5

Strategic Planning Process

INTRODUCTION

Successful asset management depends on a strong strategic plan that gets translated into strategic asset management plans, risk analyses, resource decisions, and operating plans. This chapter continues the narrative established in the preceding chapters, focusing on how a facility renewal strategy can generate value for federal agencies while managing risk. As introduced in Chapter 2, this is an essential purpose for federal facility renewal strategies in fulfillment of requirements contained in OMB Circulars A-11 and A-123. As a whole, this chapter can be viewed as a tutorial on the strategic planning process.

OMB Circular A-11 defines requirements to formulate and execute an agency’s budget inclusive of real property to achieve its mission objectives and priorities. OMB Circular A-123 supports this policy by establishing requirements for internal controls to manage risk across the enterprise. This risk management includes real property resource-and-investment decision making. The OMB Circular A-11 Supplement—Capital Programming Guide goes on to establish requirements for agency facility renewal strategies to cover whole real property portfolios across whole facility asset life cycles in support of the agency’s full set of mission objectives. Notably, the Capital Programming Guide requirements are not limited to capital planning or financial management—they apply broadly to managing the agency’s real property capital assets.

These sources also establish the foundations for federal facility renewal strategy risk management. This chapter builds on this foundation, highlighting the important roles served by federal facility renewal strategies in generating value

and managing risk. The content in this chapter is supported by a more detailed explanation of risk management contained in Appendix G.

VALUE, BENEFITS, AND RISKS

Federal facilities and the activities they support have value and generate benefits for the American people. In the context of federal facility renewal strategies, value is measured in terms of the contributions that federal facilities make in helping an agency achieve its mission. Benefits are the desired societal outcomes made possible by federal facilities supporting agency operations. This point is emphasized in ISO 55000, Section 2.1 (Asset Management—General), with provisions as follows:

Value and benefit generation is always associated with some level of risk. On a fundamental level, this is the result of resource scarcity and an agency’s desire to maximize benefits derived from limited resources and capabilities, including its real property portfolio. This perspective offers a basis for using a disciplined asset management system to systematically manage risk, as is clearly stated in ISO 55000:

Therefore, federal facility renewal strategy risk management must focus on value generated by facilities, which includes the contribution to value generated by the people and capabilities using these facilities. In this context, value generation is defined in terms of agency mission objectives. As further developed in Appendix G, the correct perspective for this is anthropocentric, meaning for the benefit of humankind. This seems an obvious point, but understanding its significance in terms of developing federal facility renewal strategies cannot be overstated. Set within the U.S. federal government context, the benefit to humankind is organized around societal benefits, which are further refined through congressional authorizations and appropriations. As detailed in Chapter 2, OMB Circular A-11 channels this activity through the development and execution

of the agency’s strategic plan and authorized budgets. The reconciled product generated by these two sources defines what is valued most and the objective of each agency’s facility renewal strategy. The outcome is, through use of ISO 55000 standards and in accordance with guidance from OMB Circulars A-11 and A-123, agency facility requirements, budgets, and programs used to satisfy these requirements must be completely reconciled, and where this does not happen gaps must be defined and reported. These gaps in turn define liabilities and risks the agency cannot address because requirements are too great for the budget and for the agency’s operational capabilities.

In practice, an agency’s facility renewal strategy is an element of the agency’s real property capital plan, which flows from the agency’s strategic plan and by extension its capital plan. In accordance with the Capital Programming Guide, one of the strategy’s primary purposes becomes informing resource-and-investment decision making through budget development, as follows:

The outflow of this logic in the agency facility renewal strategy is to guide development of the agency capital plan, referred to as the “real property capital plan” in this report. In accordance with the requirements detailed in OMB Circular A-123 and ISO 55000, this specifically includes managing risks associated with resource-and-investment decision making.

VALUE IN THE CONTEXT OF FEDERAL FACILITIES

Setting objectives for federal facility renewal strategy risk management requires the definition of value in the context of federal facilities. This section examines and qualifies value to assist risk management activities supporting the development and implementation of federal facility renewal strategies.

Risk management examines the potential loss of things that are valued. Examples include goods, property, assets, people, services, and trust. In terms of federal facilities, value includes determined physical, market, or replacement valuations, but more important is the value generated by a facility asset’s functions and capabilities—that is, its contribution to the agency’s ability to operate and achieve its mission objectives. It is this functional value that must be the focus of federal facility renewal strategies. Notably, this is the same value proposition

that was also used to acquire the facility asset in the first place. Simply, federal facility renewal strategies continually reevaluate this value proposition.

