Review of NIH Corporate Strategic Planning Process
PORTFOLIO MANAGEMENT OF THE BUILT ENVIRONMENT
Capital Investment Planning and Budgeting
Once management has used portfolio strategies to identify capital asset(s) that should be refurbished or replaced, a business case must be prepared to identify the most cost effective, most beneficial, and least risky course of action. Facility managers can work with organizational leadership to develop business cases to systematically consider capital asset upgrade financial costs, qualitative and quantitative benefits, and risks by project alternatives. Each alternative is evaluated independently and then compared side by side to facilitate management decision making. Typical outputs include Net Present Value (NPV), Return on Investment (ROI), Internal Rate of Return (IRR), and Payback Period. Qualitative factors are displayed graphically to show the level of expected benefits and possible risks.
After the business case has been made, numerous capital investments profiles can be developed to optimize capital asset condition/performance. By combining deferred maintenance, capital asset design life, and year of last replacement, NIH leadership can use different capital funding profiles to determine the resulting impact on capital asset condition and, therefore, capital asset performance.
- By combining deferred maintenance, capital asset design life, and year of last replacement, managers can use different capital investment funding profiles to determine the resulting impact on capital asset condition and, therefore, capital asset performance.
- To achieve desired capital asset performance, capital investment must not only be steady, but also high enough to make an impact.
The adaptation of the National Park Service (NPS) comparative evaluation approach toward optimizing fiscal and facility stewardship capability provides the decision-enabling capacity to successfully implement and sustain an enterprise-wide, facility portfolio investment planning and management program.
Implementation and Execution
Once a decision is made to pursue capital investment, innovative procurement approaches and robust program management capabilities are required in the acquisition, operations and maintenance, and disposal of capital assets. Projects should be tracked by measuring cost, schedule, and technical progress, which could be accomplished through earned value management.
For existing capital assets and after investments are made, to keep capital assets running at optimum levels, an appropriate maintenance regime will ensure that the value of capital asset management is maintained. For the most critical capital assets, facility managers should go beyond planned or even predictive maintenance programs and strive for mature maintenance processes such as reliability centered maintenance (RCM), Figure H.1. RCM yields the highest level of equipment reliability for the least amount of maintenance expense. RCM can be the most cost-efficient maintenance program—it eliminates unnecessary equipment maintenance or system overhauls. However, RCM may have significant start-up costs associated with staff training and equipment needs (Gurumeta, 2007).
Performance Assessment and Improvement
To be truly successful, the organization must embrace performance measurement from top to bottom. Organizations that have used performance measurement as a management tool for improved results have employed many of the following practices:
- Periodic performance reviews at various levels within the organization,
- Budgeting based on performance measures,
- Communication of measurement results throughout the organization,
TABLE H.1 Snapshot of Common Measures
|Metric Description||Standard||Metric Description||Standard|
|Facility Condition Index (FCI)||<0.05||Stockroom Turns/Year||2-3|
|Deferred Maintenance Backlog||Trend||Annual Training Hours||>40 hr|
|On-the-Job Wrench Time||>60%||Maintenance Cost/Replacement cost||3-4%|
|PM/CM Ratio||70/30||Percent Return Work||<5%|
|Unscheduled Maintenance Downtime||<2%||Mean Time Between Failures||Trend|
|PM Schedule Compliance||>95%||% Failures Assessed: Root Cause||>75%|
|CM Schedule Compliance||>90%||Maintenance OT Percentage||5-15%|
|Unscheduled Man-Hours||<10%||% WO Covered by Estimates||>90%|
|WO Turnaround Time||Trend||On-Site Supervisor Time||>65%|
|Emergency Response Time||<15 min.2||Stockroom On-Time Delivery||>97%|
|Stockroom Service Level||>97%||Material/Part Performance||>98%|
- Participation in measurement and strategy development and refinement by a wide cross-section of the organization,
- Identifying best practices and sharing across the organization,
- Using technology to facilitate data analysis and regular reporting, and
- Providing incentives to reach performance goals.
Meaningful measures should track to the strategic goals of the organization. Some measures are for senior managers to assess performance; others are more specific to particular business areas. Measures should encompass different perspectives to get a true picture of the organization’s performance (e.g., financial, customer, or process). Some common performance measures are shown in Table H.1.
Capital Asset Management Enabling Technology
The adaptive integration of IT-enabled analytical capabilities affords an opportunity to get a collective view of the capital asset inventory and attribute data, as well as its capital asset measured performance within the context of organizational goals, from individual facilities to the entire enterprise’s portfolio. This integrative capital asset planning and management capability provides visibility to the information, enabling a better understanding of the facility’s capital asset’s current performance capability and short- and long-term life cycle costs. It further provides information that can be used to determine user-introduced funding scenario impacts and create multiyear capital investment plans and budgets based on requirements, funding expectations, or both. The resulting enterprise-wide data analysis and decision-making capability will empower facility professionals to confidently perform the gap analysis used to advocate for investment program funding required for making changes to the organization’s facility capital asset portfolio, based on near- and long-term mission (or business) priorities. Data-driven, informed determinations should provide the organizational leadership with confident program investment recommendations that will maximize facilities capital asset performance and value, as critical enablers of organizational business operations.
