Integrated Workplace Management System (IWMS) solutions support critical real estate strategies for reduction in operating, occupancy and capital costs while at the same time, improving the efficiency and effectiveness of the management of real estate and assets from an investment point of view. Solutions are utilized by corporate occupiers, investors, consultants and service providers in real estate to standardize data and processes leading to more accurate and timely financial and business metrics. Three real estate strategies discussed in this white paper are asset management, location analysis and business intelligence.

Strategy 1:  Asset Management

Asset management deals with the financial and operational aspects of providing and maintaining resources for the organization. Corporate real estate professionals are now called upon to have an even stronger financial skill set than they currently have. The goal of asset management is to:

• Increase the performance of the portfolio while minimizing the operational risk;
• Produce faster benefits from consolidation;
• Provide easier and more accurate compliance;
• Reduce operating and capital costs.

For the large financial services organizations, asset owners have been changing at such a fast rate, it is difficult for the acquiring company to adjust the business processes and systems of the acquisition quickly enough to not affect the performance of the entire company. By implementing an IWMS with a strong financial core previously manual and cumbersome processes can be integrated easily and both current and historical data on real estate and assets can be made available for immediate decision making.

Increased Performance of the Asset Portfolio

In terms of office real estate, most of corporate real estate assets are currently underperforming by as much as 50 percent, as space remains underutilized on a daily basis in our mobile world of work. There have been reports that typical middle managers in organizations are not in their offices 30 to 40 percent of the time (on average). This can cost an organization millions of dollars in operating expenses it does not need to spend. An IWMS solution allows a CRE executive to get a complete profile of the entire real estate portfolio, including information on which assets are owned or leased, which spaces are occupied and which are vacant, where space is utilized to full capacity and where it is underutilized. For retail branches, metrics can be reported on revenues per square foot and benchmarked amongst different locations. It also provides a chart of accounts to calculate the operating cost of each of the buildings so that each organizational unit can be charged appropriately. All costs associated with providing and maintaining the workplace and their associated assets are tracked, not only for accountability, but also to benchmark those costs with other properties and real estate portfolios of other companies.

The IWMS can also cross functional lines, and include the tracking and managing of all the asset data for an organization (office buildings, retail branches, call centers, training centers, grounds, parking complexes); furniture and equipment; and information technology assets (ATMs, desktops, laptops, printers). In many large organizations there are hundreds of systems created to track these assets separately and an IWMS can be used to support an enterprise-wide asset portfolio strategy. With an IWMS, an organization now has the data to measure the critical financial data associated with all of these assets for the business units. Examples of Key Performance Indicators (KPIs) which can be tracked include measuring the profitability of customer-facing resources (retail establishments), defining the Return On Net Assets (RONA) and/or Return On Assets (ROA) per asset, and comparing the revenue/employee/location versus the cost/employee/location.⁷

In the following sections, we define some of the benefits of managing the asset portfolio with an IWMS which includes reduction in costs and risks and increased compliance and transparency.

Reduced Operational Risk

Strategic risk has been defined as “an unexpected event or set of conditions that significantly reduces the ability of managers to implement their intended business strategy.” A key risk which can have a large financial impact on the performance of an organization is operational risk. This is most significant when it impacts the core business activities of a company. Having a fully implemented IWMS can be critical to both continuing operations or returning to business following an emergency or disaster.

By conducting periodic condition assessments of buildings and entering the data on the status of building components, remediation can be proactively identified and a capital plan can be prepared with the required projects prioritized. This not only prevents costly emergency repairs (which can represent 20 to 60 percent in savings), but can prevent lost productivity due to downtime. A roof leaking over a critical operation in a call center can cause the company expensive loss and downtime, which can be as much as a structural failure in a building housing financial trading activities. Unanticipated disasters do happen (as we have seen occur in 2005 with Hurricane Katrina) and with the implementation of an IWMS system (with offsite redundancy) can ensure an organization is back and doing business as quickly as possible.

Increased Compliance

Financial services organizations have not only the Sarbanes-Oxley (SOX) compliance to deal with, but the large global banks have to comply with Basel II and the International Financial Reporting Standards, mentioned earlier. SOX was created to foster transparency and accountability in corporate business processes and accounting practices and restore confidence in the public markets. As Deloitte Consulting points out: “If you leverage your SOX compliance efforts to include a hard look at business processes and systems, you will find complexities that, if eliminated, can cut costs, sometimes dramatically.”

Therefore every executive in the financial services industry will want to be assured that a CRE executive can answer the following questions:

• Can CRE provide an accurate, up-to-date and consistent summary of the company’s real estate portfolio?  How much is owned and leased?  Where is each asset located?  What commitments have been made in the future?  What is it costing?
• Is there a rigorous, well-documented process in place that tracks acquisitions and dispositions across the portfolio?
• Are transactions completed in different geographical locations subject to the same definitions, assumptions and metrics, and carefully documented?
• Can the company document its comprehensive real estate expenditures, including costs managed by vendors, consultants or business partners?
• Are accounting standards for excess space in the portfolio—and potential impairment costs—rigorously documented and consistently followed?
• If the company uses synthetic leases to finance any part of its occupancy, are these structures consistent with the compliance provisions for these “special purpose entities?”⁸

There is no way to answer these questions confidently without having access to an IWMS system. Before implementation, usually a business process analysis has also been conducted to ensure that the system supports the correct standardized procedures.

