RICS Public Sector Asset Management

RICS Public Sector Asset Management Guidelines

A guide to best practice

Supported by

RICS Public SectorAsset Management Guidelines

A guide to best practice

Edited by

Keith Jones

and

Alan D. White

AcknowledgementsThe authors and publishers wish to thank the following for permission toreproduce copyright material:

BRECOPROPDETRHM TreasuryIPD GlobalDCLGOGCUniversity of Leeds

Every effort has been made to trace copyright owners. Anyone claiming copyrightshould contact RICS at the address below.

Published by the Royal Institution of Chartered SurveyorsSurveyor CourtWestwood Business ParkCoventry CV4 8JEUK

www.ricsbooks.com

No responsibility for loss or damage caused to any person acting or refraining fromaction as a result of the material included in this publication can be accepted by theauthor or RICS.

ISBN 978-1-84219-370-9

Royal Institution of Chartered Surveyors (RICS) January 2008. Copyright in all orpart of this publication rests with RICS, and save by prior consent of RICS, no part orparts shall be reproduced by any means electronic, mechanical, photocopying orotherwise, now known or to be devised.

Typeset and printed in Great Britain by Page Bros

Printed on Greencoat Silk 115gsm

iii

Contents

Preface v

Foreword vii

Acknowledgements and Contributors viii

Glossary ix

Introduction 1

1 WHAT IS PUBLIC SECTOR ASSET MANAGEMENT?

1.1 Description of asset management 51.2 Concept diagram and arrangement of the guidelines 7

2 STRATEGY AND VISION DEVELOPMENT

2.1 The purpose and role of asset strategies 92.2 The coverage of the asset management plan (including the asset strategy) 102.3 Key elements of preparing asset strategies 112.4 The pivotal role of the asset strategy and the asset management plan 15

3 ASSET PROGRAMMES

3.1 The stages in the preparing of asset programmes 173.2 Review of the asset base 173.3 Project evaluation (business cases) 193.4 Asset programme development and evaluation 213.5 Financial planning for assets 22

4 DELIVERY

4.1 Introduction 254.2 Overview of delivery 254.3 Direction 264.4 Resources and capabilities 264.5 Means of delivery 264.6 Project structure and governance 284.7 Project planning 294.8 Communications 294.9 Monitoring, incentives and benefits realisation 304.10 Risks 304.11 Conclusion 31

5 REVIEW AND PERFORMANCE MANAGEMENT

5.1 Performance management 335.2 Reviewing the asset management system 335.3 Developing performance management for the asset base 355.4 Conclusion 39

6 CHANGE MANAGEMENT

6.1 Coverage of this chapter 416.2 Understanding the nature of change in asset management 416.3 Attributes of good change managers in asset management 44

7 LEADERSHIP AND CUSTOMERS

7.1 Leadership skills 477.2 Engaging stakeholders 49

8 ORGANISATION

8.1 Key steps 518.2 Organisational culture 518.3 Process 518.4 Roles and responsibilities 538.5 Structure 54

9 RESOURCES AND CAPACITY

9.1 The role of resources and capacity in asset management 559.2 Defining resources and capacity for asset management 569.3 What needs to be done? 57

10 SUSTAINABILITY

10.1 The context 5910.2 Definitions 5910.3 Building impacts 6010.4 A sustainability criteria approach for asset management 6210.5 Summary of sustainability principles for asset managers 63

11 DATA AND INFORMATION MANAGEMENT

11.1 Introduction 6511.2 Specifying requirements 6511.3 Options for systems 6711.4 Business case 6711.5 Implementing the systems 6811.6 Managing and maintaining the data 68

12 ASSET MANAGEMENT AN INTERNATIONAL DISCIPLINE

12.1 Overview 7112.2 Asset management in Australia 7112.3 Asset management in New Zealand 7612.4 Asset management in the USA 7612.5 Summary 7812.6 Appendices 78

Bibliography Whats Been Published Already 83

Index 87


iv

In 2006, we were approached by RICS to producepublic sector guidelines on property asset manage-ment. It had identified a need for the guidelines for thefollowing reasons:

The subject has been at the forefront of publicsector property thinking for some time and whilstits application was previously primarily in localgovernment, interest and expectations were spread-ing to many other parts of the public sector.

The subject is a challenging area for charteredsurveyors and other property practitioners, as itrequires skill sets that are as much to do withmanagement and business processes as they are todo with mainstream property expertise.

It was felt important to set out the key features ofgood property asset management practice formembers and other property practitioners.

An initiative was needed to identify and explainthe wide range of skill requirements applicableacross the whole of public sector property assetmanagement, which would become the mainreference point for asset managers. If, subsequently,specific guidance in a particular sub-sector isneeded, then more focus on that area will be able tobe developed using the overarching framework pro-vided by these guidelines.

So, we embarked on what has proved to be a longerjourney than we all expected! We have had great sup-port from RICS officers, who had the foresight to takethe initiative in the first place, and we have been veryfortunate to have a good team of authors, and a goodpublishing team, to work with. Many representativebodies have also been keen to support us. We thank allthese people and organisations sincerely for their timeand effort in assisting with the preparation of thispublication.

We took the decision to ask a number of specialiststo write some of the individual chapters and so webecame editors rather than authors of the whole pub-lication. The text was actually written quite quickly.The time has really been consumed by logistics identifying the right authors (and then getting them toagree to do it!), bringing consistency to the text,honing the text down to a manageable length, gettingconsents and approvals, typesetting and printing andso on.

However, we feel that the effort has been veryworthwhile. We hope you do too.

Keith JonesAlan D WhiteJanuary 2008

v

Preface

vii

Public sector asset management first came into thespotlight in the early 1980s. The Ceri Davies report1 onthe NHS estate, the Cabinet Office report2 on CentralGovernment office accommodation and the AuditCommission report3 on Local Authority property allhighlighted issues of under-use and a reactive approachto property asset management. These reviews provideda platform for a major process of improvement asearch for new and better ways to manage the valuablepublic sector resource and asset base: property.

At the same time, the last 25 years have seen rapidchanges in all aspects of working practices and thepublic sector has not been immune to these. Thepervasive impact of technology, the rise of the serviceculture and search for greater efficiency in the use ofall resources have challenged professionals to delivernew and more responsive property solutions to meetthe needs of the occupiers, customers and a wide rangeof other stakeholders.

Responding to these challenges, academics, con-sultants and advisory bodies have developed tools andtechniques to help asset managers proactively deal withtheir portfolios. New financial management tools, abetter understanding of information and performancemonitoring, and new approaches to the use and man-agement of the workplace are but a few of the areaswhich have seen considerable progress. Additionally, a

wide range of public sector groups4 have formed strongcommunities of practice who have captured andshared best practice, providing real evidence of theimpact of these ideas. Consequently, there has been aconsiderable increase in knowledge about how publicsector organisations can gain more from theirproperty and this has resulted in a more strategic andsystematic approach to asset management.

These guidelines therefore come at an opportunetime. They pull together an extensive body of work andtake a holistic approach to property asset managementfrom strategy development to implementation. Bydrawing together a wide range of guidance, techniquesand practice, it becomes a single authoritative sourceof much of the best material currently available.

I commend these guidelines to all those who havea real interest in improving the performance andcontribution of property to the overall goals of theirorganisation. I have no doubt that it will become anessential resource for practioners in the public sectorand beyond.

Professor Ginny GibsonLand Securities Trillium FellowDept of Real Estate & Planning

University of Reading

Foreword

1 Underused and Surplus Property in the National Health Service, Department of Health and Social Security, HMSO, London, 1982(Chaired by Ceri Davies).

2 Office Accommodation: A Review of Government Accommodation Management A Report to the Prime Minister, Cabinet Office, HMSO,London, 1985 (Report prepared by Lord Gowrie).

3 Local Authority Property A Management Overview, Audit Commission, HMSO, London, 1988.4 ACES (Association of Chief Estates Surveyors), COPROP (Association of Chief Corporate Property Officers in Local Government),

AUDE (Association of University Directors of Estates) and OGC (Office of Government Commerce) are a few of the groups.

EDITORS, DRAFTERS AND REVIEWERS

We are indebted to the following editors, drafters andreviewers, all of whom contributed enormously to theproduction of these Guidelines.

Editors

Keith Jones, Director, Performent Consulting, Chair ofthe RICS Asset Management Group and member ofthe RICS Management Consultancy Faculty Board.

