of the organisation. Based
on the objectives, the overall headings for assessment are:
●
●
●
sustainability and environmental criteria,
opportunities for working with other public bodies/agencies
(co-location and partnering),
regeneration opportunities/potential to act as a catalyst for
wider regeneration.
5.4.3 Multi-criteria analysis – analytic
hierarchy process
The next sections illustrate how multi-criteria analysis techniques
such as AHP are applied to evaluate non-financial factors and
rank the three options (Do Minimum, Lease and New Build). The
sections demonstrate a clear and logical way to apply weightings
and rankings.
5.4.3.1
Developing the hierarchy overall goal
The first step is to develop a graphical representation of the problem in terms of the overall goal, criteria and decision alternatives.
The diagram depicts the hierarchy of the problem. Figure 5.3 is
a graphical representation of the AHP process with respect to
Example 4. The first level of the hierarchy shows that the overall
goal is to select the best office investment. The selection of the
preferred office investment is to be based on three criteria, namely
social, environmental and economic considerations. The final
stage according to Anderson et al. (2001) and depicted by the
diagram indicates that each of the three options will be evaluated
against each criteria.
5.4.3.2
Specification of the evaluation criteria
At the second step, the criteria that will contribute to the overall
goal of identifying the preferred investment option are identified.
In this example: social, environmental and economic.
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Public Sector Property Asset Management
The hierarchy overall goal
Overall goal
Criteria
Options
Figure 5.3
Select the best office investment option
Environmental
Social
(a) Do minimum
(b) Lease
(c) Purchase
(a) Do minimum
(b) Lease
(c) Purchase
Economic
(a) Do minimum
(b) Lease
(c) Purchase
Graphical representation of the AHP process.
5.4.3.3
Deciding on the decision options
There is recognition that each decision option will contribute to
each criterion in its own individual way. In this example Do Minimum, Lease and New Build options will uniquely contribute to
the realisation of social, environmental and economic objectives.
5.4.3.4
Establishment of priorities
AHP utilises pairwise comparisons to establish priority measures
for both the criteria and the decision options. In this example, the
priority measures are:
●
●
●
●
the three criteria in terms of the overall goal;
the three options in terms of the social factors criterion;
the three options in terms of the environmental factors
criterion; and
the three options in terms of the economic factors criterion.
AHP employs an underlying scale which can take on values
from say 1 to 9 or 1 to 5 as shown in the following two scales.
Asset Management Planning
Table 5.13
i.
131
Pairwise comparison scale: 1 to 9.
Verbal Judgement of Preference
Numerical Rating
Extremely preferred
Strongly to very strongly
9
8
7
6
Strongly preferred
5
Moderately to strongly preferred
4
3
2
1
Very strongly to extremely preferred
Very strongly preferred
Moderately preferred
Equally to moderately
Equally preferred
Table 5.14
Pairwise comparison scale: 1 to 5 rating.
Verbal Judgement of Preference
Numeral Ranking
Extremely preferred
5
Very strongly preferred
4
Moderately preferred
3
Minor preference
2
No Preference (Letter / Letter)
1
The scales are used to rate the relative preferences for two items
(Tables 5.13 and 5.14).
In this example the 1 to 9 scale is used.
5.4.3.5
Criteria weighting
The criteria weighting stage is where each criterion is evaluated
relative to other criteria to establish its relative importance. This
involves extracting from the investor his or her subjective value
weightings of the criteria (Table 5.15).
This involves weighting the criteria against each other. Where a
criterion is weighted against it, a numerical rating of 1 is assigned
implying that a criterion cannot outrank itself. This explains the
diagonal ratings of 1 in Table 5.15. When weighting one criterion
against another always start from left to right. For example,
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Public Sector Property Asset Management
Table 5.15
Criteria weighting.
Social Environmental Economic
Relative Values
Ranking of
Weighted
Preferences
Social
1
0.17
0.17
0.0769
0.0204
0.1273
0.07
Environmental
6
1
0.14
0.4615
0.1224
0.1091
0.23
Economic
6
7
1
0.4615
0.8571
0.7636
0.69
Column Totals
13.00
8.17
1.31
1.00
1.00
1.00
1.00
comparing social considerations against environmental criteria,
a value weighting of 0.17 is inserted. This means that social
objectives are less preferred compared with environmental. The
0.17 is a reciprocal of the numerical rating of environmental over
social objectives. In this case the factor is 6. This can be seen
when one commences the comparison with environmental in the
left-hand column over social. A preference rating of 6 is assigned.
Similarly where one starts with social objectives on the left-hand
side and compares that with economic, the rating of 0.17 is also
assigned. This shows that the investor regards economic factors
to be strongly to very strongly preferable relative to social factors.
This process is repeated until all the criteria have been weighted
against each other.
Relative values are then determined. For instance the relative
values for social considerations are 0.0769, 0.0204 and 0.1273.
These are found by dividing the row scores for social consideration, in this example 1, 0.17 and 0.17 by the respective column
total. In this example it is 1 divided by 13.00; 0.17 divided by 8.17;
and 0.17 divided by 1.31. The ranking of weighted preference
figures are found by averaging the relative values. For instance
the weighted preference of 0.07 for social objectives is found by
averaging the relative value scores of 0.0769, 0.0204 and 0.1273.
The averages provide an estimate of the relative priorities of the
elements being compared.
The above processes are repeated for the other two criteria,
namely environmental and economic. In the above example, the
investor considers the economic criteria to be more preferable at
69% followed by environmental at 23% and social considerations
a mere 1%. These criteria weightings are then used in the final
scorings (step 4) to determine the best ranked option. Before that,
each option needs to be weighed against each criterion.
Asset Management Planning
5.4.3.6
133
Pairwise comparison and synthesisation
This stage of the analysis involves undertaking pairwise comparison and synthesisation, during which each option is weighted
against each criterion. In this example this will involve evaluating the three options in terms of social, environmental and
economic consideration as shown in the following three tables
(Tables 5.16–5.18). The process culminates with establishing the
relative priorities for the options with respect to the criteria.
Option weighting is performed in exactly the same way as
criteria weighting. With regard to social objectives, the Purchase
option is preferred at 58% compared with Lease at 35% and Do
Minimum at 6%. Insofar as environmental considerations are
Table 5.16
Social impact ranking of options.
Do
Lease Purchase Relative Values:
Social
Minimum
Weighting the Social Impact
Impact
Ranking
Do
Minimum 1
0.14
0.13
0.06
0.05
0.08
0.06
Lease
7
1
0.5
0.44
0.32
0.31
0.35
Purchase 8
2
1
0.50
0.64
0.62
0.58
Column
Totals
3.14
1.63
1.00
1.00
1.00
1.00
Table 5.17
16
Environmental impact ranking of options.
Do
Lease Purchase Relative Values: Environment
Impact
Minimum
Weighting the
Ranking
Environmental
Impact
Do
1
Minimum
0.11
0.11
Lease
0.05
0.05 0.05 0.05
9
1
1.00
0.47
0.47 0.47 0.47
Purchase 9
1
1
0.47
0.47 0.47 0.47
Column
Totals
2.11
2.11
1
1
19
1
1.00
134
Public Sector Property Asset Management
Table 5.18
Economic impact ranking of options.
Do
Lease Purchase Relative Values:
Minimum
Weighting the
Economic Impact
Economic
Impact
Ranking
Do
1
Minimum
0.11
0.13
0.06
0.07
0.04
0.05
Lease
1
2
0.50
0.62
0.64
0.59
9
Purchase 8
0.5
1
0.44
0.31
0.32
0.36
Column
Totals
1.61
3.13
1.00
1.00
1.00
1.00
18
concerned, the Lease and Purchase options are equally ranked
with a preference score of 47%. However, the Lease option is
regarded by the investor to be most preferred at 59% followed by
Purchase at 36% with Do Minimum the least favoured option on
an economic basis.
5.4.3.7
Deciding on the preferred option
The preferred option is arrived at following a ranking process. The
final rankings are found by multiplying the ranking of weighted
preferences for each criterion by option ranking relative to criteria
as shown below.
The figures in the social column (0.06; 0.35; and 0.58); environmental column (0.05; 0.47; 0.47); as well as those in the economic
column (0.05; 0.59; and 0.36) shown figures in Table 5.19 are
those in the impact ranking columns in Tables 5.16, 5.17 and
5.18 respectively. The figures in the Priorities for the Criteria
row (0.07; 0.23; and 0.69) in Table 5.19 are the criteria weighted
preferences in the ranking column in Table 5.3.
The figures in the final option rankings column are found by
multiplying the priorities for the criteria in each row (e.g. 0.07 for
social column) with the cell item corresponding to each option in
that column (e.g. 0.06 × 0.07 for Do Minimum). This is added to
similarly calculated amounts in the environmental (0.23 × 0.05)
and economic (0.69 × 0.05) columns. The aggregated amount
(5%) is the final ranking amount for that particular option, in this
case Do Minimum. The same calculation is done for the Lease
Asset Management Planning
135
Table 5.19 Option ranking.
Social
Do minimum
0.06
Environmental
0.05
Economic
Final option
ranking
0.05
5%
54%
Lease
0.35
0.47
0.59
Purchase
0.58
0.47
0.36
Priorities for
the criteria
0.07
0.23
0.69
40%
0.07(0.06) + 0.23(0.05) + 0.69(0.05) = 5%
0.07(0.35) + 0.23(0.47) + 0.69(0.59) = 54%
0.07(0.58) + 0.23(0.47) + 0.69(0.36) = 40%
and Purchase options to establish the final weightings of 54% and
40% respectively. The financial ranking percentages indicate that
on the basis of non-financial considerations, the lease option has
54% preference, Purchase 40% and the Do Minimum 5%. The
investor would choose the Lease option purely on non-financial
considerations. The final option choice will depend on the DCF
evaluations as well. It could be that the Purchase option might be
cheaper and therefore a preferred option in monetary terms. The
final choice would depend on the weighting an investor places on
either financial or non-financial considerations. If, for instance,
an investor is especially sustainability minded, he might plump for
an option that scores highly on non-financial considerations. The
chosen asset strategy option should be supported by appropriate
risk management and lifecycle asset management strategies.