Supporting this value-generating perspective, risk management activities are performed using decision-analysis frameworks that offer choices or options to consider. Each choice must be set within an operating context and must define the work or resources required and the value or benefits to be generated. This is an asset management tenet: resourcing decisions shall only be made when linked to an outcome—that is, the measurable value or benefit to be generated (or conversely, that which will not be lost). What this means is that decision making limited to facility life-cycle management is insufficient to support development of federal facility renewal strategies. This is because the life-cycle management perspective—that is, the classical facility management thinking perspective detailed in Chapter 3—is not based on the return on investment a facility makes compared with mission achievement. This perspective is based on the agency’s ability to deliver facility capabilities (i.e., an input to mission achievement) and not on the facility’s contribution to overall agency performance (i.e., an outcome).

In practice, if the value generated by a facility investment choice is greater than the costs to generate this value, then it is considered a viable option. This can be computed as a ratio such as an internal rate of return. This type of risk-based management approach is also possible using the principle of operational readiness introduced in Chapter 3 and developed in Appendix F. These approaches employ value propositions that measure the contributions that facilities make toward agency mission achievement. By extension, risk management frameworks must be designed to evaluate these types of choices. This evaluation must also consider many risk-related factors and associated uncertainties—that is, the potential for achieving (or losing) the value or benefits sought.

In the context of federal facility renewal strategies, the objective of these frameworks is to inform resource-and-investment decision making. OMB Circular A-123 is clear on this point, stating: “agencies are required to manage risk in relation to achievement of reporting objectives” (OMB 2018). In coordination, OMB Circular A-11 establishes extensive reporting requirements related to federal facility management, as detailed in Chapter 2. The culmination of this is the agency capital plan defined in the Capital Programming Guide, and by extension the agency’s real property capital plan suggested in OMB M-20-03, “Implementation of Agency-wide Real Property Capital Planning.”

This progression of logic leads to focusing on value generation as the primary driver for facility portfolio renewal. In terms of federal facility renewal strategies, value is generated by delivering mission capabilities enabled by facilities when, where, and how it is needed. When and where needed involves two perspectives: (1) alignment with agency operating priorities and mission objectives, and (2) supporting both current and future needs. The how also involves two perspectives: (1) a choice’s alignment with the agency’s authorized missions, and (2) its alignment with the agency’s values, which in many cases are embedded

in stewardship, environmental, energy, and socioeconomic goals and objectives often reinforced through statute. These are adapted into the agency strategic plan. The agency strategic plan focuses the strategic asset management plans through the setting of priorities and objectives each agency aims to achieve, the actions the agency will take, and how the agency will deal with challenges and risks. This whole discussion wraps back around to emphasizing the importance of harmonizing the agency’s strategic plan and budget authorizations, and hence the purpose of OMB Circular A-11. It is through the agency strategy plan that objectives, emphasizing issues that the agency values, must be made clear. As detailed in emerging policy and clarified by recommendations made in this report, the agency’s real property capital plan must be used to clarify what is valued and the extent to which it is valued. The ultimate determination of this last point is often the agency’s budget—that is, if the authorized budget covers an expense, then it values the outcome and benefits derived from the activity more than those activities that were not funded.

As detailed throughout OMB Circular A-11 and OMB M-20-03 requirements, the real property capital plan, when recognized as a subset of the agency’s strategic plan, must also be reconciled against the agency’s authorized budget. This is a key performance role by the agency’s facility asset management system used to govern facility program execution. Only at this point will the agency’s value-generating activities and priorities be made clear and actionable. In this way, the agency’s facility asset management system guides enterprise risk management activities to integrate, reconcile, and balance competing issues raised in the agency’s strategic plan, budget, and facility programs, as shown in Figure 5-1.

As detailed in Chapters 2 and 3, the purpose of the facility asset management system is to organize this approach to determine what is truly valuable and to what extent it is valued. This sets the relationship used in supporting risk management frameworks detailed later. In this context, the agency’s real property capital plan is the apex product of its facility asset management system, and the means used to establish and communicate supporting risk management activities.

