Your Facilities Master Plan:
Building a Better
Business Case
Jim Turner
Director, Workplace Solutions
Program
• Learning Objectives
• Consider this project…
• A simplified five-step process
–
–
–
–
–
Develop Objectives
Prepare Criteria
Consider Alternatives
Analyze and Evaluate Alternatives
Rank and Recommend
• Other approaches
• Q&A
2
…but first…
The presentation used to focus on the facilities
master plan – learning objectives:
1.
2.
3.
4.
Collecting and analyzing facilities data
Financial/resource objectives
Construct a business case model
Implementation road map
Now it’s about developing a business case for
facilities projects!
3
Building a Better Business Case
Learning Objectives:
• Business cases analyze the costs, benefits, and risks of
a facilities project to support good decisions
• The current and planned future use of the building is a
major driver for facilities investment decisions
• It is a good practice to consider as many alternatives that
meet your requirements as possible
• Business case evaluation metrics often include net
present value and payback period
4
Consider this Project
Strategy: Retrofit for energy efficiency
•
•
•
•
Renew and retrofit to reduce capital program
Reduce current costs: O&M, utilities
Add new tenant offerings including chilled water and
reliable emergency power
Increase occupancy, improve rents, gain other tenant
income based on updated services
Eight major program elements:
•Radiative barrier
•Tenant ventilation control
•Tenant day lighting
•Lighting and plugs
•Direct digital controls
•Chiller plant retrofit
•VAV air handling
•Tenant energy
management
New York City
(not Las Vegas,
and not Legos)
Program cost estimate: $500 million
Sources: A Landmark Sustainability Program for the Empire State Building, Jones Lang LaSalle;
Serious Materials on-line case study. Photos: Wikipedia
5
ESB Project Drill Down
• Windows update became a key
project element
• Originally estimated at $20 million,
came in at under $5 million
• On-site process to upgrade rather
than replace windows
Detail of the 6,500 operable,
double-pane ESB windows
Learning Objective 1:
Business Cases should
analyze a project’s costs,
benefits, and risks.
Slide 6
Constructing the Business Case
Step 1
Step 2
Step 3
Step 4
Step 5
Evaluation of
Alternatives
Present Findings,
Including ROI and
Cost/Benefit
Assessment of
Future State
Gap Analysis
Specification of
Alternatives
Risk Analysis
Cost Analysis
Assessment of
Current State
Context and
Objectives
Sensitivity Analysis
Benefits Analysis
Evaluation
Criteria
Alternative
Courses
of Action
Evaluation of
Alternatives
A simplified five-step process
Slide 7
Ranking and
Recommendation
Step 1: Context and Objectives
and Step 2: Gap Analysis
Major drivers might include:
•Current and future use of the facility
•Forecast of utilization and other performance metrics
•Legal, regulatory, or policy criteria of high importance
CRITERIA
Learning Objective 2:
Current and planned
future use of the facility
is a major driver of
investment decisions.
INSIGHTS
Personnel Impacts
Changes in attrition that would result from the relocation; the ability to recruit
civilian personnel as measured by cycle-time to fill a position and number of
unfilled positions; assessed by job category
Facilities Impacts
Quality of destination space as measured by commonly used space quality
standards (e.g., class A space)
Environmental Impacts
The anticipated level of migration efforts required to satisfy national
Environmental Protection Act requirements
Facility longevity
Timeframe that facility will be available compared to period of interest
Ease of travel to/from
Average commute times; transportation infrastructure
Political implications
Expected implications from moving from one political district to another
Slide 8
Step 3: Brainstorm Solutions to
Meet Future Requirements
• Soccer Field Project: (1) status quo, (2)
improved natural turf field, and (3)
artificial turf field
• Wet Basement Project: (1) slight external
grading and downspout relocation, (2)
improve seals in isolation slabs and add
optional redundant sump, (3) excavate
foundation and reseal walls
Learning Objective 3: It’s a good practice to consider a wide range of alternatives that will meet your requirements.