5.4.3.8
Risk management
If the public sector organisation has a formal corporate risk
management policy, the prescribed processes and techniques
should be adopted in the asset management improvement
planning process. The risk management process needs to be
tackled at two levels (NAMS, 2006a). Initially, the process should
be applied at organisational level, involving identification of
events that could impact on the performance of the service. The
focus should be on identifying risk events that will have a major
136
Public Sector Property Asset Management
consequence. Second, the process should be applied at property
asset level, focusing on identifying the most significant events
that could cause critical assets to fail or to function adequately. It
is important for a public sector organisation to understand its risk
exposure and critical assets, and have plans in place to manage
risk to acceptable levels. These two levels for tackling the risk
management process can be broken down into steps. The steps
involved in the risk management process are as follows:
●
●
●
●
●
Risk management context: This step establishes the corporate
risk framework. Also during this stage, the criteria against
which risk can be evaluated and the responsibilities for risk
management are established.
Risk identification: This involves two things. First, during
this stage the public sector organisation identifies the
risks it may encounter as an organisation. The second task
involves explaining the impact of the identified risks on the
organisation.
Risk analysis: This is about establishing a risk rating for all
assets or asset groups. Having rated the risk for all assets, this
is followed by an assessment of which assets represent the
greatest risk for the organisation.
Risk treatment: This concerns identification of the actions that
need to be taken to minimise risk at asset or asset group level.
Monitor and review: Monitoring and review is an ongoing
process for ensuring that risk levels remain acceptable even if
risks change (DPLG, 2010; NAMS, 2006b).
5.4.4 Minimised lifecycle management of
strategies
Lifecycle asset management, according to IIIM (2006), means
considering all management options and strategies as part of the
asset lifecycle, from planning to disposal. IIIM (2006) defines
the lifecycle of an asset as: ‘the time interval that commences
with the identification of the need for an asset and terminates
with the decommissioning of the asset or any liabilities thereafter’. The objective of lifecycle asset management is to look at
lowest long-term cost, rather than short-term savings, when
Asset Management Planning
Audit, review
& continuous
improvement
Disposal/
rationalisation
Replacement/
rehabilitation/
renewal
Minimised
life cycle costs
Condition &
performance
monitoring
Figure 5.4
137
Planning
strategies
Creation/
acquisition
Financial
management
Maintenance &
operations
Lifecycle asset management options and strategies.
making asset management decisions. Lifecycle asset management
focuses on management options and strategies considering all
relevant economic and non-economic considerations from initial
planning to disposal. According to DPLG (2010) the effective
application of asset management principles will ensure the
reliable delivery of services and reduce the long-term costs of
ownership and operation of the assets and in this way reduce
service costs. Figure 5.4 according to DPLG (2010) gives an
overview of lifecycle asset management options and strategies.
The options and strategies include planning strategies, asset
creation, financial management, operations and maintenance,
condition and performance monitoring, asset rehabilitation or
renewal, asset replacement, disposal or rationalisation, audit and
asset review.
5.4.4.1
Planning strategies
These are strategies that ensure that asset planning is targeted to
meet required levels of services and future demand at optimal cost.
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Public Sector Property Asset Management
There are four asset planning strategies that ensure that asset
planning meets user needs at optimal cost. The first aspect concerns establishing the necessary level of service and the associated
performance measures. This should lead to the development of
service level options and a forecast of costs to implement the
developed option. In addition this should also lead to the development of an appropriate benchmarking system for reviewing
the performance of an asset and asset management practices in
supporting service delivery. Demand forecasting and management is the second component of asset planning strategy and is
about forecasting changes in demand for services. The third asset
planning strategy element is risk assessment and management,
which involves predicting asset failure timing from condition and
performance monitoring. The risk assessment and management
process for predicting asset failure includes two aspects. These are
undertaking risk assessment and selection of optimal treatment,
including demand management, to mitigate unacceptable risks.
The final component of asset strategy planning is ODM. The ODM
process in the context of asset strategy planning is concerned
with preparation of medium- to long-term works programmes
and budgets. ODM uses techniques to make decisions about the
lowest lifecycle cost solution but also takes into account other
outcomes associated with that decision. The other outcomes are
social, cultural and environmental considerations.
5.4.4.2
Asset creation or acquisition
Asset creation or acquisition is the provision of, or improvement
to, an asset where the outlay can reasonably be expected to provide
benefits beyond the year of outlay (IIIM, 2006). According to IIIM
(2006) there are specific strategies that ensure that new assets best
meet the needs of the organisation. Also the strategies ensure that
new assets are completed on time to the required standard and
cost and cover:
●
●
value management during design phase;
procedures and criteria for assessment of design options:
during the assessment of design options consideration should
be given to lifecycle costs, optimised renewal decision making
and risk assessment;
Asset Management Planning
●
●
139
project management procedures and project review;
quality assurance and audit trails for design and project
management.
5.4.4.3
Financial management: a whole lifecycle
approach
Financial management is a lifecycle asset management strategy
that is concerned with the use of a whole lifecycle cost approach
in order to recognise all costs associated with asset ownership,
including creation/acquisition, operations, maintenance, rehabilitation, renewals, depreciation and disposal (IIIM, 2006).
All expenditure on assets can be assigned to one of the five
categories:
●
●
●
●
●
Operations: operational activities that have no effect on asset
condition but are necessary to keep the asset utilised appropriately (i.e. power costs, overhead costs, inspections etc.).
Maintenance: the ongoing day-to-day work required to keep
assets operating at required service levels (i.e. repairs and
minor replacements).
Renewal: significant work that restores or replaces an existing
asset towards its original size, condition or capacity.
New work: works to create a new asset, or to upgrade or
improve an existing asset (also called development) beyond
its original capacity or performance in response to changes in
usage, customer expectations, or anticipated future need.
Disposal: any costs associated with the disposal of a decommissioned asset.
Costs occur in all phases of an asset’s life. Too often in the
past, the focus of decision-making has been on the initial capital
costs when evaluating asset creation and acquisition options,
ignoring the long-term operational costs. It is important to be
able to attribute the costs to each phase in an asset’s lifecycle so
that the total lifecycle costs can be established to enable better
management decision-making. Lifecycle costs include: initial
capital costs; operations and maintenance costs; refurbishment
and renewal costs; administration, overheads and taxes; depreciation; capital use charges/rate of return. The objective of lifecycle
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costing is to determine the total costs of ownership over the life
of an asset for the purpose of:
●
●
●
●
evaluating options for the procurement of new assets;
ongoing management decision-making throughout the life of
an asset;
benchmarking the actual cost performance of the asset;
reviewing the process for future design/acquisition decisions.
Table 5.20, according to IIIM (2006), shows the key lifecycle
cost elements:
5.4.4.4
Asset operations and maintenance
Asset operations and maintenance functions relate to the
day-to-day running and upkeep of assets. Determining lifecycle
operations and maintenance costs through maintenance management is the most effective strategy for optimising these costs.
5.4.4.5
Asset condition and performance monitoring
Asset condition and performance monitoring is where asset
performance relates to its ability to meet target levels of service,
and asset condition reflects its physical state. The lifecycle
strategies for optimising asset performance and condition are
those that cover the collection, entry, and validation of asset
performance and condition data.
5.4.4.6
Asset rehabilitation or replacement
Asset rehabilitation or replacement is the significant upgrading
or replacement of an asset or asset component to restore it to its
required functional condition and performance. It is essential to
be able to identify the optimum long-term solution through a
formal decision-making process such as ODM.
5.4.4.7
Asset disposal or rationalisation
Asset disposal or rationalisation is an option when an asset is no
longer required or becomes uneconomical to maintain or rehabilitate. It provides the opportunity to review the configurations,
type and location of assets, and the service delivery processes
relevant to the activity. Similarly, an optimised decision-making
tool is essential for arriving at an optimal decision about asset
rationalisation.
Asset Management Planning
Table 5.20
i.
ii.
iii.
iv.
141
Lifecycle cost elements.
Acquisition and financing costs (initial capital
costs)
Costs incurred during the planning, design, construction
or acquisition phase of an asset and generally should
include all advance expenditure on:
∘ Programme planning
∘ Land acquisition and improvement
∘ Building and site facilities
∘ Machinery and equipment
∘ Management services
∘ Quality control and commissioning
∘ Duties and taxes
∘ Consulting service fees
∘ Cost of raising finance (financial charges)
∘ Interest charges during the construction period
∘ Research and feasibility studies.
Asset operations including externalities (operating
costs)
Include:
∘ Costs for operations personnel
∘ Materials
∘ Fuel
∘ Chemicals and
∘ Energy consumption
Asset maintenance
Costs include:
∘ Scheduled corrective/predictive planned
maintenance
∘ Reactive repairs to correct asset faults
∘ Intermittent maintenance for major mid-life
refurbishment (could also be considered as
rehabilitation cost)
∘ Alteration or reconfiguration of assets
∘ Holding of spares required during emergency
(unplanned) breakdown
Risk exposure costs
The cost of service delivery carries the residual risk
associated with asset failure. There are two elements to
risk exposure costs:
∘ The known costs that will be incurred through
insurance, or other risk mitigation measures
∘ The potential costs of residual risk exposure
(continued overleaf)
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Table 5.20
(continued)
v.