Alan D White, Director, Lenborough Consultants,Chair of RICS Facilities Management Faculty Boardand the RICS Business Development Board.

Drafters and reviewers

David Bentley, Head of Asset Management, IPF/CIPFA

Frank Bowyer, RICS Oceania and FB Consultants PtyLtd, Australia

Elisabeth Carter, Elisabeth Carter Consulting

Tony Comer, County Property Officer, HertfordshireCounty Council

John Cornish, Head of Estates Branch, Department forCommunities and Local Government

Iain Gillies, Network Property and Facility Manager,New Zealand Telecom

Ian Jeffries, IPD (Investment Property Databank)

Keith Jones, Director, Performent Consulting,

Mark Jones, Partner, Remit Consulting

Robert Lee, Interim Management Consultant, SolaceEnterprises

Steven Male, Professor of Construction Management,University of Leeds

Sarah Sayce, Professor and Head of Surveying,Kingston University

Stephen Walton, State government of New South Wales,Australia

Clive Warren, University of Queensland, Australia

Neil Webster, Partner, GVA Grimley,

Alan D White, Director, Lenborough Consultants.

We thank Ginny Gibson, Professor of Corporate RealEstate, University of Reading, for writing the Foreword.

Consultative group

We are also indebted to the Consultative Group for theproject, who gave valuable advice on the drafts inpreparation. The members of the Group were:

Bob Baber, Audit Commission

Stuart Bates/Rob Shelton, Consortium of LocalAuthorities in Wales

Roger Bond, Association of University Directors ofEstates

Joanne Cavey/Sal Ratnayake, Department forCommunities and Local Government

Pam Chapman, Department of Health

Richard Hanson/Dinesh Kotecha, Association ofCorporate Property officers in Local Government

Yvonne Hardy/Bridget Hardy, Office of GovernmentCommerce

Ian Hay, Association of Chief Estate Surveyors in LocalGovernment

Alan Jones, Department of Education and Skills

Nigel Mason, York Consulting

Bill Ness, Edinburgh City Council

Alan Stokes, Society of Construction and QuantitySurveying

Alan Tyler, Federation of Property Services

viii

Acknowledgementsand Contributors

Asset

The term asset can be used to describe many differenttypes of assets, for example, financial assets, infra-structure assets, plant and machinery, equipment andproperty. For the purpose of these guidelines the termasset is used to refer to land and buildings.

Asset base

The entirety of the land and building assets owned oroccupied by an organisation.

Asset base performance measures

The measures grounded in an organisations strategicobjectives. They fit into four key categories or per-spectives, based on the balanced scorecard:

Financial traditional balance sheet and other fi-nancial measures.

Customer satisfaction issues from the customersperspective.

Internal the extent to which internal workingpractices contribute towards the successful deliveryof corporate objectives.

Innovation and Learning intended to help driveimprovement in financial, customer and internalprocess performance.

A fifth category may also be added to address wider so-cial, economic and environmental/physical perspec-tives, to reflect the wider public policy role of thepublic sector.

The public sector approach would, therefore, cover:

social, economic and environmental/physical im-pacts;

financial imperatives; stakeholder views; internal excellence; innovation and learning and for the future.

Asset champion

The senior individual in an organisation who ischarged with promoting and sustaining good practicein asset management within the organisation. Nor-

mally this will not be the senior manager responsiblefor asset management (SMAM).

Asset management

This is the activity that ensures that the land and build-ings asset base of an organisation is optimally struc-tured in the best corporate interest of the organisationconcerned. It seeks to align the asset base with the or-ganisations corporate goals and objectives. It requiresbusiness skills as well as property skills although onlyan overall knowledge of property matters is required.However, property input within the overall process isimperative. It does not seek to respond solely to the re-quirements of any particular operating part of the or-ganisation, but rather, it seeks to take all requirementsinto account and to deliver the optimal solution in termsof the organisations overall operational and financialgoals and objectives. It has a consultancy and executiveorientation. It is a corporate, that is whole organisa-tion, activity and may be led and/or coordinated by aproperty, construction or facilities professional, al-though this is not always the case.

Asset management plan

A plan covering the organisations asset strategy to-gether with other related matters, for example, the or-ganisational structure and governance, roles andresponsibilities, data and performance managementarrangements and performance measurement infor-mation.

Asset programme

A programme of action designed to implement anasset strategy or part of it.

Asset review

The analysis of all or part of the asset base to assess itscurrent condition, suitability, utilisation and suffi-ciency and the comparison of this with the expectationfor the asset base as described in the asset strategy. It

ix

Glossary

normally results in a clear understanding of the gap be-tween the current asset base and the desired asset baseand the potential action required to close that gap.

Asset services/asset management services

The services that support asset management in an or-ganisation. They may be provided in-house or exter-nally.

Asset strategy

The organisations strategy for its asset base. It willhave both generic elements (e.g. a desire to achieveco-location) and also specific elements (e.g. theapproach to be adopted in offices).

Aunt Sally

A colloquial term used to describe a proposition, putforward to test peoples reaction to it. Also known as astraw man.

Capital expenditure

One-off expenditure on major items which have a lifeof longer than one year (e.g. land and property), often,but not always, funded by borrowing with current ex-penditure implications.

Capital strategy for assets

The overall capital requirements of the asset strategyand of funding sources to meet those requirements.

Corporate

The organisation acting as a whole rather than as parts.

Customers

Those who are in any way customers for assets or assetsservices. Typically they will be the users of land orbuildings but in some cases it might be wider than justusers, for example, parents of children in schools. Thisterm should not be confused with stakeholders.

Discounted cash flow calculations

Methods to determine the present value of future cashflows by discounting them using the appropriate costof capital.

Green Book

See Treasury Green Book.

Modernisation

The policy of government designed to rethink the waypublic services are delivered and consequently to im-prove them.

Net present value

The sum of a series of future values discounted to re-flect the dates at which they occur.

Operating units

The various parts of an organisation which deliver el-ements of its goods or services or which enable thosegoods or services to be delivered.

Operational objectives

The objectives of operating units which whilst withinthe overall ambit of the organisations objectives willbe more specific and narrow.

Organisational objectives

The objectives of the organisation as a whole.

Organisational performance

The performance of the organisation measured interms of its organisational objectives.

Property management

This is the activity that ensures that land and buildingsmatters are dealt with so that they operate efficientlyand effectively. In effect it delivers the strategic assetmanagement objectives for land and buildings. It issometimes referred to as operational and it is the ac-tivity of undertaking the professional/technical worknecessary to ensure that property is in the conditiondesired, in the form and layout and location desiredand supplied with the services required, together withrelated activities such as the disposal of surplus prop-erty, the construction or acquisition of new property,the valuation of property, dealing with landlord andtenant and rating matters, all at an optimum and af-


x

fordable cost. It also involves offering advice to deci-sion makers on the best ways of doing this. It has a cus-tomer orientation. It is normally undertaken byproperty, construction or facilities professionals andtechnicians.

Property performance measures

More technically based measures than asset base per-formance measures, property measures are often bro-ken down into a range of more focused componentparts normally related to efficiency, effectiveness andeconomy. Examples are:

costs and cost control; space utilisation; service levels and customer satisfaction; environmental sustainability; risk management (including health and safety); in-house services management practice; outsourced supplier management.

Recurring expenditure

Annual expenditure which is variously referred to inthe public sector as, for example, current expenditure,recurring expenditure, resource expenditure or rev-enue expenditure.

Senior managers and decision makers

These are the top managers or decision makers. Typ-ically they would be, for example, Board members,Cabinet members, top management team members,Ministers, trustees, etc.

Senior manager responsible for asset management(SMAM)

The senior manager in the organisation that has directresponsibility for the operation and performance ofasset management within the organisation.

Spend to Save

A saving which requires initial and lesser expenditurein order to realise a subsequent saving.

Stakeholders

All those that have a direct or indirect legitimate inter-est in the use of the organisations land or buildings.

Strategic asset management

This refers to strategic asset management for land andbuildings. For simplicity, this is referred to as assetmanagement in the guidelines (see asset managementabove).

Strategic asset management for land and buildings

For simplicity, this is referred to as asset managementin the guidelines (see asset management above).

Strategy proposition

This is the first stage in preparing an asset strategy. It isnot the firm strategy but a proposition (or hypothesis)showing the desired direction which is to be taken butwhich will need to be tested and amended in the lightof, for example, technical, practical, financial or otherconstraints.