Slide 9
Solutions Brainstorming
Strategy
Status Quo
Existing Site
Existing Site
Existing Site
Partial Relocation
Partial Relocation
Partial Relocation
COA
COA Description
Number
1
Status Quo: Limited recap, retire in place
2a
Existing Site: Data Center Equipment Recap Only
2b
Existing Site: Data Center Densification Only
Existing Site: Phased Renovation including New Building, Data Center
2c
Centralization and Office Space Realignment
Partial Move: Non-essential Administrative Functions Move (Lease or
3a
Other Owned Facilities)
Partial Move: Non-essential Data Center Equipment and Related
3b
Support People Move Off-site (Co-location)
Partial Move: HQ, Data Center and Core Functions Remain On-site,
3c
Other Functions and Support Move Off to Leased or Owned Facilities
Partial Relocation
3d
Partial Relocation
3e
Full Move
4
Partial Move: All Functions Remain Except Data Centers and Tenant
Data Center Equipment and Support
Partial Move: Partial Move, Tenant and Equipment Relocates, All
Existing Functions Remain and are Realigned
Full Move: New Site, New Building
Note: Since this project had so many alternatives, we did a “down-select” to focus on
the two most likely to be selected.
Slide 10
Fleshing out the Alternatives
• For each of the alternatives (COA stands for
courses of action), a simple but thorough
description might include:
– A summary or overview of the COA
– A list of assumptions about the COA
– A list of requirements that may have to be put in place
(these aid in the development of the cost evaluation)
– A list of benefits that will be achieved
– A list of risks
– A cost analysis – focus on relevant cost, with enough
detail to make a valid comparison
Slide 11
Benefits
Specifications
Fleshing out the Alternatives
Slide 12
Risks
Fleshing out the Alternatives
Slide 13
ESB Windows Project - Alternatives
1. Retrofit with new windows - demo and replace old ones
2. Traditional de-install and repair job – done by NJ specialist
3. Complete the repairs on-site, in an empty suite
Slide 14
Step 4: Evaluating Risks, Costs,
and Benefits
Develop a thorough framework to evaluate the relevant costs
and benefits of each alternative
Slide 15
Examples of Costs to Consider
Type
Short Definition
Initial Purchase Cost or Capital
Investment
Costs associated with initial planning, design, and
construction; including acquisition, transportation, and
installation
Financing Costs
Includes one time financing costs, or interest on interim
construction financing
O&M Costs
Associated with maintaining or restoring to original
condition, including routine maintenance, utilities, taxes, and
contracted servicing
Repair and Replacement Costs
Associated with maintaining or restoring to original
performance, including major renovation and repair, and
non-annual services
Alterations and Improvements
Costs of planned additions, alterations, major
reconfigurations, and other improvements
Functional Costs
Costs associated with performing intended use of the facility
Salvage or Disposal Costs
Values of land, building, or building elements at the time
they are removed from service
Slide 16
Examples of Benefits to Consider
Benefits
Detail of the 6,500 operable,
double-pane ESB windows
• $414K annual
utilities savings from
windows alone
• Green benefits from
reuse of windows
• Other potential benefits:
– Additional rent revenues
• Mid-town rentals average $71/SF
• ESB has over 2.85-million SF
• Tax incentives for sustainability
• Access to capital for financing
Slide 17
Examples of Risks to Consider
The Project Management Institute has useful tools for risk analysis,
essentially evaluating likelihood of the event and estimated impact.
Scale
Very Low
Low
Moderate
High
Very High
Cost Impacts
Insignificant
< 5%
5-10%
10-20%
> 20%
Schedule
Impacts
Insignificant
< 5%
5-10%
10-20%
> 20%
Minor Areas
Affected
Major Areas
Affected
Scope
Reduction/
Client Won’t
Accept
End Item
Unusable
Affects Only
Demanding
Apps
Quality
Reduced,
Client
Approval
Needed
Quality
Reduced,
Client Won’t
Accept
End Item
Unusable
Scope
Impacts
Quality
Impacts
Barely
Noticeable
Degradation
Barely
Noticeable
Slide 18
Combining Costs and Benefits
Item
Cost*
Item
Benefit*
$0.5M
Utilities (Ann/
20-years)
$0.4M/
$8.0M
Rental Space
$0.2M
Raised Rent
(Ann./20Years)
$3.0M
$60.0M
Materials and
Labor
$4.0M
Tax Savings
$? M
Life-cycle
repair and
maintenance
$0.5M
Easier Capital
$? M
Access
Total
$5.2M
Total
Design
$68+M
* These are illustrative calculations!