Rehabilitation costs
Assets have long lives. There are likely to be points in
that life where rehabilitation is required because of the
need to:
∘ Reduce rising maintenance costs or poor operating
performance
∘ Meet changing customer expectations on
standards of service
∘ Adjust for changes in the need or overall demand
for the service
∘ Accommodate new technology
vi. Replacement costs
vii. Asset administration/support costs
Refer to head office support costs such as:
∘ Insurance
∘ Rates
∘ Management expenses (These are indirect costs
and cannot be allocated as easily as direct costs)
viii. Rate of return requirement on capital use charges
ix. Asset depreciation
x. Taxes
5.4.4.8
Asset management audit/review
and continuous improvement
Asset management audit/review and continuous improvement
involve carrying out regular internal and independent audits
to ensure a continuous asset management improvement cycle,
and to achieve or maintain appropriate industry practice. Asset
management improvement planning is the tool needed to support
asset management audit or review and continuous improvement.
5.5 Strategy implementation
The prepared asset management improvement plan needs to be
implemented. According to the RICS and ODPM (2005) the
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implementation of an asset management improvement strategy
concerns setting out the organisational arrangements for asset
management. The arrangements relate to three aspects: the setting
out of an appropriate organisational structure for managing property; the identification of roles and those responsible for carrying
out asset management practices associated with implementing
the asset strategy; and the setting up of arrangements for project
managing the strategy, programme and /or transactions. These
arrangements can be considered at three levels namely corporate;
property management; and project management levels (DCLG and
York Consulting, 2007).
5.5.1 Arrangements at corporate level
The appropriate arrangements at corporate level are about
developing corporate property management groups in order to
respond to the corporate capital and asset planning initiative.
DCLG and York Consulting (2007) identified the following good
practice arrangements that need to be put in place in order to
develop effective corporate management groups, as shown in
Table 5.21.
5.5.2 Arrangements at property management
level
The organisational arrangements for asset management at
property management level concern having appropriate management practices. According to DCLG and York Consulting (2007)
there are three appropriate management practice arrangements
at this level. First, the public sector organisation should develop
an effective organisation of property management services as
the basis for implementing a more corporate and strategic
approach to capital and asset planning. Second, it should ensure
that property management responsibilities are clearly set out
at a corporate and service level. Finally, property management
activity needs to be adequately resourced to carry out property
management functions including the corporate task of reviewing
property assets and running costs.
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Table 5.21
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
Good practice arrangements at corporate level.
That there should be a clear link between corporate
objectives and priorities and those of capital and asset
planning
Ensuring that the implementation of the property strategy
is fully integrated with the organisation’s corporate and
service plans
There should be a clear distinction between strategic
thinking and decision-making and operational
management
The public sector organisation has a fully developed
medium/long term property strategy
There is a committed senior management involvement in
the asset management process of all key service areas in
the authority represented by officers at an appropriate level
There is a culture of challenge in relation to new capital
expenditure and use of existing assets
That there are clear reporting lines to a strong corporate
centre, which provides a clear lead for the process and
ensures that the decisions taken are then implemented
There exists at senior management level an officer to
champion a corporate and strategic approach to capital
and asset planning
There exists a property officer at corporate level to
manage the implementation of the asset plan
There are clear reporting lines to a corporate centre to
ensure senior management support
The public sector organisation structures its governance
arrangements so that it is better able to focus on strategic
property issues to improve decision-making capability
Elected members are engaged with property asset
management
That asset performance is regularly reviewed by members
There is a corporate approach to options appraisal in line
with corporate objectives
Decisions on capital projects are based on a clear
business case, including options appraisal and whole-life
costing;
Management of property maintenance backlog reflects the
results of a systematic option appraisal
Asset Management Planning
Table 5.21
●
●
●
●
145
(continued)
All planned work reflects the results of a systematic option
appraisal
There exists a corporate approach to the prioritisation of
capital projects, in line with corporate objectives
Property maintenance have the resources to meet its
policy objectives and adequate priority is given to routine
maintenance within the budget setting process
Funding for maintenance is linked to the condition of
assets
5.5.3 Project management arrangements
The setting up of project management arrangements is the third
element that needs to be in place to support the implementation of asset strategy. The setting up of project management
arrangements concerns the adoption of a project management
approach in the implementation of asset-based strategies that
has been emphasised elsewhere. York Consulting and DCLG
(2007) have identified a number of project management arrangements that need to be put in place to ensure effective strategy
implementation. The arrangements include ensuring that:
●
●
●
●
●
asset strategy implementation is phased to balance maintenance, refurbishment and replacement requirements taking
into account resource implications whether ICT, human, or
financial;
there is identification of the person responsible and accountable for delivery of maintenance and capital programmes;
typically such a person could be an asset manager with
understanding of project management;
there is identification of a person responsible and accountable for monitoring and supervision of asset management
programme implementation;
there is a subgroup responsible for capital projects;
there should be a linkage between the senior officers in charge
of the Asset Management Team and the sub-group responsible
for capital projects;
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●
●
●
●
●
there is a common project and programme management
methodology and it is consistently applied across the
organisation;
there is internal project management capacity through establishing specialist teams with appropriate project management
training;
there is a strong project management culture; for instance
ensuring that there is a formal corporate project management
approach to project management, based on the PRINCE2
gateway process or similar;
there is an identifiable project manager or coordinator; and
there exists a corporate approach to project.
5.6 Asset monitoring and control
Asset monitoring and control determines the asset management monitoring process. An effective asset management
monitoring process requires that the public sector organisation
should benchmark its asset management practices. The DCLG
(2008) states that benchmarking is about learning from other
organisations, including non-public sector organisations, and
understanding what best practices of asset management are
being utilised. Learning and understanding best practices being
undertaken elsewhere can be a useful input to establishing a
realistic ‘appropriate practice’ target. The key prerequisites to
benchmarking are that the public sector organisation should be
able to establish a reasonably standardised basis for comparison.
The establishment of a standardised benchmarking system is
very dependent upon establishment of a comprehensive and
relevant performance measurement and management system.
Effective performance management relies on the specification
of two sets of performance measures – those for property and
those for management of property – and are intended to review
the performance of the operational properties and property
asset management practices. According to CIPFA (2008) the
review and evaluation of the performance of property assets and
of property asset management practices in the organisation is
undertaken by comparing the performance of these two aspects
against KPIs and the KPI targets.
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The good practice review process of property management
practices involves reviewing operational management practices and workspace or accommodation. The review process is
intended to ascertain whether good management practices, such
as the following, are taking place:
●
●
●
●
●
senior managers being aware of the property costs of the
buildings that services occupy;
existence of a programme of property reviews covering accommodation reviews;
vacant and underutilised land and property reviews,
functional reviews, service reviews, area reviews;
information on running costs and environmental impact is
made available to the review team;
there is a clear strategic approach to the utilisation of office
space by staff and co-location with partners and stakeholders
to achieve economies of scale in asset management.
If the asset management process is supported by effective
property management practices this is likely to result in positive asset management outcomes. Positive asset management
outcomes include the effective use of capital resources, efficient
and effective use of property assets as well as improved service
delivery. The effective use of capital resources is evidenced by the
generation of capital receipts which are used to fund programmes,
boost public sector organisation reserves or pay debt (DCLG &
York Consulting, 2007).
Property rationalisation is the management practice that
ensures that there is efficient and effective use of property assets.
The property rationalisation process involves challenging the
need for holding property resulting in decisions to consolidate
or dispose of assets. The process results in reduced property
operating costs and increased staff efficiency (OGC, 2003).
According to DCLG (2008), effective asset management practices
can result in improved service delivery. These asset management
practices include:
●
●
improved service delivery as a result of the introduction of new
work practices,
increased space utilisation,
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●
●
●
●
●
increased cross-service working,
increased compliance with legislation,
improved accessibility of services,
increased usage of services, and
enhanced sustainability of property holdings.
The structure and nature of a well-managed property portfolio
can be an important factor that can encourage cross-service
working. This is essential as public sector organisations need to
operate in a joined up way in order to provide modern and flexible
services. Well-managed properties encourage co-location with
partners/stakeholders thereby providing an effective basis for this
partnership working. Collaborative working is essential in meeting the emerging trend of public sector organisations increasingly
working with a wide range of partners and stakeholders in order
to deliver services.
In addition to their location, the quality of the facilities from
which services are delivered has a significant impact on the use
of services by residents. Buildings that are rundown and not
fit for purpose in relation to the delivery of modern services
are unlikely to attract high usage (Audit Commission, 2009).
The environmental performance of the property portfolio of
public sector organisations, for example the energy efficiency of
buildings, is a significant issue. Buildings that are well managed
will perform well environmentally. Buildings that perform well
environmentally help to address the wider concerns about climate
change and global warming.
There are a range of processes that characterise good practice
processes for workspace or accommodation. Effective processes,
according to DCLG (2007), are those that ensure that:
●
●
unit costs are benchmarked against other public sector organisations and the private sector;
the asset management service maintains an effective performance management framework to continuously review and
improve its performance. This should involve identifying
and calculating a suite of property performance indicators
(KPIs) and draw on the experience of asset planning from
other organisations in order to improve their own suite of
performance indicators;
Asset Management Planning
●
●
149
existence of annual performance plans, agreed by public sector
organisation members, setting out targets for improvement;
and
the public sector organisation, including annual performance
plans in public performance reporting.
The effective utilisation of accommodation and workspace
practices is evidenced by a number of property performance
indicators at asset level. The indicators are evidence of efficient
and effective use of property and workspace. The indicators
according to DCLG and York Consulting (2007) include:
●
●
●
●
property being in the right physical condition;
property is fit for purpose;
property is accessible; and
property is not expensive to operate and maintain.