Treasury Green Book

The Treasury has, for many years, provided guidanceto other public sector bodies on how proposals shouldbe appraised, before significant funds are committed and how past and present activities should be evalu-ated. The current edition of the Green Book, Appraisaland Evaluation in Central Government (HMT), incor-porates revised guidance, to encourage a more thor-ough, long-term and analytically robust approach toappraisal and evaluation.

Top management

See Senior managers and decision makers.

xi

Glossary

1Chapter overviewThis chapter describes the purpose and format ofthe book, explains how the term asset managementis used and describes the overall benefits of goodasset management.

PURPOSE OF THE BOOK

In the light of the increasing focus on the wayassets are managed in the public sector, RICSfelt it was necessary to produce these guidelines onstrategic asset management for land and buildings forits members and for others who are involved with thepractice of strategic asset management. The book seeksto cover the whole subject of public sector strategicasset management, by setting out a structured ap-proach to the subject, withreferences on where to findmore information. Rather than being just a textbook,it seeks to help managers to practice good strategicasset management by explaining the key steps and thetechniques to be used.

The book is designed to be used by the whole of thepublic sector. It is also hoped that it will provide anumbrella under which more specific guidelines inparticular parts of the public sector can sit. Thereforeit is hoped that this book will provide the how to do itand that this will be a backdrop against which morespecific performance standards in each sub sector canbe developed.

FORMAT OF THE BOOK

This book is part of a suite of guidelines on publicsector strategic asset management for land and build-ings and it also has an accompanying short guide forpractitioners Getting Started Quickly Guide forSurveyors.

As Figure I.1 indicates there is also a short guide forsenior and operational managers and decision makersand a practice information and case studies guidewhich completes this suite as follows:

Public Sector Asset Management Guidelines Senior Decision Makers Guide

Getting Started Quickly Guide for Surveyors Practice Information and Case Studies

Figure I.1: The Guidelines

APPLICABILITY OF THESE GUIDELINES TOPROPERTY ASSETS ONLY

The term asset can be used to describe many differenttypes of assets, for example, financial assets, infra-structure assets, plant and machinery, equipment andproperty. For the purpose of these guidelines the termasset is used to refer to land and buildings (i.e. in thestrict legal sense, real property).

USE OF THE TERM ASSET MANAGEMENT

As will be explained more fully in Chapter 1 this bookfocuses on strategic asset management for land andbuildings. For simplicity, this is referred to as assetmanagement in the following chapters.

APPLICABILITY TO SMALLER PUBLICSECTOR BODIES

These guidelines have been written with relatively largeoccupational asset bases in mind. In national terms, itis there that the major benefits of good asset manage-ment can be achieved. However, good asset manage-ment has universal benefits. In smaller organisationsthese guidelines will need to be interpreted to make

Introduction

Public Sector AssetManagement Guidelines

Practice Information andCase Studies

Getting Started QuicklyGuide for Surveyors

Senior DecisionMakers Guide

them suitable for purpose there. Whilst all the princi-ples will remain the same, the extent and complexityof the processes will not be so great and, therefore,more streamlined arrangements based on these guide-lines may be more appropriate.

BENEFITS OF GOOD ASSET MANAGEMENT

Practical benefits

Land and buildings are probably the slowest of all thestrategic resources (finance, people, ICT and land andbuildings) to respond to change. The reasons for thisvary but they are mainly attributable to legal, financial,construction/development, regulatory and propertymarket issues. As a consequence there are:

long lead-in times for asset creation; existing assets are illiquid (i.e. long lead-in times, too),

and so there is a need to plan change in a very system-atic way.

Annual incremental change will not suffice, as it cannotrespond to the challenges of 21st-century publicservices and has often led to many parts of thepublic sector property asset base underperforming innon-financial and financial terms. Examples of this are:

extensive maintenance backlogs; poor fit between service requirements and the

property from which it is delivered; poor accommodation for the workforce impacting

on productivity, recruitment and retention; limited co-location of public services; inefficient sourcing and procurement of property

and construction and property support services; inefficient use of capital; insufficient control over running costs.

Thus, there is a need for a structured and programmedapproach to long-term change in the asset bases ofpublic sector organisations, in short: 21st-century, fitfor purpose, land and buildings.

Business benefits

These have been variously described in a number oftexts and we select four representative examples below.

Asset Management Getting the Outcomes,COPROP, 2005

By now we should all know what needs be done, andhow it should be done and, therefore, it is the righttime to focus on the outcomes that we are seeking toachieve:

Supporting service improvement by deliveringcurrent and future portfolio requirements.

Supporting and facilitating wider objectives(e.g. regeneration, inclusion, sustainability).

Improving stakeholder satisfaction with propertyand with property services.

Having a lean, well maintained portfolio whichallows the authority to live within its means (capi-tal and revenue) by managing property runningcosts effectively and efficiently and releasing capitaland then recycling it into corporate priorities.

Delivering new capital projects effectively andefficiently.

Maximising returns on any investmentproperty.

Delivering continuous improvement throughperformance management.

Improving Property Asset Management in theCentral Civil Government Estate, Leeds University(for the Office of Government Commerce), 2006 based on the International InfrastructureManagement Manual 2002, Institute of AssetManagement, London, 2002

The benefits of Property Asset Management relate toaccountability, service management, risk manage-ment and financial efficiency through:

Improved stewardship and accountability of prop-erty assets involving: The demonstration to owners, customers and

stakeholders that services are being deliveredeffectively and efficiently.

Providing the start point for evaluating andbalancing service/price/quality tradeoffs.

Improving accountability in the use ofresources through published performance andfinancial measures.

Having the ability to benchmark resultsagainst similar organisations.

Improved communication and relationships withservice users through: Improved understanding of service require-

ments and options. Formal consultation/agreement with users on

the service levels. Having a more holistic approach to physical

asset management through the use of multi-disciplinary management teams.

Improved customer satisfaction and organisa-tional image.

Improved risk management through: Assessing probability and consequence of asset

failure and the resultant impact on businesscontinuity and assisting in addressing conti-nuity of service.

Addressing the inter-relationships betweendifferent networks and risk managementstrategies.

Influencing decisions on non-asset solutions throughdemand management.


2

Improved financial efficiency through: Improved decision-making based on cost and

benefits of alternative options, either strategic,policy or technical in focus.

Being able to justify forward works pro-grammes and funding requirements.

Recognising all the costs associated withowning/operating assets over the life cycle ofthe assets.

Local Authority Asset Management Guidelines,ODPM, 2005

Through good asset management, local authoritieswill wish to target the following outcomes:

Customer and Stakeholder Satisfaction enhanced customer satisfaction from improvedperformance and control of service delivery to therequired standards along with improved corporateimage. This is relevant in both how the public viewlocal authorities and value and rank their servicesand purposes, as well as in staff morale andperformance.

Affordability clear processes for assessing pru-dence, affordability and sustainability includingthe effective use of capital for new projects, capitalrelease and redeployment and efficient and effec-tive running costs.

Compliance with Statutory/Regulatory Codes health and safety, asbestos, legionella, accommo-dation minimum standards.

Improved Corporate Management for CPA andother purposes, the ability to demonstrate clearlinking between corporate and service goalsand objectives on the one hand and the manage-ment of assets crucial to their delivery on the other;and

Environment sustainability, CO2 emissions,green energy, etc.

High Performing Property, OGC, 2006

The effective planning of government property is akey part of this story:

selling surplus assets to free resources for newinvestment

transferring ownership of assets to the private sec-tor where this secures better value for moneythrough access to new funding and skills, or byplacing risk where it can be better managed

identifying and capitalising hidden assets increasing value for money from retained assets

and property.

Whilst each of the descriptions above was originallyaddressed to particular parts of the public sector, theirapplicability (with suitable amendment as necessary)is apparent to all parts of the public sector.

In summary the business benefits are as follows:

release of capital for re-investment or debt reduction; efficient running costs; better public service provision by improved prop-

erty and co-location of services; property in good condition; improved property utilisation and bringing to-

gether similar uses into the same property, ratherthan providing them separately;

improved productivity, changes in corporate cul-ture and facilitation of corporate change;

improved delivery of community objectivesthrough the more effective use of property;

innovative strategic procurement.