RISK MANAGEMENT AND MISSION ALIGNMENT

A substantial body of work addresses how to best manage federal facility assets. The National Academies report preceding this one, Predicting Outcomes of Investments in Maintenance and Repair of Federal Facilities (NRC 2012b), was dedicated to this topic, and covered risk management and mission alignment in a section titled “Correlate the Effects of Failure with the Organization’s Mission,” which presents an effective practice for facility maintenance and repair investments. The current report expands on the materials presented in the previous report by clarifying how this relationship is defined and applied using several principles detailed in Chapter 3.

To begin, the facility performance principle establishes facility performance areas including condition, functionality, availability, and utilization. These are collectively understood to report how well a facility, and by extension a facility portfolio, is performing. All are important risk management factors. In this group, in the context of this chapter, functionality stands out. At the individual facility level, measures of functionality focus on specific physical characteristics and capabilities. At the facility portfolio level, functionality measures focus on how a group of facilities can support mission-critical operations. Both perspectives are important to developing federal facility renewal strategies and are therefore critical inputs to the asset management system’s risk management framework.

Once the what to do is defined, the next principle involved is the mission alignment principle. This introduces a perspective independent from the data and metrics generated by the facility performance principle. The mission alignment principle establishes the link between facilities and mission achievement. As detailed in Chapter 3, there are many methods to consider, and agencies should ensure that they are using the method best aligned with their decision-making needs. Otherwise, the products of their risk management activities will give the appearance of certainty when the opposite may be true. (See the discussion in Chapter 3 and Appendix F for more information on this topic.)

The operational readiness principle links the mission alignment and facility performance principles. It also establishes a context for systematic risk management—that is, the ability to qualify and quantify the flow of benefits and value. As developed in Appendix F, the operational readiness principle can be configured to serve a multitude of uses, is configurable using multi-attribute decision-analysis techniques, and has demonstrated its ability to be impactful in risk-based resource decision making, as made evident in the Army National Guard and Air Force examples detailed in this report.

Bringing this all together is the decision-making alignment principle. This principle is founded on ISO 55000 asset management system standards employed to develop and implement federal facility renewal strategies. This principle, as detailed in Chapter 3, fully aligns with OMB Circular A-11 and A-123 requirements and guidance, including the explicit application of enterprise risk management and internal control requirements detailed in both. In practice, as seen to be evolving in OMB policy, and covered in Recommendation 2 (see Chapter 7) in this report, the agency’s real property capital plan should be generated by implementing this principle through the risk management framework established by the agency’s facility asset management system. This will systematically ensure and assure that federal facility renewal strategy risk management activities fully align with agency mission objectives and priorities.

ECONOMIC MODELS FOR ANALYZING INVESTMENT OPTIONS

One additional element to cover before discussing risk management frameworks in greater detail is the use of economic models. The relationship between economic models and an agency’s real property capital plan is established through interdependencies between OMB Circular A-11’s Supplement—Capital Programming Guide and OMB Circular A-123’s guidance on enterprise risk management. Specifically, the Capital Programming Guide requires agencies to manage facility assets using priorities and objectives aligned to support achievement of the agency’s objectives (OMB 2022a). OMB Circular A-123 requires agencies to evaluate risk in its ability to achieve mission objectives (OMB 2016). Given that facility management involves the competition for scarce resources and economic models are designed to support decision making considering scarcity, it is obvious that economic models are useful for evaluating choices framed by real property capital plans.

Economic models are well documented in the literature, and an exhaustive review of them is beyond the scope of this report. That said, there are several standard economic analysis methods that apply to the development and implementation of federal facility renewal strategies. They include cost-benefit analysis, cost-effectiveness analysis, life-cycle cost analysis, savings-to-investment ratio, internal rate of return, decision trees, and sensitivity analysis using Monte

Carlo techniques. More information on these and related approaches is available in the GAO Cost Estimating and Assessment Guide (GAO 2009b).

OMB Circular A-94 should be used as the principal source for all federal facility renewal strategies. This source makes an important differentiation between two types of economic analyses relevant to developing federal facility renewal strategies. The first is a cost-benefit analysis (OMB 1992). This approach is used to evaluate changes to an agency’s facility portfolio resulting from changes to an agency’s authorities and related mission requirements. Examples of appropriate situations for cost-benefit analysis are given in Chapter 6. The more prevalent type of economic analysis used in federal facility renewal strategies is a cost-effectiveness analysis. This type of analysis is used to determine the option that best supports established mission requirements. See more on this topic in OMB Circular A-94 (OMB 1992).