Evidence of reduction in the level of required maintenance as
a result of properties being in good condition is an important
indicator for public sector organisations. According to the Audit
Commission (2009), the level of required maintenance is a major
issue for many public sector organisations. This is generally not an
issue that can be addressed solely through increased expenditure
on repair and maintenance, but requires a significant change in
the structure and scale of the property portfolio. Furthermore,
assets that are well managed will have reduced annual revenue
costs. This is significant as operating cost reduction is a central
element of achieving a more efficient use of property assets.
Reduction in the annual operating costs of the property portfolio
include, for example, reduced management costs, energy costs,
water costs, and sewerage costs. In addition, well-managed
properties are likely to be of sufficient capacity or size to meet
current and any future demand as well as be fit for purpose.
5.7 Asset management audit and review
The process of asset management audit and review is directed at
the implemented programme or strategy. The process encompasses three interrelated elements. The first element is about
reviewing and evaluating the performance of the estate and of
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property asset management practices in the organisation against
KPIs and the KPI targets. The second element is concerned with
making sure that there is a clear statement of current performance
levels against KPI targets. The statement should also include any
relevant historic performance data and action to be taken to
improve performance (OGC, 2003). The final element in the
process of audit and review is to ensure that the targets and
review cover improved use of property and workspace (Scottish
Executive, 2003).
5.8 Chapter summary
In this chapter the second element of asset management, namely
asset management planning, has been considered. The concept of
asset management planning is defined and the process elements
associated with it are identified. The process elements that
make up asset management planning have been identified as
comprising formulation of asset management policy and strategy
development; putting in place an asset management team; asset
management tactical planning; and operational planning.
6
Asset Management Plan
Public Sector Property Asset Management, First Edition.
Malawi Ngwira and David Manase.
© 2016 John Wiley & Sons, Ltd. Published 2016 by John Wiley & Sons, Ltd.
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6.1 Introduction
The process of asset management culminates with the documentation of all the key process outcomes: the asset management
plan. In this chapter a definition of an asset management plan is
provided as well as the aims and purpose of such a document.
In addition, the chapter highlights the key areas that are to be
included.
6.2 Definition of an asset management
plan
An asset management plan (AMP) is defined as: ‘a document
which sets out the Asset Strategy in order to help determine
which assets should be acquired, renewed, improved, maintained or disposed of, once alternatives to investing in property
assets have been explored’ (CIPFA, 2008; Scottish Executive &
COSLA, 2003). The AMP assists with decisions over which
assets to renew, improve, maintain or dispose of, by translating
asset management planning into action. This is done through
the development of integrated plans for capital investment
(acquisition/development); asset maintenance; asset disposal;
and workspace and accommodation plans (Scottish Executive
& COSLA, 2003; CIPFA, 2008; OGC, 2003). The developed
integrated plans are the end outcomes of the asset management
planning process. These are summarised and reported in the
asset management plan document (NAMS Group, 2006b). The
documented end outcomes are the current and projected asset
status. Also included in the document are the considered options
to achieve strategic objectives through using asset or non-asset
solutions.
6.3 Aim of an asset management plan
The AMP is the blueprint for the asset management planning
process. According to the Office of Government Commerce
(OGC) (2003), writing an AMP helps with thinking through
the logic flow of the overall asset management planning process
by seeking to explain how assets support business delivery.
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The logical explanation is brought about as the preparation of
the document proceeds by providing answers to the following
specific questions: Why are property assets important to the
organisation? What is needed in terms of property assets? What
assets have the organisation got? What will close the gap? How
will it be done? How will the organisation know it is getting there?
By addressing these questions the property AMP is intended to
be a clear statement of the strategy to be followed when making
decisions relating to the property resources that support delivery. Specifically, given the inherent clear statement of strategy
embedded in an AMP, the document can serve a number of aims.
It can be used as a guide to direct activities and tasks in a planned
and auditable way. Furthermore, the AMP sets out a high-level
overview of the property plans, programmes and projects that are
being developed to implement the strategy. In addition, the AMP
ensures that land and buildings are used efficiently and effectively
and in a sustainable manner. Also, the AMP ensures that the
opportunity cost of holding land and buildings is minimised and
the value of public sector assets is protected. The AMP also assists
in ensuring that expenditure on land and buildings maximises
value for money and thus achieves best value. Ensuring that
the use of assets helps to improve services is another aim of the
document. Its preparation aids the development of innovative
accommodation solutions to meet service needs. Further still,
where an AMP provides a clear statement of strategy it helps to
ensure that an explicit, coordinated approach to asset management is implemented across the authority, reflecting service needs
as determined by consultation with stakeholders. Having an AMP
in place assists in making sure that the return on investment and
surplus properties is maximised in an appropriate manner to
meet the organisation’s financial requirements and also, according
to NAMS Group (2006a), acts as a vehicle for communication
with customers or service users and other stakeholders with an
interest in the public sector organisation’s AM activities.
6.4 Purpose and content of an AMP
The AMP aligns asset objectives with organisational objectives
and ensures overall efficient and effective use of assets in the
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medium/long term. It also provides: a platform for structured and
rigorous forward thinking; a basis for corporate and consultative
strategy development; an explicit description of the direction of
the organisation (or a particular aspect of that organisation, in this
case, assets); a basis for future decision-making and gives a clear
statement for communicating the strategy to the organisation.
Furthermore, the AMP ensures that asset strategy is placed in the
context of wider organisational issues and helps to bring clarity
to the way assets are managed in the organisation, in terms of the
organisational arrangements for asset management; corporate
processes for assets; performance measures and measurement;
data management and capacity management.
According to RICS (2005), a well-prepared AMP will meet the
following criteria:
●
●
●
●
●
enable the organisation to know what is in its asset portfolio,
where those assets are and who is responsible for them;
help the authority develop a means of relating the assets in its
portfolio to its wider objectives;
the asset portfolio is reviewed regularly, both on a
department-wide and an authority-wide basis, according
to criteria set centrally and used consistently across the
authority;
it links the use of assets to the use of other resources;
decisions about reviews, additions, disposals, maintenance
programmes and collaboration with other partners are taken
systematically and implementation is monitored by senior
officials or elected members or members of the board.
6.5 Content of an AMP
There is no universal agreement on how the AMP should be
structured. The asset management plans suggested by various
commentators such as OGC (2003); RICS & ODP (2005); CIPFA
(2008); and the Consortium of Public Sector Organisations in
Wales (CLAW) (2003), among others, are all structured differently. For instance the Scottish Executive and COSLA (2003)
suggest that an AMP document should summarise asset management planning into six areas. The six areas (see Figure 6.1) are:
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Step one
Define local objectives
Step six
Monitor review
evaluate
Step two
Assess position
Joint guidance
Skills and
knowledge
Time
Capacity
for change
Shared
learning
experience
Step five
Implement plan
Resources
Networking
Step three
Consider option
Step four
Develop plan
Figure 6.1
AMP process.
definition of local objectives; assessment of current position; consideration of options; development of the plan; plan
implementation; and monitoring, review and evaluation.
Regardless of the differences in the composition of AMP
documents, there is universal agreement that there are certain
key asset management planning areas that should be included in
any well-prepared example (DPLG, 2010; York Consulting, 2007;
CIPFA, 2008; Scottish Executive and COSLA, 2003; OGC, 2003).
These key areas are: (i) strategy development; (ii) organisational
aims and objectives, property asset implications and property
asset aims and objectives; (iii) review of current property assets;
(iv) identified key areas for change or strategic asset gap; (v)
preferred strategy options for effecting change and their testing;
(vi) implementation programmes; and (vii) monitoring, review
and evaluation (York Consulting, 2007; CIPFA, 2008). These key
areas are explained in this chapter.
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6.5.1 Strategy development
One of the key areas to be documented in an AMP is the estate
strategy. An AMP document needs to articulate the purpose and
role of an estate strategy as well as additional issues considered in
the preparation of a corporate asset strategy. The strategy’s purpose and role is articulated by ensuring that the AMP addresses
the following specific questions: Why does the organisation
have an asset strategy? How does it fit in with other planning
documents and the overall corporate strategy (OGC, 2003)?
According to RICS (2005) an asset strategy serves a number of
purposes. First, the strategy describes the organisation’s asset
objectives and its longer-term vision for the asset base. The
description of objectives and vision involves the organisation
indicating the general direction that the asset base will take over
the medium-term period, typically over the next 5 to 10 years.
Second, the strategy asset strategy section should explain the way
in which each category of the asset base is going to be treated
in the future and the overall financial framework in which this
would happen. A detailed explanation should be given about the
approach to be adopted to take the asset base to the intended
target period.
In addition, the strategy section should highlight the public
sector organisation’s policies to be applied in decision-making
involving the asset base. The write-up should make it clear in
the formulation and application of policies the public sector
organisation’s business goals and objectives, its business drivers,
its financial context and the implications for the organisation’s
assets. Apart from highlighting the purposes, this section of
the document should also explain the various roles of an asset
strategy. According to the OGC (2003), these are fourfold. First,
to provide a platform for structured and rigorous forward thinking. Second, an asset strategy acts as a basis for corporate and
consultative strategy development. The provision of an explicit
description of the direction that the organisation wishes to take
with its assets is another role played by an asset strategy. Third,
an asset strategy acts as a clear statement for communicating the
strategy to the organisation. Fourth, it acts as a basis for future
decision-making.
Apart from highlighting the purposes and roles of an asset
strategy, this section of the document should also include other
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issues dealt with in the preparation of the corporate asset strategy.
These other issues are, according to the Scottish Executive and
COSLA (2003), strategic asset objectives, performance measures, public sector organisation’s resource context, stakeholder
views, council’s overall accommodation requirements and issues
affecting that, and partnership or joint working arrangements.