Policy benefits

Asset management is increasingly being recognised bycentral government as part of the modernisationagenda. Since Sir Michael Lyons Report (TowardsBetter Management of Public Sector Assets) in December2004, the Treasury has taken a keen interest and assetmanagement has gained a higher profile in theComprehensive Spending Review 2007 with explicittargets for many public organisations. The Office ofGovernment Commerce (OGC) is encouraging goodpractice in asset management throughout centralgovernment and its agencies, which will also berelevant to other parts of the public sector. TheDepartment of Communities and Local Government,the Department for Children, Families and Schoolsand the Audit Commission continue to encouragegood performance in local government and similarencouragement is being promoted in the educationand health sectors.

Therefore, not only is good practice in asset man-agement desirable, it is also an expectation of centralgovernment for all parts of the public sector.

3

Introduction

5Chapter overviewThis chapter describes the nature of asset manage-ment and the distinction between it and propertymanagement, and the business process associatedwith it. It also explains the reasoning behind the sub-ject matter chosen for each chapter of the book.

1.1 DESCRIPTION OF ASSET MANAGEMENT

The term asset management is variously described inmany documents, for example:

Local Government Asset Management Guidelines,RICS/ODPM, 2005

Asset management is a structured process that seeks toensure best value for money from property assets inserving the strategic needs of local authorities. Prop-erty assets have three features that place primacy ontheir proper management:

they are expensive in terms of both their capitalvalue and annual costs of upkeep;

they need to be carefully managed over their livesto ensure best value e.g. use, maintenance andgeneration of income; and

it takes time to determine carefully new propertyneeds and to procure and provide them.

Improving Property Asset Management in theCentral Civil Government Estate, Leeds University(for the Office of Government Commerce),April 2006

Strategic Asset Management (SAM) is a subset ofStrategic Resource Management (SRM) and is the ef-fective and efficient direction and utilisation of assets,

both tangible and intangible, to sustain the business.This definition covers all asset classes including pro-duction, facilities, fleet assets and IT infrastructure,for example.

Property Asset Management (PAM) is a subset ofStrategic Asset Management (SAM). It is a struc-tured, holistic and integrating approach for aligningand managing over time service delivery requirementsand the performance of property assets to meet busi-ness objectives and drivers. Property asset manage-ment encompasses two interacting components:

A strategic component, the focus of which is themedium to longer term and involves decisions onappropriate investment in property assets to meetcustomers/end-user needs and service deliveryrequirements. Typically the time frame would be threeto five years (medium term) and up to ten years andbeyond (long term), and,

An operational component, the focus of whichencompasses the ongoing management of propertyassets over the short to medium term time horizonwithin an allocated budgetary framework set at thestrategic level once investment decisions in propertyassets have been made. Typically the time framewould be up to three years. The locus of the opera-tional element of property asset management wouldbe, for example, at or below estates level within adepartment.

Towards Better Management of Public SectorAssets, A Report to the Chancellor of the Exchequer(Sir Michael Lyons), HM Treasury, 2004

Asset management is a key part of business planningwhich connects at a strategic level decisions about an

Chapter 1

What is PublicSector AssetManagement?

STRATEGY

Business DriversFinancial DriversAsset Strategy

Asset Management Plan

AssetManagement

System ReviewPerformance Management

of AssetsBalance Scorecard

DeliveryPlanning

Achieving the DesiredOutcomes

ProcurementProject Management

REVIEW DELIVERY

Change in AssetManagement

Corporate ChangeAM Services Change

The AttributesNeeded

CHANGE

LeadershipCulture

CustomersStructure

RolesResponsibilitiesResources and

CapacityGovernance

DataSustainability

Asset ReviewsBusiness CasesAsset ProgrammesFinancial Planningfor Assets

PROGRAMMES

organisations business needs, the deployment of itsassets, and its future investment needs.

Report on Improving the Capability and Capacityof Managing Property Assets in Central CivilGovernment, OGC, 2006 (Andrew Howarth,National School of Government for OGC)

Asset management, in its wider sense, needs to be seenas a contributor to core business resource planning soas to ensure that the physical asset base is aligned withorganisational objectives.

Asset managements strong links with investmentplanning means that it sits comfortably within theFinance structure, where financial tools can beapplied to test business options and, through theCorporate Finance Director, has direct exposure to theBoard.

Whilst specialist knowledge or technical competencyis very important to the everyday running of propertyand estates, asset management, as proposed by SirMichael (Lyons), implies a wider understanding ofthe part property can play in the delivery of the or-ganisations primary objectives. There are, therefore,differences between the property management view ofassets and the asset management view of property.

Asset Management properly lies at the level of corpo-rate resource management. It is a feature of thinkingat a strategic level, which means matching future ca-pabilities to a future environment in order to achievedefined outcomes. Asset management, therefore,aligns itself with strategic resource and ICT manage-ment at the business thinking level. Decisions to utiliseproperty assets as an enabler to business planningstem from this level and manifests itself as strategicproperty management.

Measuring Performance in the Managementof Local Authority Property, Department ofEnvironment, Transport and the Regions (DETR),1999

Asset management in the context of this project is thestrategic management of land and buildings assets interms of the portfolio as a whole. We have identifiedasset management as optimising the utilisation of as-sets in terms of service benefit and financial return.There is a difference between this type of asset man-agement and day-to-day property and project man-agement, and property services. Asset management isconcerned with the long term view of all the local au-thoritys assets, including those held and used by in-dividual service departments, as well as those held bya local authority but used by an external organisa-tion, such as the community organisation or a tenantof an industrial unit.

Asset Management of Local Authority Land andBuildings Good Practice Guidelines, DETR, 2000

Local authority land and property assets are held asa support to the main business of an authority, whichis to provide services. First and foremost, the propertyresource must be used to maximise benefits to servicesin the most efficient and effective manner. The excep-tion is where property assets are primarily held forfinancial rather than service requirements. In thiscase, the focus will be on maximising financial return.

The Research Project (Measuring Performance in theManagement of Local Authority Property, DETR1999) and these Guidelines apply the term assetmanagement to the authority-wide management oflocal authority assets. Furthermore, asset manage-ment is applied in terms of the long term strategicview of all the local authoritys assets. It covers thestrategic issues related to all aspects of estate manage-ment and development. This differs from the day-to-day provision of estate and project managementservices such as building maintenance, rent reviewsand so on.

There appears to be considerable consensus over thebasic characteristics of strategic asset management forland and buildings and a distinction between this andoperational property management. Therefore, for thepurposes of this book, we have sought to differentiatebetween the two activities as follows:

Strategic asset management for land and buildingsis the activity that ensures that the land and build-ings asset base of an organisation is optimally struc-tured in the best corporate interest of theorganisation concerned. It seeks to align the assetbase with the organisations corporate goals and ob-jectives. It requires business skills as well as prop-erty skills although only an overall knowledge ofproperty matters is required. However propertyinput within the overall process is imperative. Itdoes not seek to respond solely to the requirements ofany particularly operating part of the organisation,but rather, it seeks to take all requirements into ac-count and to deliver the optimal solution in terms ofthe organisations overall operational and financialgoals and objectives. It has a consultancy and execu-tive orientation. It is a corporate, that is, whole or-ganisation, activity and may be led and/orcoordinated by a property, construction or facilitiesprofessional, although this is not always the case.

Property management is the activity that ensuresthat land and buildings matters are dealt with sothat they operate efficiently and effectively. In effectit delivers the strategic asset management objectivesfor land and buildings. It is sometimes referred to asoperational and it is the activity of undertaking the


6

professional/technical work necessary to ensurethat property is in the condition desired, in theform and layout and location desired and suppliedwith the services required, together with relatedactivities such as the disposal of surplus property,the construction or acquisition of new property, thevaluation of property, dealing with landlord andtenant and rating matters, all at an optimum andaffordable cost. It also involves offering advice todecision makers on the best ways of doing this.It has a customer orientation and it is normally un-dertaken by property, construction or facilitiesprofessionals and technicians.

Therefore strategic asset management for land andbuildings is:

involved with business, corporate and organisa-tional objectives;

concerned with both non-financial and financialmatters;

connected with property management; systematic and coordinated; concerned with whole life costs and benefits; involved with planning on a medium/long term

basis; a corporate activity and not solely the province of

property, construction and facilities professionals;

an activity that sees property as a key strategic re-source in an organisation.

This book focuses on strategic asset managementfor land and buildings and describes the techniquesthat are needed to practice it well. The techniques andpractices of property management are not coveredby these guidelines other than in those areas where itoverlaps with strategic asset management for land andbuildings.

For simplicity, strategic asset management for landand buildings is referred to as asset management inthe remainder of this book.