ENTERPRISE RISK MANAGEMENT FRAMEWORKS

In accordance with OMB Circular A-123, implementation of federal facility renewal strategies requires the application of enterprise risk management. This reference explains what enterprise risk management is and establishes requirements for supporting internal controls, but it provides very little guidance on how to implement these requirements. This is where ISO 55000 asset management system standards apply. ISO 55000–based asset management systems are, by design, an enterprise risk management solution. Conforming facility asset management systems define and integrate how every supporting decision-making framework employs risk management. In this way, via application of ISO 55000 standards, all decision-making activities become risk based. The chain of events helpful to implementing an effective enterprise risk management solution for federal facility renewal strategies is as follows:

• The agency commissions policy to implement a facility asset management system.
• The scope of this asset management system is defined in terms of ISO 55001, Clause 4 (Context of the Organization). For example, the facility asset management system will cover the agency’s complete real property inventory, inclusive of all of its supporting operations and life-cycle management activities employed to achieve authorized mission objectives.
• This policy will establish decision-making frameworks covering the scope of facility asset management system activities.
• Supporting decision-making activities will employ performance management and improvement requirements detailed in ISO 55001, Clauses 9 and 10, respectively.

Following these steps will result in the development of a robust enterprise risk management framework needed to implement effective agency facility renewal strategies. Use of ISO 55001 standards support this by defining requirements for an asset management system. It is important to note that ISO 55001 does not describe how to implement an asset management system; it only defines the characteristics of one. This is intentional in order to provide organizations the freedom to establish an asset management system best suited for their specific needs and circumstances.

Implementing an agency’s facility asset management system includes developing risk management frameworks configured to perfect federal facility renewal strategies across the enterprise. Appendix F provides many examples, criteria, and foundations for risk management frameworks. The reality is that no single method or approach works in all cases. Generally, many frameworks can work, and some frameworks work better than others for different purposes. As detailed in Chapter 2, both OMB Circular A-123 and ISO 55000 standards recognize ISO 31000—Risk Management as a beneficial, authoritative source on the topic. ISO 55002—Guidelines for the Application of ISO 55001 also contains an excellent overview on how risk management is implemented through an asset management system. Independent of the authoritative source that an agency selects to establish its enterprise risk management solution, the following requirements should be applied to all risk management frameworks used to develop federal facility renewal strategies:

• Agencies are required to establish and document the risk management frameworks they are using to develop and implement federal facility renewal strategies. This should be made clear in the policies used to establish the agency’s facility asset management system.
• Risk management frameworks must demonstrate compliance with OMB Circular A-11 and A-123 requirements.
• Established frameworks must be used and evidence of their use must be verified and validated. For example, refer to the requirements contained in GAO-14-704G—Standards for Internal Control in the Federal Government, Section 3 (Evaluation of an Effective Internal Control System), and ISO 55001—Asset Management System—Requirements, Clause 8 (Operations), Clause 9 (Performance Evaluation), and Clause 10 (Improvement).
• The risk management system must be anthropocentric—that is, focused on generating value for humankind, which in the context of federal facility renewal strategies is streamlined to mean achievement of the agency’s authorized mission in alignment with budget authorities and as conferred through its strategic plan.

An excellent example of how one agency (Lawrence Livermore National Laboratory [LLNL]) accomplished these objectives, shared during the committee’s discovery activities, is captured in the following quote:

The committee found this example representative of how a mature facility asset management system would implement a risk management framework. The reason for this is that LLNL used the context of mission and its facility asset inventory to frame its asset management system. It then developed decision-making frameworks using verified and validated data and models to evaluate the performance of its facility assets and the relationship of these facilities to the organization’s overall performance. It continued through an involved process to educate and inform decision makers on how these systems manage risk to organizational performance through facility resource-and-investment decision making. As a result, over the course of many years, LLNL developed a sophisticated, yet simple to understand, common asset management model that executives and facility managers use to collectively manage risk and support mission achievement.

CONCLUSION

This chapter examined methods for identifying the value, benefits, and risks associated with the renewal of federal facilities. The next chapter identifies strategies that can be applied by agencies to improve funding for federal facility renewal.