The strategic asset objectives section of the document should
set out the high-level objectives for managing the property
asset portfolio. Such objectives could, for example, be about
minimising costs in use, optimising utilisation, or maximising
return on investment. The section should describe the extent
to which the AMP takes account of high-level public sector
organisation objectives. Furthermore, the asset strategy section
of an AMP should have a write-up about performance measures.
It should draw out key performance measures in relation to the
public sector organisation’s property asset base. The public sector
organisation’s resource context is another important element that
should be summarised in the asset strategy section and can be
dealt with at two levels. First, the document should summarise
the core elements of the public sector organisation’s capital and
revenue programmes. Second, the section should describe the
public sector organisation’s wider resource structure to show how
the programmes that have been developed to close the identified
asset gap are to be funded. A section on stakeholder views is
another element that needs to be included in the asset strategy
section of the AMP. This should be a summary of how the views
of all those stakeholders consulted in identifying the asset gap
have been taken into account. The asset strategy section of the
AMP should also contain a summary of the council’s overall
accommodation requirements and issues affecting it and this
should make reference to the overall requirements for service
accommodation within the public sector organisation asset base.
Reference should also be made to the key factors that influence
these requirements, and the process that is adopted to identify
them. This is essentially a ’big picture’ view of accommodation
requirements within the asset base in the context of the changing
world of public sector organisation service delivery. For instance,
recent years have witnessed concerted efforts by central government in the UK in encouraging public sector organisation
service provision to be delivered differently. The government has
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been pushing public sector organisations to move towards more
cross-cutting and thematic provision of services to be delivered
increasingly in partnership with others.
Finally, the asset strategy section of the AMP should summarise
the public sector organisation’s joint working and partnering
arrangements for service delivery. In particular, the public sector
organisation should make reference to key partners with whom a
joint approach to providing accommodation is already, or might
in the future be, adopted. Future joint working arrangements
might, for instance, include a move towards greater integration
with other public sector organisations and government services,
the voluntary sector and others. Overall the public sector organisation needs to clarify its stance about accommodation provision.
This clarification can be achieved in two crucial ways. First,
the public sector organisation must make it clear that it is not
adopting too narrow an approach to accommodation provision.
Second, it should emphasise that it is considering actively all
available and appropriate opportunities for maximising the
utilisation of individual assets in the best interests of individual
service provision.
6.5.2 Organisational aims and objectives,
property asset implications
and property asset aims and objectives
According to Scottish Executive and COSLA (2003), the early
section of the asset management plan document dealing with
aims and objectives should highlight four issues. The issues are
organisational context, the public sector organisation’s corporate
planning arrangements, asset management functions, and a writeup on best value. The organisational context should be a short
contextual statement of the public sector organisation area.
This should state the public sector organisation’s location, area
it serves, the population benefiting from its services, and key
socio-economic indicators of the area. In addition, this section
should have a brief review of the corporate planning framework
within the authority. The framework should highlight the key
corporate documents and the relationships between the various
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plans and strategies, including the contribution of the property
asset management plan to the public sector organisation’s other
strategies and plans. Typically other public sector organisation
plans can include the corporate plan and community plan.
The document should also provide a clear statement of responsibilities for the asset management function within the public
sector organisation. It should be explicit about the reporting lines
and overall accountability. There should be clear distinctions
made between responsibilities for strategic and operational
functions. Also, a statement should be provided explaining the
inclusive nature of the function and process of asset management.
Furthermore, there needs to be a clarifying statement around
how changes resulting from consultation are fed back into the
system.
The importance of the need to secure best value in asset
management arrangements needs to be spelt out in the document
too. The statement on best value should provide an outline of the
authorities’ arrangements to secure the duty of best value and the
integration of asset management into the authority’s approaches.
The document needs to make reference to specific approaches and
plans for the management of resource issues outlined in the statutory guidance on the duty to make arrangements to secure best
value. Some of these approaches include how joint working, equal
opportunities and sustainable development issues are encompassed within the authority’s asset management practices. The
AMP should also contain a statement of the core business aims
and objectives of the public sector organisation that should state
the public sector organisation’s main activities, who its customers
are, and include the way it sees its activities changing in the future.
The activities, customers and any future changes need to be clearly
and concisely stated together with the overall accommodation
and property asset implications. The overall accommodation and
property asset implications should focus on where and how the
services are delivered, expressing, for example, why services need
to be present in certain locations. Included elsewhere in the AMP
will be highlights of the public sector organisation’s business
plans, financial context, central performance targets and wider
priorities. From these highlights a statement needs to be included
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in this section of the document describing the public sector
organisation’s current and future operating environment and
operating constraints, including budgetary issues. This section of
the document should also summarise the appropriate standards
of property assets, accommodation and workplace land holdings.
The standards should be explained in the context of value for
money considerations. As a minimum, flexible working practices,
sustainability and service transformation should be covered.
Carefully reasoned arguments are required where standards
set are particularly high or low. After stating the public sector
organisation’s aims and objectives, operating environment and
asset management standards, the section should culminate in a
clear statement of the public sector organisation’s vision, strategic
goals and objectives for its accommodation, its property asset
base and future demand for property and accommodation.
6.5.3 Corporate vision and strategy and its
property implications
The Office of Government Commerce (2003) argues that five
important steps need to be followed in making the key links
between the public sector organisation’s goals and objectives and
the consequent accommodation scenarios. The steps include:
a) Understanding the council’s business and its potential overall
accommodation implications.
b) Identifying other property changes that require a corporate
response.
c) Developing this information into a property strategy as the
context for the asset planning process.
d) Developing a common understanding of property issues in the
future.
e) Assessing the impact of external changes.
This section of the AMP needs to clearly demonstrate how the
steps provide the linkage between the organisation’s goals and
objectives on the one hand and accommodation scenarios on the
other.
The manner in which each of the steps can demonstrate the
linkage is explained below.
Asset Management Plan
6.5.3.1
161
Understanding the public sector
organisation’s business
Among service users and other key public sector organisation
stakeholders the linkage between the public sector organisation’s
goals and objectives may seem remote from property and asset
matters. However, as has been argued by OGC (2003), this is the
place to start to demonstrate the linkage. The demonstration can
be made by arguing in the AMP for the role played by property
assets in supporting the public sector organisation’s goals and
objectives. For instance, the document should clearly explain
the important role that property assets can play in developing
the public sector organisation’s key service aspirations. These
key aspirations can, for instance, be about regeneration and
economic development, lifelong learning, community safety and
security, inclusion and access. The document should spell out
these aspirations so they are well understood, together with their
broad property asset implications.
In the same way that a public sector organisation will have
indicated its aspirations in the strategy document, in a similar
way it may have clearly articulated the detail of its strategy on
customer interaction. The public sector organisation will have
indicated its strategy, or it may be only slowly emerging, for using
different interfaces such as phone, face to face, Internet/digital
to support service delivery. These customer interfaces will have
asset implications. This section of the asset management plan
document requires stating the various extrapolations of the
public sector organisation’s customer interface strategy and their
possible asset implications.
6.5.3.2
Identifying other property changes that
require a corporate response
There are a number of other areas that involve property that
are corporate issues and therefore require a corporate response
and corporate resourcing. Examples of these corporate issues, as
provided by OGC (2003), are access and Disability Discrimination Act (DDA) issues; environmental and sustainability issues;
health and safety issues such as working conditions, fire risks and
means of escape, asbestos and electrical testing; and maintenance
standards. The public sector organisation should give appropriate
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Public Sector Property Asset Management
priority in programming these issues and should pursue common
policies across the council with appropriate funding.
6.5.3.3
Understanding the changes likely to occur
in services in the future
Having explained the public sector organisation’s vision and how
that is linked to its property assets, the document also needs
to describe how the public sector organisation understands
the changes that are likely to occur in services in the future.
Forecasting is inherently unpredictable, making it very difficult
for service managers to predict the future direction of the service
in say five or ten years time. Despite the difficulties of service
forecasting, the information generated is nonetheless crucial to
establishing property asset implications of any service changes.
Consequently, service managers need to spend time developing
realistic scenarios of future service change by, for example, using
scenario planning and futures techniques. These will, individually
and when taken together, guide asset and property strategy
development.
Alongside looking at service changes and property asset
implications as part of longer-term service planning exercise,
the impact of developing partnership working also needs to be
assessed. In particular the AMP needs to explain how the public
sector organisation has assessed the impact of developing partnership working together with the asset implications that may result
between the partners. In addition, assessments of the way in which
service delivery will be sourced in the future, whether in-house,
partnering, or outsourced, need to be described. The description
should include any property asset implications that might arise
from different service delivery arrangements. Finally, possible
changes in working practice and work style as well as the numbers
of staff employed by the public sector organisation will need
to be assessed. An assessment of these possible changes should
include any property asset implications for office accommodation
in terms of amount of office space needed and property location.
6.5.3.4
Developing a common understanding
of property issues in the future
In the same way that the implications of the public sector
organisation’s goals and objectives in relation to assets should
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163
be understood, so too should the constraints of property assets
on its goals and objectives. According to the OGC (2003) this
entails that the public sector organisation, corporately, should
have an overall understanding of property issues. OGC (2003)
suggests that this can be done through awareness programmes
and through the process of corporate working. This section of
the programme needs to summarise the awareness programmes
that are in place and how the public sector organisation intends
to carry them out.
6.5.3.5
Assessing the impact of external changes
An authority needs to articulate in the AMP an assessment of
the possible external changes that will occur together with their
impact and their property implications. While these external
changes may not be in the direct control of the authority, their
impact will need to be evaluated, or at least noted and built into
the thinking behind the property asset strategy.