Employing a Balanced Scorecard (BSC) framework could help NIH to comprehensively translate its strategic objectives into coherent sets of performance metrics used to provide feedback on resulting activity outcomes.
Recognizing core facilities are key elements in the research portfolio of academic and private research institutions, a study performed to promote and encourage the use of assessment tools used for evaluating the need and effectiveness of core facilities performance, with respect to the strategic planning process. The results determined that the need for strategic planning, as an enabler of core facility performance, is driven by two factors: (1) aligning institutional strategic goals with investment in core facilities and (2) ensuring that this investment is sustainable (Turpen et al., 2016).
Adopted by 50 percent of Fortune 1000 companies in North America in addition to 40 percent of companies in Europe employing a variant (Yu et al., 2009), the BSC system translates an organization’s strategy into action, and becomes a key input used in aligning facility management strategy to organizational strategy. The system connects the dots between big picture strategy elements such as mission (our purpose), vision (what we aspire for), core values (what we believe in), strategic focus areas (themes, results and/or goals) and the more operational elements such as objectives (continuous improvement activities), measures (or key performance indicators, or KPIs, which track strategic performance), targets (our desired level of performance), and initiatives (projects that help you reach your targets).
The BSC provides the facility management staff with information on how the entire organization is performing. It is “balanced” because a well-developed BSC highlights a change that is often balanced by an opposite reaction elsewhere in the system. The entirety of the NIH corporate enterprise—comprised of institutes, centers, program offices, finance, facilities, and other support functions—can be viewed through the BSC perspective to develop metrics, collect data, and analyze options that can transform facility and real estate requirements identified in the strategic, master, or annual facility plans into outcomes with measurable performance outcomes. The BSC serves as a means of reporting to senior leaders and
stakeholders how facility management supported the accomplishment of NIH goals and objectives. An illustration of the logic behind the BSC is shown in Figure H.2.
At one time, the best practices in capital asset management were limited to inclusion during design and construction phases of the facility life cycle, and the focus on performing effective preventative and corrective maintenance operations did not occur until after the newly acquired capital asset was commissioned into service. Over time, the understanding or capital asset management has grown to be very sophisticated (IWR, 2013).
Government and commercial businesses with substantial physical capital assets are developing capital asset management strategies to help them make critical decisions about when and where to invest, to optimize the life of their existing capital assets and to prioritize funding to handle present and future customer demands. Benefits derived for increased use and maturity include the following:
- Increase the efficiency and effectiveness of real property services.
- Reduce the cost of operations and maintenance.
- Increase facility end user satisfaction.
- Ensure that capital assets are better sustained for the long term.
- Ensure that the organizational missions are supported.
- Allow scarce resources to be distributed to those areas that have the greatest need.
- Mitigate potential risks of audit by oversight agencies.
The integration of the facility capital asset management principles and practices into the strategic planning process better enables making capital need decisions resulting in the efficient, effective, and economic delivery of facility and infrastructure capabilities to support organization goal obtainment. It also empowers FM leadership with the ability to answer core questions that address how best to manage facilities to achieve greater efficiency and effectiveness:
- What inventory of facilities and equipment does the organization control (“as-is” portfolio)?
- What is the condition of each facility and its related equipment?
- What level of funding is required to properly sustain the facilities and equipment portfolio over time?
- How does one determine when it is best to divest instead of continuing to invest in a facility?
- Which facilities and equipment projects are the highest priorities, and where should the organization focus resources?
- How should the organization monitor the performance of its capital assets over time and better integrate the budgeting process for these capital assets with their performance?
GUIDELINES AND PRACTICES
The International Facility Management Association (IFMA) published in their two most recent forecast reports that the top trend that facility professionals will face in the coming years is the greater importance placed in the need to link the role of facilities to an organization’s core business strategies (IFMA, 2007, 2011). Studies completed by CFO Research Services and NACORE determined: (1) 20 percent of an organization’s income statements are real estate and facilities expenses; (2) 35 percent of an organization’s balance sheet capital assets are real estate and facilities; and (3) 48 percent of an organization’s greenhouse gas emissions are produced by building (Sawhill, 2008; CFO Research and NACORE). Consequently,
facilities are expected to increase in their recognition as a critical enabler of any organization’s successful implementation of their strategic business plan. Additionally, physical facilities can have a large role in determining productivity and supporting innovation, efficiency, employee satisfaction, and public perception of an organization (IFMA, 2007). Whether owned or leased, an organization’s real property portfolio of facilities and associated infrastructure are the results of past decisions that presently help or hinder an organization’s ability to achieve its desired future state.