1.2 CONCEPT DIAGRAM AND ARRANGEMENTOF THE GUIDELINES

In deciding on the structure of the content of this bookwe have first considered the basic business process foreffective asset management. This is based on a simpleprocess which has been described in varying ways inmany business management texts. Our version of it isshown in Figure 1.1.

From this we can begin to define the various activitiesinvolved in asset management in each part of the

7

Chapter 1: What is Public Sector Asset Management?

Figure 1.1: A simple business process for effective asset management

STRATEGY

REVIEW DELIVERY

IMPROVEMENT PROGRAMMES

process. These are described in Figure 1.2 by the textin the ellipses.

However this does not describe the full range of activ-ities involved in asset management. There are a num-ber of essential enabling activities and subjects whichsupport the basic business process activities. These areshown in box at the centre of Figure 1.2.

As a result, this book is arranged in the followingchapters:

Strategy and vision development Asset programmes Delivery Strategic implementation issues Review and performance management

Change management Leadership and customers Leadership for assets Organisational issues Resources and capacity Sustainability and corporate social responsibility Data and information management Asset management An international discipline

This will enable the reader to work through the wholeasset management process and understand the plan-ning, process, delivery, resourcing, data managementand practical implications of preparing an asset plan. Itwill also enable the reader to dip-in to any individualchapters which are particularly relevant at any giventime.


8

Figure 1.2: Business process for assets and supporting activities

STRATEGY



AssetManagement



DeliveryPlanning



REVIEW DELIVERY




CHANGE

LeadershipCulture

CustomersStructure


CapacityGovernance

DataSustainability


PROGRAMMES

92.1 THE PURPOSE AND ROLE OF ASSETSTRATEGIES

Overview

In these guidelines, asset strategy is used to describe thegeneral direction that the asset base will take over thenext 510 years, the approach to be adopted in gettingthere and the policies that will be applied to decisionmaking. In consequence, it would consider the businessgoals and objectives of the organisation, its businessdrivers, its financial context and the implications for theorganisations assets. It would describe the organisationsasset objectives and its longer term vision for the assetbase, the way in which each category of the asset basewould be treated in the future and the overall financialframework in which this would happen.

The asset strategy is almost always a central partof a wider document: the asset management plan.In addition to the strategy this wider asset manage-ment plan will also describe the organisationalarrangements that are to be adopted to implement thestrategy and will make clear the critical success factorsand associated performance measures that will need tobe met in implementing the strategy, together with anassessment of current performance.

This chapter of the guidelines focuses on strategypreparation while other chapters of the guidelinescover organisational and performance management is-sues. This chapter also covers the overall content of anasset management plan (including its asset strategyelement).

Chapter 2

Strategy andVisionDevelopmentKeith Jones, Director, Performent Consulting

STRATEGY



AssetManagement



DeliveryPlanning



REVIEW DELIVERY




CHANGE

LeadershipCulture

CustomersStructure


CapacityGovernance

DataSustainability


PROGRAMMES

Chapter overviewThis chapter describes the nature and content ofasset strategies. It also describes the key steps inpreparing asset strategies.

Benefits of good asset management plans(including asset strategies) Aligns asset objectives with organisational

objectives Ensures overall efficient and effective use of

assets in the medium/long term Provides:

a platform for structured and rigorous for-ward thinking;

a basis for corporate and consultative strategydevelopment;

an explicit description of the direction of theorganisation (or a particular aspect of thatorganisation, in this case, assets) i.e. theelements of the strategy;

a clear statement for communicating thestrategy to the organisation;

a basis for future decision making Asset strategy is placed in the context of wider

organisational issues Brings clarity to the way assets are managed in

the organisation: the organisational arrangements for asset

management; corporate processes for assets; performance measures and measurement; data management; capacity management

Strategy development an iterative process

It will be almost impossible to get the first asset strat-egy right. The process of refining the strategy may takeseveral years especially if the asset base concerned iscomplex and extensive. The process will be iterative,gradually refining and reviewing all aspects of thestrategy over time. This is shown in Figure 2.1.

Even after the strategy has been refined, over time it willstill be necessary to review it annually and whilst it maynot change radically year on year, it will need to changeas the organisation itself changes and as the outside en-vironment and customer requirements change.

In simple terms the purpose of a strategy is to provide:

a platform for structured and rigorous forwardthinking;

a basis for corporate and consultative strategy de-velopment;

an explicit description of the direction that the or-ganisation wishes to take with its assets;

a clear statement for communicating the strategy tothe organisation; and

a basis for future decision making.

Asset strategy should be distinguished from asset pro-grammes. Asset programmes are the mechanisms bywhich the asset strategy will be put into place, increas-ingly on a two-, three- or four-year rolling basis. Theyare the practical and implementable actions to put thestrategy in place and will be technically and financiallyrobust (these are discussed further in Chapter 3).

Fitting the asset strategy into the organisationsbusiness process

The asset strategy needs to be part of the organisationsoverall business process and Figure 2.2 gives the broadconceptual position of the asset strategy in the overallorganisational planning framework.

2.2 THE COVERAGE OF THE ASSETMANAGEMENT PLAN (INCLUDING THE ASSETSTRATEGY)

Whilst less has been written about the content of assetstrategies themselves, much has been written about thecontent of asset management plans (which include theasset strategy) and a very useful summary of some ofthese is given in Leeds Universitys Research Docu-ment, Improving Property Asset Management in theCentral Civil Government Estate (Leeds University forthe Office of Government Commerce, 2006) which re-views the suggested asset management plan content ofthe following:

New South Wales Treasury, Australia Department of Education and Employment, UK Federal Real Property Council, USA Cambridge County Council, UK Consortium of Local Authorities in Wales (CLAW),

UK The Lyons Report, UK Institute of Asset Management, UK


10

Figure 2.1: Refining the strategy an iterative process

11

Chapter 2: Strategy and Vision Development

ICTStrategy

CorporateStrategy

Annual (or 2/3 year Rolling)Capital and Recurring Expenditure

Programmes

AssetStrategy

HRStrategy

ProcurementStrategy

Partners

ExternalEnvironment

Operating UnitsStrategies

Corporate Operatingand Governance

Policies

FinancialContext

Capital and Recurring RevenueExpenditure Strategy

Figure 2.3

Figure 2.2: Position of the asset strategy in the overall planning process

Further examples of asset management plan contentcan be found in PAS 55 (Publicly Available Specification55) Asset Management (BSI, 2004); NAMS PropertyManual (National Asset Management Steering(NAMS) Group, Thames, New Zealand, 2006);RICS/ODPM Guidance on Asset Management 2005(RICS/ODPM, 2005).

Drawing from these references, an example of the contentof an asset management plan is illustrated in Table 2.1.

Whilst it is unrealistic to set a maximum length forsuch documents they should be kept as short as possi-ble by distilling down the essence of what needs to becommunicated. The reason for this is that a key role ofthe asset management plan is to get the message acrossto those who may be busy or who may not be moti-vated to read a long document on a subject that theymay consider is only of indirect importance to them.

It is helpful to summarise the strategy in a singlepage or in two or three diagrams. This might then beused as the executive summary.

2.3 KEY ELEMENTS OF PREPARING ASSETSTRATEGIES

The stages

The process of preparing an asset strategy is covered inthe five key stages shown in Figure 2.3. These are cov-ered, in turn, in the rest of this chapter. The processwill depend on the particular needs of your organisa-tion.

Business drivers

The first stage must be to identify the key businessdrivers that determine the overall direction of the or-ganisation and in particular to understand the likelyimplications of these drivers for assets. There are manyissues to consider and they will be particular to the or-ganisation concerned. A mind map of just some ofthem is provided in Figure 2.4.

BusinessDrivers Visioning Buy-in Testing Strategy


12

Purpose and expectation of the strategy Why does the organisation have an asset strategy? How does it fit with other planning documents and the overall

business process?