6.6 Review of current property assets
This section summarises the current property portfolio and its
performance against key requirements and essentially entails an
assessment of sufficiency, suitability and condition and the extent
to which it currently meets objectives (Scottish Executive and
CIPFA, 2003).
6.6.1 Consideration of options
This is the section that explains how the strategy to close the asset
gap identified following the review of current property assets
was arrived at. The identification of the appropriate strategy is
done through an option appraisal process. This section of the
AMP summarises the process. The statement on option appraisal
should, according to OGC (2003) and Scottish Executive and
COSLA (2003), summarise three key aspects of the process: the
identification of strategic options, appraisal of identified options,
and identification of the preferred option. The strategic options
section identifies the strategy options to address the key areas
of required change identified following a review of the asset
portfolio’s current position as summarised earlier. The options
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could either be asset based or non-asset based strategies (Scottish
Executive and COSLA, 2003). Each option needs to be appraised
using economic evaluation techniques. The economic evaluation
should involve high-level financial and non-financial assessment
of costs and benefits of the strategy options. The evaluation of
options should consider the costs and benefits of each option
over the short and long term, taking account of resources, and
identify the option that offers the best solution (OGC, 2003).
The Scottish Executive and COSLA (2003) emphasise the
importance, on the part of a public sector organisation, of demonstrating that it has been through a process of option appraisal. In
particular it must take care to ensure that the options cover both
the options for change in relation to the property assets and the
options for change in relation to the delivery of the changes. The
options for change in relation to the delivery of changes in effect
means making sure that the options also cover asset management
practices. A number of options should be considered, including
the baseline do nothing scenario. Appraisal of identified options
will be in the second section that is documented in the option
appraisal section of an AMP. The section summarises appraisals of
each of the identified options, within the context of authority-wide
priorities and resources available. A clear and explicit approach
to appraisal should be shown and the process recorded for future
reference. The appraisal framework must be stated clearly and
provide a rigorous basis for assessing different approaches in a
consistent manner. Reference will need to be made to issues such
as the degree to which the options will contribute to the delivery
of the stated objectives, the capital and revenue implications of the
individual proposals, the risks attached and how they will be managed. Each of the options identified should be considered against
the baseline do nothing option. Appraisal should be carried out
in accordance with the appraisal guidance, popularly called ‘The
Green Book’, produced by the UK Government’s Treasury department (HM Treasury, 2003). The preferred strategy option section
identifies the preferred options for addressing the key areas of
change or asset gap. The rationale for selection of the preferred
option should be demonstrated clearly in the options appraisal
exercise. This option should be achievable and affordable.
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165
6.6.2 Programme development/development
of plan
Programme development is the fourth element that is documented in an AMP. According to RICS (2008), the programme
development stage brings together the most beneficial and affordable projects into a programme of projects for implementation.
The projects that are brought together will have been identified
following the three preceding steps. The first step involved
definition of aims and objectives and their property implications.
The second step concerned reviewing of the asset base to examine
the practical implications of the asset strategy. The third stage
was about the development of specific projects or project options
designed to implement the strategy (RICS, 2008). Following an
assessment of each of the potential projects or project options
developed from the asset review, a realistic programme of some
of the projects is then assembled. These are the projects that
provide the desired value for money, affordability and benefits
(RICS, 2008).
The developed programme should contain a schedule of actions
required to address the identified asset gap/change the asset base.
These actions can include:
●
●
●
●
acquisitions and new builds;
refurbishment and maintenance of the asset base retained;
disposals of surplus or unfit-for-purpose assets;
demand management actions (CLAW, 2003).
RICS (2008) states that it is likely that some of these actions
will be stand-alone tasks, while others will interconnect, hence
the importance of programme and project management support.
Some items in the programme will be short or long term, especially large-scale projects with long lead-in times. The programme
should also specify a timetable for reviews of individual projects
and the overall schedule for the programme. Furthermore, the
programme needs to be well defined in terms of budget estimates,
timetables, expected outcomes and the series of accompanying
performance measures to judge its success. RICS (2008) argue that
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Public Sector Property Asset Management
the following are some of the benefits of effective development of
a programme:
●
●
●
●
●
formulating programmes is simply management practice
enabling the efficient and economic use of resources;
they ensure that strategic initiatives are translated into actions;
their existence gives everyone involved a template to work
from and a reference document to ensure the right activities
are taking place;
they assist in making sure that investments made are effective
and efficient; and
they assist in making sure that risks are mitigated and managed and ensure that effort is based on communication and
coordination.
6.6.3 Implementation of programmes
This section of the AMP should summarise five key areas for
effectively implementing a strategy option or programme. These
areas are generally agreed to be the developed programme or
strategy’s capital expenditure and capital receipts, its revenue
expenditure, responsibilities for implementation, the implementation timetable, and programme or strategy summaries and
funding (Scottish Executive and COSLA, 2003; OGC, 2003; RICS,
2008).
Based on the analysis carried out at the option appraisal stage,
a clear statement should be provided of those actions that are
programmed for implementation in the short, medium and
longer term, and the expected outcomes. The actions that are
programmed for implementation relate to the developed broad
property asset management programme. The statement should
therefore set out the developed broad property asset management
programme designed to implement the property asset strategy
or non-asset strategy. The strategy could be new construction;
acquisition of an asset; asset disposal; maintenance; improvement;
or increased asset use. Apart from setting out the strategies, the
statement should also specify the associated capital expenditure
and capital receipts including:
●
●
previous years spend;
planned spend and legally committed spend annually over
next five years or so to a common base year;
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●
●
●
167
capital receipts;
revenue implications flowing from capital decisions including
running costs;
options for funding expenditure plans.
OGC (2003) stress that in planning capital expenditure, public
sector organisations should identify projects that deliver value
for money. Programmes should be sustainable and accord with
corporate priorities, with projects prioritised preferably using a
simple and explicit methodology. NAMS (2006a) recommends
the use of the ODM framework as the appropriate methodological approach for prioritising projects. The ODM is based
on assessing multiple proposed options such as acquisition,
disposal, development, asset maintenance, as well as workspace
and accommodation plans and eliciting the most sustainable
alternative through BCA and MCA decision-making processes.
Chapter 5 provides an explanation of how ODM is undertaken.
Apart from providing a summary of the capital expenditure
and capital receipts, there should also be provision of a revenue
expenditure statement about the programmes earmarked for
implementation. The Scottish Executive and COSLA (2003) stress
that when considering revenue expenditure for programmes, it
is important to provide for planned maintenance. However, in
general when considering revenue expenditure for a programme,
the following issues need to be borne in mind:
●
●
●
●
●
●
identify and prioritise works required to maintain the use and
value of the premises over the anticipated lifespan of the estate;
programme the repair and maintenance works to maintain
a specified level of performance of services and internal
environment to meet the operating needs of the building;
secure the health and safety of the building’s users;
ensure minimum disruption to the operation of the asset from
which services are delivered;
match forecast levels of funding; provide a tool for budgeting,
financing and management;
satisfy all related legislative requirements.
The third element that should be indicated in this section of
the AMP is the roles and responsibilities for implementation of
the asset strategy or programme. This involves setting out the
organisational arrangements for property asset management,
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Public Sector Property Asset Management
illustrating responsibilities, linkages and governance mechanisms.
More specifically, according to OGC (2003) and RICS (2005), the
issues to be included in the statement in order to illustrate the
roles and responsibilities, linkages and governance mechanisms,
include:
●
●
●
●
●
●
●
●
●
●
organisation structure for managing property;
assignment of roles and responsibilities;
relationships of property asset management to other relevant
organisational business processes;
the performance measurement and management system for
property and linkages to business performance measurement;
links to other organisations’ planning and management;
governance and decision-making;
relationships with stakeholders;
corporate processes for asset management;
data management;
capacity management.
According to RICS (2005) a clear statement should be provided
of roles and responsibilities against each identified action. The
statement about programme implementation should also include
a timetable. This is a timetable for delivery of the strategy or
programme that should be stated explicitly. Finally, the statement
should show programme summaries and funding. The summaries should indicate capital and revenue programmes showing
projects and sources of funding against a timeline. The statement
should seek to demonstrate capital and revenue spends profiled
by years, plus an indication of how these will be funded to show
affordability.
6.6.4 Monitoring, review and evaluation
This section of the AMP sets out how the implementation programme or strategy is to be monitored, reviewed and evaluated.
The statement should state how progress against the programme’s
or asset strategy plan’s objectives is to be regularly monitored and
evaluated. Additionally, the statement should be clear on how the
plan is to be reviewed, maintained and regularly updated so that
it continues to provide good-quality management information
Asset Management Plan
169
(Scottish Executive and COSLA, 2003). Furthermore, the statement should be clear as to how the monitoring of progress against
the plan’s objectives will be accomplished. It should state that
monitoring progress will involve review and evaluation of the
performance of the asset property portfolio and of property asset
management practices in the organisation against KPIs and the
KPI targets. It should clearly state current performance levels
against those KPI targets, any relevant historic performance
data and action to be taken to improve performance. Relevant
high-level benchmarking information, with conclusions, should
Strategic planning
Legal & stakeholder requirements &
expectations
Organisational strategic plan
Vision, mission, objectives, level of service,
business policies, risk
Asset management
philosophy &
framework
Asset management
policy
Asset data and information systems
Figure 6.2
Total Asset Management Process (TAMP).
Monitoring and review;
Continual improvement
Implement asset management solutions
• Asset solutions–operate, maintain, renew,
develop, retire
• Non asset solutions–demand
management, insurance, failure management
Operational Planning
Asset management planning
Asset management processes, procedures
& standards for each asset type
Tactical planning
Optimised asset management strategy,
objectives, levels of service targets and plans
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Public Sector Property Asset Management
be provided. Targets and reviews should cover high property performance actions and improved use of property and workspace
(OGC, 2003; Scottish Executive and COSLA, 2003).
