Considering facilities outsourcing? establish a baseline first.

Author:Tibbo, Scott S.
Position:Real Estate - Column

Although outsourcing non-core real estate-related services can be an effective strategy, many initiatives prove ineffective. One solution is to establish a baseline assessment prior to outsourcing

Managers within virtually every major industry sector are facing both internal and market-driven pressure to consider outsourcing "non-core" functions such as facilities management, real estate, architecture and engineering or project management, to name a few. The driving motivation for outsourcing arises for a variety of reasons: in response to a lack of internal resources; a requirement to reduce or control operating costs; to focus often limited internal resources on core business competencies; or an interest in leveraging the skill of best-in-class providers.

In response to this demand, an abundance of external service providers are available in the marketplace today, ready to assume responsibility for providing needed services on an outsourced basis. Services can be awarded through a competitive bid process, or negotiated directly between an owner and a pre-qualified service provider. Contracts can range from a fixed-fee arrangement to a cost-plus and management fee basis, to a guaranteed maximum price scenario.

Over the past 10 years, many outsourcing initiatives have either failed or experienced strained relationships due to dissatisfaction with the service provider's performance and/or an inability to effectively control costs. The most common problems include: poorly defined customer expectations; inaccurate workload projections; and inadequate scope definitions, as defined by the client. Any of these can result in a misalignment between the client's expectations and the service provider's initial price proposal.

An equally significant and common challenge of outsourcing real estate services is that many internal managers have been unable to accurately determine (or report to senior management) actual cost savings or operating cost reductions. This may be because "baseline" costs and service provisions were not defined prior to outsourcing. Thus, the owner could not accurately quantify his/her actual cost of operation relative to the financial bid offered by the outsource provider.

Problems also may stem from an aggregation of services within the owner's scope of work, making it difficult to price each service separately. As a result, owners may need to make financial decisions to outsource based only on high-level, aggregated pricing.


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