The organisations goals and objectives What is the organisation seeking to do, making sure that thoseand the organisations major business business drivers that have asset implications are highlighted? drivers (service/policy delivery/ The key directions and aspirations of the organisationproduction and financial) Organisational mission, vision and values

Key organisational objectives (internal and external)

The organisations financial context Overall financial position of the organisation Financial outlook Financial context for asset decision making

The gap between where the asset base What the business drivers mean for the asset baseis now and where the organisation wants Gap analysisit to be, i.e. the implications for assets Approach to closing/eradicating the gap

Asset goals and objectives and Explicit statement of asset goals and objectives the organisations vision for its asset The overall approach to the use of assetsbase over the next, say 10 years Key themes

How the asset base will help delivery of the business objectives

Critical success factors Drawn from the asset goals, objectives and vision This will form the basis for future performance measurement

The approach to each category of the The way in which the organisation will approach and decide uponasset base (i.e. the gap analysis and the the future of each part of the asset base by categoryway the gap will be closed or narrowed in effect, this charts out the strategy itself)

Broad resource implications of the Capital implicationsstrategy, particularly financial (in some Recurring (resource/revenue/current) expenditure implicationsparts of the public sector this is referred ICT implicationsto as the capital strategy for assets) but HR implicationsalso ICT, HR and procurement Broad investment and divestment strategy for assets

The overall approach to sourcing and procurement

Performance management for assets The performance measures to be used, drawn for the critical success factors

The performance management system Current performance and key historic trends

Organisational arrangements for asset Structural issuesmanagement Roles and responsibilities

Governance and decision making Relationships with stakeholders Corporate processes for asset management Data management Capacity management

Strategic action and milestones The main actions that will be taken over the next year to deliver the strategy

Some will be actions to develop the strategy Some will be actions to implement asset change Some will be actions to implement organisational change

Table 2.1: Content of an asset management plan (including the asset strategy)

A start can often be made by consulting documentsand plans produced by the organisation businessstrategies, business plans, operating unit plans, finan-cial statements and documents. However, this will notbe enough. The documents will often be out of dateand are unlikely to look far enough ahead (510 years).In addition some matters may be confidential or maynot be written down. It is essential to meet with the keyplayers in the organisation to discuss their views on fu-ture direction and plans. These key players might in-clude senior managers (including politicians ifapplicable), heads of operating units, senior financestaff, senior policy making and organisational devel-opment staff, heads of ICT and HR and so on. Fromthis, a picture of the future direction of the organisa-tion will emerge and it is often surprising how muchagreement on this there is.

Having understood the organisations businessdrivers, some visioning for assets can now begin.

Visioning

It is a truism that there are always two conflictingpressures on an organisation. One is the desire to takenew initiatives and the second is financial constraint.Any asset visioning needs to strike a balance betweenthe two but at this early stage it may not be easy toquantify either. As a result visioning is an iterativeprocess.

The visioning should take the information gleanedfrom the assessment of business drivers and seek tomap this information onto the asset base. What will bethe implications for the asset base? These implicationsare likely to be in the following three categories:

Asset objectives (What do the business drivers in-dicate our asset objectives should be?) These objec-

tives will form the basis of the indicators that wouldbe used to measure the contribution the asset basemakes to corporate performance

General themes and the approach to these themes(e.g. working environment, co-location, mainte-nance, regeneration, standards, branding, approachto public realm/landscaping, sustainability issues,etc.)

Broad approaches to be adopted for each asset cat-egory of asset/accommodation in the asset base(e.g. schools, adult care, teaching blocks, studentaccommodation, offices, hospital wards, customeraccess points, etc.)

The vision will clarify the dynamic between financialmatters and new initiatives. For example, it will seek tobroadly quantify capital release, recurring expenditureefficiencies, whilst at the same time explaining the broadthrust of the organisations new initiatives. It will alsoidentify where any other non-asset responses are needed,for example, if a workstyle policy is to be followed to im-prove productivity, recruitment and retention, whichwill change office accommodation requirements, thenit will also be necessary to pursue parallel HR and ICTstrategies which will enable the change.

A good way of bringing this vision to life will be forthe asset manager to chart out an Aunt Sally and thenfor this to be debated and honed at a workshop withthe senior representatives of operating units, the cor-porate centre and support services.

The visioning stage should end with an agreed pre-liminary vision for the future of assets in the organisa-tion.

Buy-in

Before doing any further work it will be important toget the buy-in of top managers and, as appropriate,

13


Corporate goals, objectives and strategy

Corporate values and policy

Financial outlook of the organisation

The organisations vision for its future

Operating Units aspirations and plans

Brand

Customer interface

Possible changes in government policy

Changes in internal organisation and structure

Changes in the external operating environment

Strategy and actions of partners

The organisations vision for property

Suitability and alignment of existing property portfolio

Procurement

Efficiency savings

Relationship with other key resources

Sustainability and environment

Possibilities for co-location

Impact of outsourcing/partnering/sharedservice provision

Changes in headcount

Impact of alternative workstyle

Access

Regulation and standards

AssetStrategy

Figure 2.4: A mind map of some of the issues to consider in understanding business drivers for the asset strategy

senior politicians/board members/trustees. This maybest be achieved by presenting the draft vision, and thelogic behind it, to a meeting of these senior personnel.

The process of brokering (acting as a go-betweenand facilitator with all the internal parties who have aninterest in the asset strategy) an asset vision with sen-ior management may have some other very importantadditional benefits, for example: getting asset issues on the corporate agenda; clarifying business drivers and corporate policy; clarifying organisation issues that need to be ad-

dressed in relation to assets; facilitating and promoting change in the organisa-

tion as a whole.

Testing

Once there is an agreed asset vision, the specifics of thisvision can be developed into the organisations draftasset strategy (this should be a short step). This may betermed a strategy proposition so that the organisationis clear that at this stage it is merely work in progresswhich remains to be tested.

Testing can then begin. The testing process willcomprise high level financial, assets, ICT and HRissues. This testing is very broad and generic andshould not be confused with detailed feasibility and ap-praisal work which would follow later. What you areseeking to do is to find out if the strategy is realistic orwhether it may need amendment.

Examples of how it might be carried out are as follows:

Financial Look at the overall estimated capitalcosts of the approach outlined in the strategyproposition and the estimated capital receipts fromthe approach. Estimate whether, very broadly, theapproach in the strategy proposition will be fund-able and over what broad timescale. At this stageyou will probably be using present day costs andpresent day values only. You are only seeking to seewhether a strategy proposition of this type is sensi-ble and warrants further investigation, or whether itneeds amending. Consider any significant changesin recurring costs. Would this prevent the strategyproposition being pursued?

Assets Assess the broad feasibility of the approachfrom an asset perspective. Will the land/buildingsbe available to purchase? Are there abnormal con-struction or procurement challenges? What are theprospects in the property market? Will the result-ant asset base be manageable? What deliveryvehicles might you use? Are these delivery vehiclesavailable? What are the overall risks to the organi-sation? What are the overall asset risks? Are theserisks manageable? Does the organisation have theappetite for the risks?

Information and communications technology(ICT) and human resources (HR) The implica-tions of the strategy proposition for ICT and HRmay be very significant. These implications willneed to be assessed at this early stage not only to


14

Figure 2.5: Testing the asset vision

ICTFeasibility

Asset Vision

Asset Strategy

PropertyFeasibility

HRFeasibility

FinancialFeasibility

High leveltesting

make sure that they are taken into account and thatthe strategy proposition is realistic in these respects,but also to flag up these parallel implications to theorganisation and to the ICT and the HR managers.This will complete the resource picture finance,people, assets and ICT.

Asset strategy document

Having completed the testing stage the strategy docu-ment can now be prepared. It may well have changedfrom the original strategy proposition or propositionthat was tested, as the testing process may have flaggedup necessary changes. There may also be a need to bro-ker the final strategy again with top managers, if it hassignificantly changed.

2.4 THE PIVOTAL ROLE OF THE ASSET STRATEGYAND THE ASSET MANAGEMENT PLAN

Asset strategy drives the entire asset managementprocess. Without asset strategy it is difficult, if not im-possible, to properly answer the following questions:

Against what do we assess potential projects? What implementation mechanisms are best suited

to our needs? How will we measure our success in implementing

our strategy? What organisational changes do we need to man-

age to achieve the strategy? How should we organise ourselves to implement

our strategy? How will we provide the capacity to do it? Precisely what data do we need?

15


17

3.1 THE STAGES IN THE PREPARING OF ASSETPROGRAMMES

The first stage is to review the asset base in detail to ex-amine the practical implications of the asset strategy.For a large or diverse asset base this may have to bedone in stages over a number of years.

The second stage is to develop specific projects orproject options designed to implement the strategy.These projects or project options will need to be eval-uated to assess both the degree to which they meetorganisational objectives, and their affordability.

The third stage is to bring the most beneficial andaffordable projects together into a programme of proj-ects for implementation.

Finally, the programme must be financially robustand be integrated into the organisations overallfinancial planning, budgeting and monitoringprocesses.