Summaries of components of strategic asset management with
its two components – namely strategic planning and asset management planning – and the processes associated with both are
depicted in Figure 6.2 and explained in Chapters 3 through to 6.
The processes associated with strategic planning and asset management planning are referred to as the Total Asset Management
Process (TAMP) by the International Infrastructure Asset Management Manual (2006). This TAMP is as shown in Figure 6.2.
6.7 Chapter summary
In this chapter we have shown that the asset management process
is captured in a document called an asset management plan
(AMP). An AMP document essentially sets out the asset strategy
in order to help determine which assets should be acquired,
renewed, improved, maintained or disposed of, once alternatives
to investing in property assets have been explored. Also covered
in the chapter are those asset management process elements
that should be included in an AMP. While there are variants in
composition of AMPs, it is generally agreed that as a minimum
the document should include the following six areas: definition
of local objectives; assessment of current position; consideration
of options; development of the plan; plan implementation; and
monitoring, review and evaluation. The AMP acts as a blueprint
for the implementation of the asset management process.
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Index
accessibility strategies, 46
accommodation, 88, 148
accountability, 6, 7, 9, 15, 25, 26,
32
and fragmented management, 18
and New Public Management, 22
accounting
accrual, 28, 53
reform of, 28
accrual accounting, 28, 53
acquisition, 37
administrative offices, 50
affordability, 45
AHP see analytic hierarchy process
AMIS see Asset Management
Information System
AMP see asset management plan
analytic hierarchy process (AHP),
126–7
assessing non-financial factors,
127–42
asbestos, 85
asset accessibility, 84
asset condition, 84, 140
assessment, 55
asset control, 92–3, 146–9
asset disposal, 87, 140
asset gaps
closing, 106–8
identification, 106
asset information, 83–5
asset knowledge, 69, 83–5, 87
asset maintenance, 87, 140
see also maintenance; property
maintenance
asset management
and capability building, 72
and efficiency savings, 33–4
and leadership skills, 71–2
and motivation, 72–3
and New Public Management,
26–9
and organisational management
theories, 58–75
Public Sector Property Asset Management, First Edition.
Malawi Ngwira and David Manase.
© 2016 John Wiley & Sons, Ltd. Published 2016 by John Wiley & Sons, Ltd.
183
184
Index
asset management (continued)
and organisational structure,
70–1
and social objectives, 41
and stakeholder management, 73
and value theory, 73–5
as change management event, 69
assessment of current status,
102–6
audit, 93, 142, 149–50
barriers to, 32–3, 43
basic principles, 36
benefits, 6–8
best practice techniques, 10, 45
capacity building, 83
definition, 2–5
drivers of reforms, 14–29
effective, 147–8
enablers of, 79
enterprise-wide approach, 9, 11
evolution of, 8–11
guidelines, 14, 38, 45–8
in Australia, 52–4
in New Zealand, 52–4
in Scotland, 44–50
integration, 35, 36
integrative approach, 11
in the US, 54–5
key datasets, 85
minimum requirements, 10
objectives, 87
organisational capability, 35–7
origins, 9–11
outcomes, 93–7
policy, 100–1
processes, 95
recommendations for
improvement, 43–4, 48–50
review, 93, 149–50
skills for, 35, 38
strategic management approach,
27, 32, 34–5, 39, 41–3, 68–9
team, 70, 88, 101, 149
templates, 34
trends in development, 29–44
asset management improvement
planning, 102–27
see also asset management
improvement plans
asset management improvement
plans, 53
see also asset management
improvement planning
Asset Management Information
System (AMIS), 83–4
asset management plan (AMP), 32,
33, 39, 41, 43, 49, 55, 87–8,
152–70
aim of, 152–3
content, 154–63
corporate vision and strategy,
160–3
defined, 152
implementation of programmes,
166–8
monitoring, review and
evaluation, 168–70
organisational aims and
objectives, 158–60
programme development, 165–6
property asset aims and
objectives, 158–60
property asset implications,
158–60
purpose, 153–4
review of current property assets,
163–70
strategy development, 156–8
asset management planning, 31, 45,
46, 78, 87–93, 100–50
Index
asset monitoring and control,
92–3
audit and review, 93
defined, 87
strategy formulation, 88–90
strategy implementation, 90–2,
142–6
tactical, 101–42
asset monitoring, 69, 92–3, 140,
146–9
asset operations, 140
asset performance, 85, 140
asset rationalisation, 140
asset registers, 10, 55, 104
lack of, 20–1
Scotland, 20
asset rehabilitation, 140
asset renewal, 10–11
asset replacement, 140
asset review, 142
asset risk, 74
asset solutions, 88–9, 106
asset strategy, 69
asset sufficiency, 84
see also sufficiency
asset suitability, 84
see also suitability
asset usage, 85
asset users, 16
asset value, 84
Audit Commission, 3, 29–33, 43,
48, 50, 51, 68, 97
Audit New Zealand, 58
audits
PAM, 37
pricing, 54
Audit Scotland, 47, 48
Australia, 25, 52–4
Austrian school, 24
autocratic leadership, 65
185
BCA see benefit–cost analysis
behaviour, 64–5
benchmarking, 20, 35, 37, 38, 92
benefit–cost analysis (BCA), 109,
111, 116, 126, 167
using NPV method, 116–22
best practice, 10, 31, 45
best value, 27, 33, 47–50, 50, 82, 88,
153
indicators, 33
Better Measurement, Better
Management, 36, 37
BREAM, 85
British Standards Institution (BSI),
10, 11
BSI PASS, 55 10, 11
BSI see British Standards Institution
building depth, 96
Building on Strong Foundations: A
Framework for Public Sector
Organisation Asset
Management, 40
buildings
environmental impact, 124
grading condition, 46
built-up properties, 51
Canada, 25
capabilities, 35–7
management shortfalls, 85
technical, 73
see also capability building;
capability descriptors
capability building
and asset management, 72
capability descriptors, 37
capacity building, 67, 83
capital expenditure, 44, 110
capital investment, 87
valuating affordability, 45
186
Index
capital planning, 48
capital strategy, 49
carbon emissions, 8
see also CO2 emissions
change, 39, 61
and asset management, 69
resistance to, 61
see also change management
culture; change management
theory
change management culture, 83
change management theory, 61–2
classical school, 62, 63
contingency approach, 63
human relations school, 62–3
Chartered Institute of Public
Finance and Accounts
(CIPFA), 51, 84, 85, 146, 154
Chicago school, 24
CIPFA see Chartered Institute of
Public Finance and Accounts
CLAW see Consortium of Local
Authorities in Wales
CO2 emissions, 20, 49, 85, 124
see also carbon emissions
collaborative working, 94, 148
co-location, 94
commercialisation, 26
common ownership, 25
communication, 67
competition, 25
Competitive Advantage Model, 60
competitiveness, 23
conflicts, 67
Conservative Party, 24
Consortium of Local Authorities in
Wales (CLAW), 80, 154
consultation process, 85–6
contingency theory
leadership, 65–6
management, 63
contracting, 26
corporate asset occupancy costs,
68
corporate asset strategy, 79–80
corporate capital strategies, 39
corporate culture, 41
corporate goals, 86
corporate governance, 36
corporate objectives, 80, 86,
129
Corporate Project Management
Approach, 92
corporate project management
systems, 40
corporate strategy, 69, 86
cost containment, 23, 24
cost control, 10, 18, 19
cost effectiveness, 26
cost minimisation, 75
cost reduction, 32
costs
corporate asset occupancy, 68
evaluating, 7
lifecycle, 45, 139–40
managing, 8
operating, 97
running, 29, 48, 52, 96
whole-life, 49
CRINE initiative, 9
criteria weighting, 131–2
critical success factors (CSFs),
79
cross sector, 38
cross-service working, 94
CSFs see critical success factors
customer satisfaction, 6
data collection, 33, 83–5
data validation, 104
DCF see discounted cash flow
Index
DCLG see Department for
Communities and Local
Government
decentralisation, 26
decision-making, 6
see also optimised
decision-making (ODM)
demand, 46
demand management, 89,
107–8
democratic leadership, 65
Department for Communities and
Local Government (DCLG),
40–2, 91, 92, 96, 143, 147
Department of Provincial and Local
Authority (DPLG), 85, 100,
102, 107, 108, 137
Department of the Environment
Transport and the Regions
(DETR), 31
DETR see Department of the
Environment Transport and
the Regions
devolution policies, 82
direct operational properties,
50
Disability Discrimination Act, 2008
46, 82, 94
discounted cash flow (DCF), 112,
124, 125–6
disposal, 37, 108, 139
DPLG see Department of Provincial
and Local Authority
economic inefficiencies, 17, 19
see also financial efficiency
economic overload, 24
economic underutilisation, 20
education assets, 50
education property assets, 45
effectiveness, 38, 39
187
efficiency
and policy, 39
economic, 25
energy, 95, 148
improving, 27, 28
measuring, 37–8
savings, 33–5
see also financial efficiency
elderly persons’ homes, 50
Energy Certification, 85
energy efficiency, 95, 148
energy performance, 20, 85
energy usage, 85
England
asset registers, 21
portfolio assets of public sector
organisations, 51
environmental footprints, 124
environmental issues, 82
environmental performance, 20, 95,
148
Environmental Protection Agency
(EPA), 70
environmental sustainability, 8
EPA see Environmental Protection
Agency
estate management, 4–5
facilities management, 4–5
financial efficiency, 6, 7
and asset registers, 21
and fragmented management, 17,
19
and New Public Management, 26
and privatisation, 10–11
see also efficiency
financial forecast, 110
financial management, 139–40
