Your Facilities Master Plan:

Building a Better Business CaseJim TurnerDirector, Workplace Solutions

Slide 2

Program

• Learning Objectives• Consider this project…• A simplified five-step process

– Develop Objectives– Prepare Criteria– Consider Alternatives– Analyze and Evaluate Alternatives– Rank and Recommend

• Other approaches• Q & A

Slide 3

…but first…

The presentation used to focus on the facilities master plan – learning objectives:

1. Collecting and analyzing facilities data2. Financial/resource objectives3. Construct a business case model4. Implementation road map

Now it’s about developing a business case for facilities projects!

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Building a Better Business Case Learning Objectives:

• Business cases analyze the costs, benefits, and risks of a facilities project to support good decisions

• The current and planned future use of the building is a major driver for facilities investment decisions

• It is a good practice to consider as many alternatives that meet your requirements as possible

• Business case evaluation metrics often include net present value and payback period

Slide 5

Consider this Project

Strategy: Retrofit for energy efficiency• Renew and retrofit to reduce capital program• Reduce current costs: O&M, utilities• Add new tenant offerings including chilled water and

reliable emergency power• Increase occupancy, improve rents, gain other tenant

income based on updated services

Eight major program elements:

Program cost estimate: $500 million

•Radiative barrier•Tenant ventilation control•Tenant day lighting•Lighting and plugs

•Direct digital controls•Chiller plant retrofit•VAV air handling•Tenant energy management

New York City (not Las Vegas, and not Legos)

Sources: A Landmark Sustainability Program for the Empire State Building, Jones Lang LaSalle; Serious Materials on-line case study. Photos: Wikipedia

ESB Project Drill Down

Slide 6

• Windows update became a key project element

• Originally estimated at $20 million, came in at under $5 million

• On-site process to upgrade rather than replace windows

Detail of the 6,500 operable, double-pane

ESB windows

Learning Objective 1: Business Cases should analyze a project’s costs, benefits, and risks.

Constructing the Business Case

Slide 7

Context and Objectives

Ranking and Recommendatio

n

Evaluation of Alternatives

Alternative Coursesof Action

Evaluation Criteria

Assessment ofCurrent State

Assessment ofFuture State

Gap Analysis Specification of Alternatives

Evaluation of Alternatives

Cost Analysis

Benefits Analysis

Risk Analysis

Present Findings, Including ROI and

Cost/Benefit

Sensitivity Analysis

A simplified five-step process

Step 1 Step 2 Step 3 Step 4 Step 5

Step 1: Context and Objectives and Step 2: Gap Analysis

Slide 8

Major drivers might include:

•Current and future use of the facility•Forecast of utilization and other performance metrics•Legal, regulatory, or policy criteria of high importance

CRITERIA INSIGHTS

Personnel Impacts Changes in attrition that would result from the relocation; the ability to recruit civilian personnel as measured by cycle-time to fill a position and number of unfilled positions; assessed by job category

Facilities Impacts Quality of destination space as measured by commonly used space quality standards (e.g., class A space)

Environmental Impacts The anticipated level of migration efforts required to satisfy national Environmental Protection Act requirements

Facility longevity Timeframe that facility will be available compared to period of interest

Ease of travel to/from Average commute times; transportation infrastructure

Political implications Expected implications from moving from one political district to another

Learning Objective 2: Current and planned future use of the facility is a major driver of investment decisions.

Step 3: Brainstorm Solutions to Meet Future Requirements

• Soccer Field Project: (1) status quo, (2) improved natural turf field, and (3) artificial turf field

• Wet Basement Project: (1) slight external grading and downspout relocation, (2) improve seals in isolation slabs and add optional redundant sump, (3) excavate foundation and reseal walls

Slide 9

Learning Objective 3: It’s a good practice to consider a wide range of alternatives that will meet your requirements.