The four stages are shown diagrammatically inFigure 3.1. They are then described in detail in theparagraphs that follow.

3.2 REVIEW OF THE ASSET BASE

Approach to reviews

Reviews can take place annually or less frequently asnecessary. Some reviews may be statutory, but if not,

Chapter 3

AssetProgrammesNeil Webster, Partner, GVA Grimley

STRATEGY



AssetManagement



DeliveryPlanning



REVIEW DELIVERY




CHANGE

LeadershipCulture

CustomersStructure


CapacityGovernance

DataSustainability


PROGRAMMES

Chapter overviewThis chapter of the guidelines considers the next partof the business process, after asset strategies/assetmanagement plans have been prepared. Once theasset strategy has provided a clear statement of direc-tion on the vision for the asset base and the approachto be adopted to each category of the asset base, moredetailed work needs to be undertaken to translate thisinto programmes of action.

Benefits of effective programming Formulating programmes is simply management

practice enabling the efficient and economic useof resources.

They ensure that strategic initiatives are trans-lated into actions.

Their existence gives everyone involved a tem-plate to work from and a reference document toensure the right activities are taking place.

They assist in making sure that investmentsmade are effective and efficient.

They assist in making sure that risks are miti-gated and managed and ensure that effort isbased on communication and coordination.

Direction setby the Asset

Strategy

AssetReview

ProjectEvaluation

ProgrammeDevelopment

FinancialPlanning

Figure 3.1

the frequency of review must reflect the nature of theassets being reviewed. Those that change more rapidlyand have significant impact on organisational per-formance should be reviewed on a more regular basis.

Reviews can take place for the whole asset base or,more commonly, for an asset type or within a definedgeographical area. Part of the reason for so doing isthat a review of a large and complex asset base needsto be broken down into more manageable portions.The types of review are exemplified in Figure 3.2.

Asset category reviews

Asset category reviews are where the asset base is re-viewed by considering similar asset types within theasset base. For example:

where an asset category of primary schools may bereviewed within a local authority area or evennationally, to determine what investment isrequired; or

in response to the LIFT programme, where PrimaryCare Trusts review their asset base and producebusiness cases to demonstrate an investment needin primary care; or

in an office accommodation review.

The case for investment is based on criteria includingcondition of premises, inappropriate locations andhealth needs.

Geographic area asset reviews

The asset review could also take place within a definedgeographic area. A review of all the assets serving thatarea may be undertaken to include, for example, of-

fices, schools, health facilities, community buildings,police stations, libraries, etc. Or the review may be ofgovernment offices in a UK region or of a campus of auniversity or of a specific hospital complex within alarge Health Trust.

This type of review is best suited to a mixed assetbase (or a large single category asset base), within aspecific area.

Reviews and timing

Often it will be necessary to undertake asset categoryreviews and geographical area reviews at differenttimes. The former will clarify specific operational re-quirements in asset terms and the latter will be impor-tant in bringing together different asset categories orin making the analysis of a large asset base manageable.The timing of asset reviews is unlikely to be concur-rent and the review of an organisations entire assetbase may be spread over a number of years, workingsystematically through each category or geographicarea.

Outcome of an asset review

The outcome of an asset review must be the identifi-cation of potential projects which will move the assetbase from its current state to a state better aligned withoverall organisational objectives. There may be manypossible projects that will achieve this as well as alter-native options for projects on specific sites. In addition,the total cost of all the projects/options may exceed thefunding available. For that reason all projects and op-tions will need to be evaluated to test:


18

SERVICE A

SERVICE B

SERVICE C

SERVICE D

CORPORATE RESOURCE

AREA BASED

NORTH

OPERATING

UNIT

BASED

WEST

CENTRAL

EAST

SOUTH

Figure 3.2: Types of asset review

the degree to which they will meet organisationalobjectives from a non-financial and financial per-spective; and

the feasibility of project implementation.

3.3 PROJECT EVALUATION (BUSINESS CASES)

The business case

The evaluation of projects can be carried out in manyways but it is increasingly recognised that this is bestdone through undertaking comprehensive outlinebusiness cases. For those projects that successfully passthrough the outline business case stage, a subsequentdetailed business case will usually be prepared.

Reasons for business cases

Business cases are produced:

so that the taxpayer gets the best value for money; so that capital and recurring expenditure implica-

tions are taken into account; to integrate other areas that are affected by the proj-

ect concerned; to ensure that all the benefits (financial and

non-financial) are captured and assessed.

Part of the business case is, therefore, a cost benefitanalysis.

Key elements of business cases

A variety of business case formats exist. Set out beloware the headings that are likely to be included.

Strategic justification

Strategic justification sets out the strategic context andoverall reasons for the project. What are the opera-tional objectives which require the project to be un-dertaken and what are the outcomes desired? How dothese outcomes link to the key business goals of theorganisation?

Options identification

In order to deliver the outcomes what options havebeen considered? Whilst at the project outset a long listof options and sub-options will be discussed, threebroad options are invariably amongst the most impor-tant considered:

Do a minimum or do nothing in effect it asks,what are the implications if we carry on as we arenow?

Big bang a major change initiative, with, for ex-ample, wholesale new build and significant assetdisposals.

The middle ground a middle course with, for ex-ample, some refurbishment of buildings and pos-sibly a limited amount of new build.

In choosing your options it is important not to havetoo many or too few three is a very good number toallow a good range and still remain manageable.

Non-financial assessment

In assessment terms, this is the non-financial evalua-tion of the project and it is just as important as thefinancial evaluation. Issues addressed in this part ofthe business case include all of the benefits andnon-financial costs that flow from the project and thatcannot be determined in monetary units. This is wherecost benefit techniques are often used.

These come under a number of headings and coverpolitical, economic, social, technical, legal andenvironmental considerations (sometimes known asPESTLE). The actual evaluation criteria used will bederived from organisational and operating objectiveswhich will have been explained in the asset strategy.

There are various ways in which they can be scoredfor each option. For example, each evaluation criterioncan be weighted according to its importance and thenscored (15 or 110) in terms of its impact. The two fig-ures are then multiplied out to give a weighted score.Figure 3.3 below shows an example of a typical matrix(in this case evaluating alternative options for a project).

Financial assessment

Financial assessments of each project or option shouldbe undertaken on a Discounted Cash Flow basis fol-lowing the Treasury Green Book (Appraisal and Eval-uation in Central Government) principles.

In summary the key principles are as follows:

equal importance attached to capital and revenue; full revenue costs adopted; discount rate adopted to reflect when money is ex-

pended in order to produce Net Present Costs andValues;

a reasonable period of time, say 20 years, used forthe cash flow;

sensible conservative assumptions, no optimismbias (i.e. too rosy a view of the future);

sensitivity analysis to illustrate the effect if key vari-ables were to change.

The financial assessment should be robust and be ableto stand up to scrutiny and the content should resem-ble the example in Figure 3.4.

Asset professionals should note that whilst this as-sessment shows asset related costs, the asset being cre-

19

Chapter 3: Asset Programmes


20

Option 1 Option 2 Option 3a

Do Nothing Reduce 2 CentrePortfolio to Strategy30 Buildings

Total Employees in Final Portfolio 3,695 3,695 3,695Total Site Value and Disposal Income 33,126,033 17,104,013 5,412,861

Total Refurbishment Costs 0 66,091,404 29,821,604Total Demolition Costs 0 0 126,351Total New Build Construction Cost 0 0 41,889,072Total Refurbishment and Construction Cost 0 66,091,404 71,837,027

Total LC Costs 47,807,023 34,836,725 30,668,188

Total Annual FM Cost 75,381,638 51,570,894 51,641,747

Total Other Costs 4,434,000 9,376,074 5,178,404

TOTAL 20 YEAR COST 160,748,694 178,979,111 153,912,505cost per head 43,504 48,438 41.654annual cost per head 2,175 2,422 2,083

Net Present Cost 91,641,613 124,230,462 100,086,483Equivalent Annual Cost 4,582,081 6,211,523 5,004,324NPV per head 1,240 1,681 1,354

SUMMARY(Excluding opportunity costs)

Figure 3.4: Summary sheet of a discounted cash flow appraisal

Weighting Option 1 Option 2 Option 3PoliticalMember SatisfactionPublic Satisfaction

EconomicJob Creation/retentionRegeneration

SocialBuilding AestheticsNoise pollutionService DisruptionCustomer Satisfaction

TechnicalStorage capacityEfficiency of buildings (fit for purpose)Strategic locationPublic transport accessFunctionalityCondition of IT and other infrastructure

EnvironmentPollution levelsEnvironmental impactSupply of LandEnergy EfficiencySustainability(Work) EnvironmentInternal LayoutCar ParkingTraining FacilitiesStaff Facilities

LegalDDAEase of Obtaining planning

Total Scores

Figure 3.3: Example of a non-financial scoring matrix

ated, refurbished or managed is a key part in the deliv-ery of a service to customers, i.e. the value of the proj-ect. So the financial assessment should also include theeffect of options and operational issues on quality ofservice and the cost of the service delivery, often drawnfor the non-financial assessment. In the example above,this is expressed as cost per head and NPV per head.In other cases it might be expressed as NPV per bene-fit point (benefit point refers to the total weighedpoints for that option or project derived from the non-financial appraisal).