financial performance, 75
fire risk, 85
fiscal crisis, 24, 25, 52
188
Index
‘fitness for purpose’, 46, 84
see also suitability
Five Forces Model, 60
flexible working, 94
functional theory, 64
GAAP see Generally Accepted
Accounting Principles
GASB see Government Accounting
Standards Board
Generally Accepted Accounting
Principles (GAAP), 28
goal achievement, 23, 25
good practice arrangements, 91–2,
143
governance, 6, 7
government
accountability and transparency
in operations, 26
decentralisation of service
responsibilities, 26, 27
efficiency and relocation plans, 28
framework for public sector
organisation asset
management, 42
Spending Review, 33–4
Government Accounting Standards
Board (GASB), 55
‘Green Book’, 110, 164
group dynamics, 58
group theory, 64
health and safety requirements, 46
health and safety surveys, 20, 85
High Performing Property (HPP),
35, 36
hot-desking, 94
HPP see High Performing Property
human factors, 67
human resources, 72
IAM see Institute of Asset
Management
indirect operational properties, 50
industrial properties, 51
infrastructure assets, 53–5
Institute of Asset Management
(IAM), 10, 11
integrated service, 32
inter-agency property sharing, 32
internal rate of return (IRR),
113–15, 125
comparison with NPV, 115–16
International Infrastructure
Management Manual, 82
in-use performance, 37
IRR see internal rate of return
joint occupancy, 30
joint property sharing, 50
key performance indicators (KPIs),
38, 93, 148, 150, 169
KPIs see key performance indicators
laissez-faire leadership, 65
land ownership, 51
leadership, 35, 41
and asset management, 71–2
autocratic, 65
defined, 64
democratic, 65
laissez-faire, 65
theories of, 64–6
lease documents, 21
‘Levels of Service’, 86
libraries, 50
lifecycle asset management,
136–42
asset creation or acquisition,
138–9
Index
financial management, 139–40
planning strategies, 137–8
lifecycle costs, 45, 139–40
lifecycle operations, 110
local authorities
asset information, 83–5
asset knowledge, 83–5, 87
data collection, 83–5
future strategies, 82
objectives, 79–80
operating environment, 80–3
organisation goals, 80
localism, 82
MAA see Multi-Area Agreements
maintenance, 108, 139
and fragmented management, 18,
20
and privatisation, 10–11
backlog, 49
spending patterns, 20
management, 58, 62
capability shortfalls, 85
private-sector approaches, 26
structures, 66–7
see also management theory;
organisational management
theories
management theory, 62–3
market mechanism, 23
market value, 59
MCA see multi-criteria analysis
Ministry of Defence, 28
motivation, 72–3
Multi-Area Agreements (MAA), 42
multi-criteria analysis (MCA), 90,
109, 111, 167
analytic hierarchy process,
126–7, 129–36
189
evaluating non-financial factors,
126
multidisciplinary management
teams, 7
municipal services, 54
NAMS Group see National Asset
Management Steering Group
National Asset Management
Steering Group (NAMS), 87,
90, 102, 108, 109, 110
National Audit Office, 29
net present costs (NPC), 122, 128
net present value (NPV), 112–13,
125
benefit–cost analysis, 116–22
comparison with IRR, 115–16
New Public Management (NPM), 82
and asset management reforms,
26–9
ideological beliefs, 22–4
reasons for emergence, 24–6
new work, 108, 139
New Zealand, 25, 52–4
asset registers, 21
NHS, 29
non-asset solutions, 88–9, 106
non-financial factors, 127–9
non-operational properties, 50
NPC see net present costs, 122
NPM see New Public Management
NPV see net present value
occupancy density standards, 34
ODM see optimised
decision-making
Office of Government Commerce
(OGC), 34–8, 152, 154, 156,
160, 163, 167, 168
190
Index
OGC see Office of Government
Commerce
operating environment, 80–3
external, 80, 82
internal, 80, 82
operational assets, 52
operational properties, 50–2
direct, 50
indirect, 50
management, 68
operational suitability, 128
operations, 108, 139
optimised decision-making (ODM),
7, 90, 109–11, 138, 167
option appraisal, 45, 90, 108–27
non-financial evaluation, 124–6
option weighting, 133
organisational behaviour, 58–9
organisational cultures, 26
organisational goals, 74
organisational management
theories, 58–67
and asset management, 67–75
organisational structure, 70–1
organisational structure theory,
66–7
organisations, 62–3
owner-occupied properties, 68
pairwise comparison, 133–4
partnership working, 94
PCT see Public Choice Theory
performance, 23, 26
and New Public Management, 26
benchmarking, 31
indicators, 6, 47, 86
management, 6
monitoring, 25, 26, 31
reviews, 37
shortfalls, 87
targets, 20, 86
see also performance
measurement
performance measurement, 31, 33,
36
and management, 37
and OGC, 38
PESTLE categories see political,
economic, social,
technological, legal and
environmental (PESTLE)
categories
physical underutilisation, 20
Poland, 51
policies, 15–16, 27, 41, 42
policy-making, 26
political controls, 25
political, economic, social,
technological, legal and
environmental (PESTLE)
categories, 82
Porter, Michael, 60
Presidential Executive Order (E.O.)
13327, 55
pricing audits, 54
PRINCE2 gateway process, 92
private-sector management
approaches, 26
privatisation, 10–11, 26
productivity, 62, 95–6
productivity strategy processes, 73
project management, 145–6
project management approach, 70
Property Asset Management (PAM)
audit, 37
capability, 36
information systems, 37
Maturity Matrix, 36, 37
planning, 37
policy, objectives and strategy, 37
Index
property asset management board,
71
property assets
knowledge about value and
running costs, 29
stewardship of, 6
strategic approach to
management, 28–30, 39
property asset strategy, 80
Property Benchmarking Service, 38
property data, 40, 44
see also property information
property information, 20, 31
see also property data
property maintenance, 15, 96–7
property management, 4–6
and asset management reforms,
14–22
fragmented, 16–18
information system, 32
property managers, 16
property objectives, 79–80
property operating costs, 93
property performance indicators,
96
property rationalisation, 93, 147
property requirements, 28
property reviews, 18, 35
property rights, 25
property running costs, 48, 52
property sales, 15
property services, 3–4
customer focused, 33
Prudential Code, 44–5
Public Choice Theory (PCT), 24–5
and NPM ideology, 26
public parks, 50
Public Sector in Scotland Act 2003,
47
public sector revenues, 27
191
public sector services, 27–8
public support, 23
qualities theory, 64
quality improvement, 23
quasi-markets, 23
rail companies, 10
regeneration, 8
regeneration policies, 42
renewal, 108, 139
resource allocation, 23, 25
resources monitoring, 82
revenue costs, 84
RICS see Royal Institute of
Chartered Surveyors
risk management, 6, 7, 135–6
and privatisation, 10–11
PSM audit, 37
risk minimisation, 75
Royal Institute of Chartered
Surveyors (RICS), 90, 154, 156,
165, 168
asset management guidelines, 38
definition of asset management,
2–4
grading building condition, 46
on long-term change, 39
school estate, 45–6
schools, 50
Scotland, 20
asset management guidance,
45–6
development of asset
management, 44–50
portfolio assets of public sector
organisations, 51–2
Scottish Executive, 44–7, 80, 104,
158, 163, 164
192
Index
service delivery, 7, 75
and ownership of properties, 50
appropriateness for, 128
improving, 27, 94–5, 147
innovations, 32
separation from policy-making,
26
service level gaps, 85–9
service level shortfalls, 86
service level targets, 86
service management, 6, 7
service provision
and competition, 25
and fiscal crisis, 24
inefficiency, 23–4
service user satisfaction, 7
shops, 51
SMoLTA see strategic management
of long-term assets
space utilisation, 34, 38, 40
spatial quality, 96
staff, 72–3
staff efficiency, 147
stakeholder management, 73
standards, 35
strategic asset management, 78–97
overview, 78
strategic management approach, 27,
32, 34–5, 39, 41–3, 68–9
strategic management of long-term
assets (SMoLTA), 69
strategic management theory,
59–61
strategic planning, 61, 69, 78
strategic property considerations, 3
strategic tasks, 85–7
strategies, 59
see also strategic management
theory
strengths, weakness, opportunities
and threats (SWOT) analysis,
80, 83, 85, 87
styles of leadership theory, 65
sufficiency, 20, 45, 46
see also asset sufficiency
suitability, 45, 46, 49, 104
operational, 128
see also asset suitability
sustainability, 36, 46, 49, 82, 110
enhancement, 124–5
environmental, 8
Sustainability Code, 85
sustainable development, 47
see also sustainability
SWOT analysis see strengths,
weakness, opportunities and
threats (SWOT) analysis
synthesisation, 133–4
systems theory, 63
TAMP see Total Asset Management
Process
team-working, 67
technical capabilities, 73
Total Asset Management Process
(TAMP), 170
town halls, 50
traits theory, 64
transparency, 15, 22, 26, 49
‘turnaround management’, 23
underutilisation, 17, 30
economic, 20
physical, 20
United Kingdom
fiscal crisis, 24–5
trends in development of asset
management, 29–44
Index
United States
asset management development
in, 54–5
asset registers, 21
utility companies, 10
value for money, 25, 27
Value for Money in Public Sector
Corporate Services, 47
value theory, 73–5
Virginia school, 24
visions, 80
Warsaw, 51
Washington DC, 21
193
water hygiene information, 85
water usage, 85
welfare state, 24
whole life costing information, 85
whole life costs (WLC), 49, 90, 112,
113
whole lifecycle approach, 139–40
WLC see whole life costs
work groups, 96
work management, 10
workforce motivation, 67
workplace environment, 95–6
workspace, 88, 148, 149
York Consulting, 91, 92, 96, 143
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