Solutions Brainstorming

Slide 10

StrategyCOA

NumberCOA Description

Status Quo 1 Status Quo: Limited recap, retire in placeExisting Site 2a Existing Site: Data Center Equipment Recap OnlyExisting Site 2b Existing Site: Data Center Densification Only

Existing Site 2cExisting Site: Phased Renovation including New Building, Data Center Centralization and Office Space Realignment

Partial Relocation 3aPartial Move: Non-essential Administrative Functions Move (Lease or Other Owned Facilities)

Partial Relocation 3bPartial Move: Non-essential Data Center Equipment and Related Support People Move Off-site (Co-location)

Partial Relocation 3cPartial Move: HQ, Data Center and Core Functions Remain On-site, Other Functions and Support Move Off to Leased or Owned Facilities

Partial Relocation 3dPartial Move: All Functions Remain Except Data Centers and Tenant Data Center Equipment and Support

Partial Relocation 3ePartial Move: Partial Move, Tenant and Equipment Relocates, All Existing Functions Remain and are Realigned

Full Move 4 Full Move: New Site, New Building

Note: Since this project had so many alternatives, we did a “down-select” to focus on the two most likely to be selected.

Fleshing out the Alternatives

• For each of the alternatives (COA stands for courses of action), a simple but thorough description might include:– A summary or overview of the COA– A list of assumptions about the COA– A list of requirements that may have to be put in place

(these aid in the development of the cost evaluation)– A list of benefits that will be achieved– A list of risks– A cost analysis – focus on relevant cost, with enough

detail to make a valid comparison

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Fleshing out the Alternatives

Slide 12

Sp

ecif

icat

ion

sB

enef

its

Fleshing out the Alternatives

Slide 13

Ris

ks

ESB Windows Project - Alternatives

Slide 14

1. Retrofit with new windows - demo and replace old ones

2. Traditional de-install and repair job – done by NJ specialist

3. Complete the repairs on-site, in an empty suite

Step 4: Evaluating Risks, Costs, and Benefits

Slide 15

Develop a thorough framework to evaluate the relevant costs and benefits of each alternative

Examples of Costs to Consider

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Type Short Definition

Initial Purchase Cost or Capital Investment

Costs associated with initial planning, design, and construction; including acquisition, transportation, and installation

Financing Costs Includes one time financing costs, or interest on interim construction financing

O&M CostsAssociated with maintaining or restoring to original condition, including routine maintenance, utilities, taxes, and contracted servicing

Repair and Replacement CostsAssociated with maintaining or restoring to original performance, including major renovation and repair, and non-annual services

Alterations and Improvements Costs of planned additions, alterations, major reconfigurations, and other improvements

Functional Costs Costs associated with performing intended use of the facility

Salvage or Disposal Costs Values of land, building, or building elements at the time they are removed from service

Examples of Benefits to Consider

Slide 17

• Other potential benefits:– Additional rent revenues

• Mid-town rentals average $71/SF• ESB has over 2.85-million SF

• Tax incentives for sustainability• Access to capital for financing

Benefits

• $414K annual utilities savings from windows alone• Green benefits from reuse of windows

Detail of the 6,500 operable, double-pane ESB windows

Examples of Risks to Consider

Slide 18

Scale Very Low Low Moderate High Very High

Cost Impacts Insignificant < 5% 5-10% 10-20% > 20%

Schedule Impacts Insignificant < 5% 5-10% 10-20% > 20%

Scope Impacts

Barely Noticeable

Minor Areas Affected

Major Areas Affected

Scope Reduction/

Client Won’t Accept

End Item Unusable

Quality Impacts

Degradation Barely

Noticeable

Affects Only Demanding

Apps

Quality Reduced,

Client Approval Needed

Quality Reduced,

Client Won’t Accept

End Item Unusable

The Project Management Institute has useful tools for risk analysis, essentially evaluating likelihood of the event and estimated impact.

Combining Costs and Benefits

Slide 19Sources: A Landmark Sustainability Program for the Empire State Building, Jones Lang LaSalle; Serious Materials on-line case study. Photos: Wikipedia

* These are illustrative calculations!