It should also be noted that there is a difference be-tween value for money and affordability both mustbe assessed. A project may provide good value formoney if it provides extensive overall benefits at highfinancial costs however, these financial costs may notbe affordable.

Commercial assessment

Commercial assessment will answer the followingquestions:

how is it being procured traditional in-sourcingor outsourced to the private sector;

if the former, then freehold or leasehold tenure; if leasehold, what is the length of the lease; if outsourced, will Facilities Management (FM) and

lifecycle be included in the contract; what is the marketplace like for this (these) trans-

action(s); is it based on an input specification (defined prod-

ucts) or output based (building performance pa-rameters);

what is the payment mechanism a simple quar-terly in-advance rent or performance based;

how have the risks been quantified and have theybeen allocated to the party best equipped to managethem;

has the risk transfer been correctly priced; are there any personnel issues such as TUPE (Trans-

fer of Undertakings (Protection of Employment)Regulations) transfers;

what are the implementation timescales and arethere any penalties for under performance?

Project management assessment

The main question here is how is the project going tobe delivered? How will it be governed and who will beinvolved? Often there will be a split of these activities,with a Strategic Project Board dealing with major de-cisions, to whom a Project Management Team report,who subsequently deal with day-to-day matters anddecisions.

Does the organisation have the resource and capa-bility to run the project or is there a need for out-sourcing/partnering? Often, for example, frameworkagreements are used to supplement existing resources

to manage peaks of work and very specialist assign-ments.

The business case will also need to define standardsand determine how quality is to be controlled/moni-tored. The financial modelling in the business case willhave quantified both cost and value. Good project andcost management will ensure that neither the costs goup nor the quality decreases.

From the production of the outline business case tothe completion of the project there will undoubtedlybe change. How is that change going to be identified;what mechanisms will be in place to manage and facil-itate the change; and who will make the decision?These matters need to be decided and evaluated up-front, not at a later time when the issue is identified.

An understanding of the Gateway Review Process(Office of Government Commerce (OGC)) andPRINCE2 guidance (see the OGC website at:www.ogc.gov.uk/methods_prince_2.asp) will help withthe project management assessment.

Risk assessment

In the early stages of business cases, risks need to beidentified and quantified in terms of impact and like-lihood. The risks will be described in each section ofthe business case but they will need to be brought to-gether and assessed and compared. A typical frame-work for assessing the relative risks of options is givenin Figure 3.5 (in this case the example compares twodifferent scenarios for change).

Recommendation

The project is assessed by drawing together all the as-sessments and making a decision on overall value formoney, affordability benefits and non-financial costsand risks.

3.4 ASSET PROGRAMME DEVELOPMENT ANDEVALUATION

Asset Programmes

Having assessed, using business cases, each of the po-tential projects or project options that have been de-veloped from the asset review, a realistic programmeof some of the projects (or possibly, all, although thisis unlikely on overall affordability, value and bene-fit/non-financial costs grounds) will now need to beassembled that provides the desired value for money,affordability and benefits.

Development of programmes

The proposed projects to be included in the pro-gramme should be relatively easily assembled, as each

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of their business cases will have indicated which are themore desirable ones. Nonetheless it must be acknowl-edged that senior decision makers may chose to evalu-ate some of the non-financial issues in a different way,or with a different weighting, to those chosen in thebusiness cases, especially when projects are comparedto each other, or where benefits vary between, for ex-ample, different communities. Thus, the final selectionof projects in the draft programme may be the subjectof change at the time that the programme is finallyconfirmed. However, the business cases will undoubt-edly inform this decision-making process.

The programme will usually contain a schedule ofactions required to change the asset base. For example:

acquisitions and new builds; refurbishment and maintenance of the stock re-

tained; disposals of surplus or unfit-for-purpose assets; innovative procurement.

Some of these will be stand-alone tasks, others will in-terconnect, hence the importance of programme andproject management support.

Some items in the programme will be short term, lessthan a year; others may be timetabled over severalyears, e.g. large scale projects with long lead-in times.A timetable for reviews of individual projects and theoverall schedule will be contained in the programme.Frequent reviews, at least annually, will give rise to pro-gramme modifications.

Whatever the programme is, it will need to be welldefined (budget, timetables and outputs/outcomes)and have a series of accompanying performance meas-ures to judge its success.

3.5 FINANCIAL PLANNING FOR ASSETS

Principles

In effect, the above process (asset review, business case,programme development) should have resulted in aprogramme that is financially robust, but this shouldalways be checked. Therefore:

plan ahead; ensure that the projects or groups of projects are fi-

nancially sustainable not just affordable in the shortterm;

check that a capital investment today will not createa massive recurring/revenue expenditure headachein a few years time;

where possible use capital receipts to reinvest in as-sets that can help to reduce the future revenuebudget;

rather than just delivering capital receipts whenneeded, develop a pool of monies which can be in-vested in spend to save schemes;

dont be afraid to change the financial profile of aproject or programme as a result of an annual review.


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Example of First-cut Risk Matrix

RISK SCENARIO 1 SCENARIO 2

MAGNITUDE LIKELIHOOD MAGNITUDE LIKELIHOOD

Declining Service Quality

No increase in staff productivity

Risks of assumptions made proving to be erroneous

Service disruption during transition

Gaining planning permission

Property market risks

Construction costs

Construction risks

Public/Community/Political impact

Outsourcing risk

Resistance of staff to accept change

Strategy/Implementation risks

Unforeseen changes in the future

Capital funding risks

Revenue funding risks

Capacity to implement the strategy

Aggregate

= not applicable = very low = low = moderate = high = very high

Figure 3.5: Risk assessment

Figure 3.6: The asset planning process within the overall business planning process

HRStrategy

CorporateStrategy

CapitalExpenditureProgramme

CurrentExpenditureProgramme

AssetStrategy

Asset CategoryReviews

Asset AreaReviews

Business Casesand Programmes

Investment Planfor Property

Implementation

CapitalStrategyfor Assets

ICTStrategy

Partners

ExternalEnvironment

Operating UnitsStrategies

Corporate Operatingand Governance

Policies

FinancialContext

Asset management and the annual budget process

Asset strategy, asset reviews, historic performance, aswell as timely production of business cases and robustprogrammes, all inform the annual budget process and

the accuracy of the budget. As Figure 3.6 shows, if theprocess is running smoothly the forecasting of the cap-ital and current (resource/revenue/recurring) budgetsassociated with assets will be accurate.

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Chapter overviewDelivery of asset strategies and programmes is anextensive subject in its own right which could jus-tify a separate book on its own. In addition muchhas been written on the subject elsewhere. Thischapter therefore merely seeks to give an overviewof the key issues and to signpost the reader to guide-lines available elsewhere.

Benefits of good delivery Put simply, good delivery of asset strategies and pro-grammes ensures that the intended project benefitsare realised, that good value for money is securedand that projects are delivered on time.

4.1 INTRODUCTION

This chapter provides a high-level view of the assetmanagers role and responsibilities in the successful de-livery of asset management plans and strategies. Itlooks at the components underlying successful deliv-ery and considers the key issues facing the asset man-ager in delivering asset management plans andprojects.

4.2 OVERVIEW OF DELIVERY

Successful delivery

No matter how well prepared, well written or compre-hensive an asset strategy or asset management plan is,it will be wasted and all efforts at asset management

will have failed in the absence of real results andpositive outcomes. Successful delivery depends uponhaving:

the right rationale for delivery; the right support, ownership and leadership; the right resources; the right delivery plan; the right delivery processes; and the right results.

Developing the rationale is covered in Chapter 2,Strategy, and Chapter 3, Asset Programmes. Securin

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