For facility management organizations, the most strategic issue is how to align the FM organization’s strategy to the entire organization’s strategy. In other words, the end goal of the facility strategic planning process is to develop comprehensive plans proposing how the entire portfolio of current and future facilities serves as critical enablers directly supporting the accomplishment of corporate and business unit goals and objectives. At the beginning of this century, the U.S. Air Force (USAF) corporate leadership recognized that they could no longer spend significantly decreased and limited funding to maintain a physical plant capacity not needed for mission success. This and many other important factors, such as increasing energy costs, a significantly decreased level of installation support funding, new organizational constructs, and changes in information technology systems drove new ways of thinking (Eulberg, 2008).
As the USAF, along with the entire Department of Defense (DoD), underwent a protracted period of transition during the past decade, the Air Force Office of the Civil Engineer—the corporate-level facility management organization for the USAF—developed strategic planning documents that outlined (1) the strategic context driving the needs for change; (2) an affirmation of their functional mission, as carried about by over 56,000 personnel operating at 166 Air Force installations around the world; (3) a shared vision to provide combat support enabling the projection of global air, space and cyber power; and (4) the new civil engineer (FM) goals, and associated objectives, each developed based on an understanding of the USAF’s new strategy and critical priorities. However, arguably most importantly, the USAF’s strategic facility plan’s provided the business case supporting how they expected to plan, prioritize, and allocate USAF-provided resources used to “build sustainable installations” (streamline facility and infrastructure capital assets while optimizing operational capabilities) by including a matrix depicting how the civil engineer goal and objectives to align with the Air Force’s new priorities.
Similarly, NIH’s facility master planning protocol recognizes the need to provide an update of the blueprint developed in 2013 to ensure that funded capital investments are consistent with the long-term vision of the organization. Although not specifically addressed, the more recently released NIH-wide Strategic Plan from 2016-2020 and the Strategic Plan for Data Science Plan does allude to the high-level need to address the current and future real estate support requirements to enable the accomplishment of their respective goals. A strategic facility plan reflects the input from the corporate organization and all major business units and end users to show that it was developed from a systemwide perspective. Defined in relation to the entire organization’s and the facility management organization’s mission and vision, the strategic facility planning goals and objectives demonstrate affordable, feasible, and approved proposals that translate the organization’s strategic objectives into tangible facility response propositions.
Observation: To improve long-term planning decision making results, performance metrics can be used during the evaluation process to determine how well an organization is achieving its stated goals and objective.
THE ROLE OF PERFORMANCE MEASURES
Many organizations now include facilities issues in their executive committee and business planning discussion. Some measure the impact of facilities on workforce productivity and business performance, while others view the quality of their facilities as an important contributor to the corporate brand, and to attracting and retaining talent (RICS, 2012). Regardless of the basis for doing so, the measurement of performance is a critical first step that leads to controlling performance and eventually improving
performance. If you cannot measure something, then you cannot understand it. If you cannot understand it, then you cannot control it. If you cannot control it, then you cannot improve upon it.
The most useful strategic plans are succinct and easily translated into useful measures that denote how well an organization has accomplished predetermined objectives that achieve desired performance outcomes (Schilder, 2013). NIH has made considerable investment in the development of corporate-wide and the business unit strategic plans from the institutes, centers, and program offices to capitalize on new opportunities for research explorations, while leveraging advance information and medical science technologies, to achieve each respective desired future state that brings value to its customers, stakeholders, and the nation. With the strategic goals and objectives identified, coupled with the stated recognition of the need to evaluate their effectiveness, candidate strategic and operational measures should be identified based on those realistic and quantifiable objectives. These objectives also help to shape the lower-level metrics and KPIs that will become part of their measurable strategy.
The FWG provides advisory support to the NIH Director, IC leadership, and the Steering Committee on matters pertaining to the planning, acquisition, development, and use of land and facilities for the pursuit of NIH mission. According to the FWG Charter, this responsibility includes developing long-range master plans, capital facility plans coupled with proposing capital and operating budget investments for chief decision maker approval. These decisions should be based on the organization’s anticipated performance against key operational performance targets. The performance drivers—a set of leading indicators used to show how an organization achieves a given outcome—and the key performance indicators (KPIs)—quantifiable metrics reflecting how well an organization is achieving its stated goals and objectives—provide the emphasis for strategic and operational improvement, create an analytical basis for decision making, focus attention on what matters most, and can be used to report progress against an implementation outcome expectation reflected in a Strategic or Master Plan.
A technical report produced by the National Research Council (NRC, 2004), working in conjunction with the Federal Facilities Council, contends that it is important that agencies track (1) performance measures that characterize their facilities portfolios; (2) the level of alignment of their portfolios with their organizational missions; (3) investment levels; and (4) the results or outcomes of their investments. Portfolio-oriented performance indicators should be established to improve decision-making about facilities investments and to improve management of federal facilities portfolios. Performance measures aligned with strategic and operational facility planning objectives developed in support of achieving NIH corporate organizational or subordinate business unit objectives provide a better return on investment results.