Item Cost*

Design $0.5M

Rental Space $0.2M

Materials and Labor

$4.0M

Life-cycle repair and maintenance

$0.5M

Total $5.2M

Item Benefit*

Utilities (Ann/ 20-years)

$0.4M/$8.0M

Raised Rent (Ann./20-Years)

$3.0M$60.0M

Tax Savings $? M

Easier Capital Access

$? M

Total $68+M

Examples of Payback Measures

Slide 20

Learning Objective 4: Business case decision metrics include net present value and payback period.

NPV compares investment life-cycle costs with its returns by taking a sum of their discounted value. Essentially, it measures the excess or shortfall of cash flows.

ROR is stated as a percentage, and is calculated as the ratio of the return from theinvestment relative to investment cost. Thereturns can be interest, profit, or netincome, and the investment may be referred to as capital or principal.

Payback period is the period of time required for the investment’s returns to “repay” the original cost. It measures how long it takes for the investment to “pay for itself.”

Other customized measures may be used.Cost per customer describes the cost of acquiring a customer by dividing the totalinvestment cost by the expected number of new customers gained.

Scoring the Alternatives

Slide 21

StrategyCOA No.

COA Description Benefits Costs Risks

Status Quo 1 Status Quo: Limited recap, retire in place

Existing Site 2a Existing Site: Data Center Equipment Only

Existing Site 2b Existing Site: Data Center Densification Only

Existing Site 2d Existing Site: Phased Renovation including New Building, Data Center Centralization and Office Space Realignment

Partial Relocation

3a Partial Move: Non-essential Administrative Functions Move (Lease or Owned Facilities)

Partial Relocation

3b Partial Move: Non-essential Data Center Equipment and Related Support People Move Off-site (Co-location)

Partial Relocation

3c Partial Move: HQ, Data Center and Core Functions On-site, Other Functions and Support Move to Leased or Owned Facilities

Partial Relocation

3d Partial Move: All Functions Remain Except Data Centers and Tenant Data Center Equipment and Support

Partial Relocation

3e Partial Move: Partial Move, Tenant and Equipment Relocates, All Existing Functions Remain and are Realigned

Full Move 4 Full Move: New Site, New Building

Grade the alternatives on an appropriate scale, (e.g., 1 to 10; high, medium, low; if a full cost and benefits estimate was developed, use those dollar values)The key is quantifiable metrics!

Putting it All Together

Slide 22

Executive SummaryIntroduction/Overview

– Subject, Purpose, Scope, Objectives– Background– Organization

Methodology– Major Assumptions and Constraints– Criteria and Financial Metrics– Description of Cost Analysis Methodology

Analysis of Alternatives– Description of Status Quo and Alternatives– Cost Analysis– Comparison of Alternatives

Sensitivity and Risk AnalysisConclusions and Recommendations

– Results Discussion– Recommendation– Scenarios for Implementation (Sources of Funding, Timeframes, etc.)

Bonus Tips!

Slide 23

• Imagine you’re telling a story – Start with the problem – the business need you’re solving

• Identify your characters– Stakeholders who will approve or reject your business case– Beneficiaries who stand to gain from your proposal– Subject-matter experts to clarify how to solve the problem

• Identify the alternatives for meeting the business need—the different ways your story might play out

• Choose the best one, and create a project plan – the plot• After you estimate and analyze the costs, benefits and risks, and calculate the

return on investment (ROI), you’ve reached the story’s satisfying end

• Remember this isn’t a mystery novel—your story needs to be clear and easy to understand.

Recap of Learning Objectives

• Business cases analyze the costs, benefits, and risks of a facilities project to support good decisions– Slide 6

• The current and planned future use of the building is a major driver for facilities investment decisions– Slide 8

• It is a good practice to consider as many alternatives that meet your requirements as possible– Slide 9

• Business case evaluation metrics often include net present value and payback period– Slide 20

Slide 24

Wrap up

Slide 25

Questions?…Thank you!

Las Vegas (not New York City)

Legos (not New York City)

• The presentation is in your Conference packet, but you can also request a copy electronically from me at jturner@markonsolutions.com

• Connect on LinkedIn: http://www.linkedin.com/in/jimturner