Sources: A Landmark Sustainability Program for the Empire State Building, Jones Lang LaSalle; Serious Materials on-line case study. Photos: Wikipedia
Slide 19
Examples of Payback Measures
Learning Objective 4: Business case decision metrics
include net present value and payback period.
NPV compares investment life-cycle costs
with its returns by taking a sum of their
discounted value. Essentially, it measures
the excess or shortfall of cash flows.
ROR is stated as a percentage, and is
calculated as the ratio of the return from the
investment relative to investment cost. The
returns can be interest, profit, or net
income, and the investment may be
referred to as capital or principal.
Payback period is the period of time required
for the investment’s returns to “repay” the
original cost. It measures how long it takes
for the investment to “pay for itself.”
Other customized measures may be used.
Cost per customer describes the cost of
acquiring a customer by dividing the total
investment cost by the expected number of
new customers gained.
Slide 20
Scoring the Alternatives
Strategy
Status Quo
Existing Site
Existing Site
Existing Site
COA
No.
1
2a
2b
2d
Partial
Relocation
Partial
Relocation
3a
Partial
Relocation
3c
Partial
Relocation
3d
Partial
Relocation
3e
Full Move
4
3b
COA Description
Benefits
Costs
Risks
Status Quo: Limited recap, retire in place
Existing Site: Data Center Equipment Only
Existing Site: Data Center Densification Only
Existing Site: Phased Renovation including
New Building, Data Center Centralization and
Office Space Realignment
Partial Move: Non-essential Administrative
Functions Move (Lease or Owned Facilities)
Partial Move: Non-essential Data Center
Equipment and Related Support People Move
Off-site (Co-location)
Partial Move: HQ, Data Center and Core
Functions On-site, Other Functions and
Support Move to Leased or Owned Facilities
Partial Move: All Functions Remain Except
Data Centers and Tenant Data Center
Equipment and Support
Partial Move: Partial Move, Tenant and
Equipment Relocates, All Existing Functions
Remain and are Realigned
Full Move: New Site, New Building
Grade the alternatives
on an appropriate
scale, (e.g., 1 to 10;
high, medium, low; if
a full cost and
benefits estimate was
developed, use those
dollar values)
The key is quantifiable
metrics!
Slide 21
Putting it All Together
Executive Summary
Introduction/Overview
– Subject, Purpose, Scope, Objectives
– Background
– Organization
Methodology
– Major Assumptions and Constraints
– Criteria and Financial Metrics
– Description of Cost Analysis Methodology
Analysis of Alternatives
– Description of Status Quo and Alternatives
– Cost Analysis
– Comparison of Alternatives
Sensitivity and Risk Analysis
Conclusions and Recommendations
– Results Discussion
– Recommendation
– Scenarios for Implementation (Sources of Funding, Timeframes, etc.)
Slide 22
Bonus Tips!
• Imagine you’re telling a story
– Start with the problem – the business need you’re solving
• Identify your characters
– Stakeholders who will approve or reject your business case
– Beneficiaries who stand to gain from your proposal
– Subject-matter experts to clarify how to solve the problem
• Identify the alternatives for meeting the business need—the different ways
your story might play out
• Choose the best one, and create a project plan – the plot
• After you estimate and analyze the costs, benefits and risks, and calculate the
return on investment (ROI), you’ve reached the story’s satisfying end
• Remember this isn’t a mystery novel—your story needs to be clear and easy to
understand.
Slide 23
Recap of Learning Objectives
• Business cases analyze the costs, benefits, and risks of
a facilities project to support good decisions
– Slide 6
• The current and planned future use of the building is a
major driver for facilities investment decisions
– Slide 8
• It is a good practice to consider as many alternatives
that meet your requirements as possible
– Slide 9
• Business case evaluation metrics often include net
present value and payback period
– Slide 20
Slide 24
Wrap up
Questions?
…Thank you!
•
•
Las Vegas
(not New York City)
The presentation is in your
Conference packet, but you
can also request a copy
electronically from me at
jturner@markonsolutions.com
Connect on LinkedIn:
http://www.linkedin.com/in/ji
mturner
Legos
(not New York City)
Slide 25