Increased Consolidation Opportunities

Acquisition of retail branches and consolidation of operations are critical to the strategies of many of even the largest banks. This can be proven by Bank of America’s $47-billion purchase of FleetBoston and JPMorgan Chase’s $58-billion acquisition of Bank One. In these instances, real estate WAS the reason for the investment in the acquired company. But even if real estate was not the reason for the consolidation, information is required on every location to be able to make the best financial decisions on what should stay in the portfolio and what can be sold back into the marketplace.

In order to make those keep or jettison decisions, condition assessments are made for each of the real estate and ATM locations. Information is gathered by professional teams of architects and engineers on the condition of building equipment and systems (roofs, foundation, HVAC, electrical, etc.), as well as the appearance of the public and private spaces. Often substantial investments are being made following the recommendations of the teams to modernize them to satisfy the new ways of financial service delivery. An IWMS can record that information so that an updated record is kept on the exact condition of each of the properties and equipment.

Reduced Operating and Capital Costs

Gartner has estimated that an IWMS can reduce asset operating and capital costs by as much as 26 percent. Savings can be substantial to:

•  Tightly integrate the administration of leases with accounts payable to minimize time and increase accuracy;
•  Reduce the time it takes to execute projects which lowers costs due to improved workflow and coordination;
•  Increase process improvements by identifying trouble areas and remediating the problem immediately;
•  Increase cash flow through componentized depreciation by being able to segment a building by subsystems which each have their own depreciation schedule.⁹

Institutions can save tens of millions of dollars year after year by not only taking advantage of the improvements and savings listed above, but by simply better managing space and the movement of the employees throughout the space. Valuable space has been found to be unused or underused (in one case by as much as 30 percent of the portfolio) and the information about this potentially revenue producing space (amount, function, asset value, occupancy) was non-existent or spread across multiple systems and multiple service provider organizations. By implementing an IWMS and a business intelligence system, static data about space is transformed into “actionable intelligence, enabling decisions that significantly reduce vacancy rates, decrease current costs and support planning that will keep costs down over time.”¹⁰

Strategy 2:  Asset Location Analysis

For both CRE executives’ internal customers and for the organization’s external customers, location strategies will remain critical to decision making. While much of the way we work today may be virtual, place continues to play a critical role in most business unit strategies whether it is a sales/marketing organization (where are existing customers and markets, as well as future ones located?), operations (where do we have existing call centers, and workforce groupings and where do future ones need to be located?), R&D (where are the best locations to find the researchers we need?), finance (where can I locate/consolidate facilities to satisfy the business units at the lowest operating costs?) and retail (where is the most potentially profitable location for ATMs in an area?). Some banks are even investing in commercial real estate near their corporate headquarters buildings. Bank of America is building a Ritz Carlton next to its home office building in Charlotte and half of its occupancy will be their own traveling employees. PNC intends to build an office/hotel/condo project in the same city with 30 percent of the costs being picked up by the State and City. According to Deloitte Consulting, “Relocation of company facilities is one of the most important workplace transformation strategies. Relocation can save a global financial services company 30 to 50 percent in real estate costs, as well as redeploying jobs to lower wage location.”¹¹

By integrating an IWMS with a geographical information system (GIS), not only can the existing locations be graphically represented on a map, but other data pulled from the database can be associated with each location (costs, org unit, performance, personnel per city, building, floor, space, revenue etc.). GIS can also provide valuable demographic and logistics data for strategic decision making. A portal can be created which can be customized to a workers’ requirements. Whatever databases, documents, drawings or maps they may need can be easily retrieved from this one screen. Questions can be answered such as: Which locations do you keep and which do you dispose of after a merger/acquisition? For those locations you do keep, what costs will have to be incurred to bring them up to the quality or performance level of the acquiring company? All of these questions can be considered when data is collected on the inventory of the new properties and input the system. Then condition assessment data can be associated with each of the buildings or environmental assessments attached to land records and viewed on a map.

One West Coast energy company conducted a physical and functional assessment for all of its service centers. They married this data on the condition of their internal and external buildings and structures as well as plant, equipment and mechanical/electrical equipment with their inventory and maintenance information on each center in their IWMS. This allowed them to prioritize their capital expenditures, determine which centers had the potential for re-use (i.e., regional office building into a call center) and which buildings and land could be sold into the marketplace.

After implementing a program for asset management and integrating IWMS with graphical data, the next step is integration with a business intelligence (BI) tool to determine how well assets are performing for your organization.

Strategy 3:  Business Intelligence

The head of corporate real estate for a large global oil company has discussed how important it is to understand the business issues and drivers intimately and have real estate become part of the business planning cycle.¹² When asked about the corporate real estate organization in 2010, he mused, “The successful organization of the future is going to be heavily tech based, and clearly one of our priorities continues to be our database and just having complete knowledge of the portfolio available to make the right decisions .You can’t make decisions without the information. And then, how that information is used in terms of sharing across networks and being able to use different databases and tools to analyze it in different ways.”

Manhattan Software’s IWMS is the database (interfaced to other databases such as SAP, AutoCAD and HR) that many corporations use for the management of their real estate portfolio, which consists of thousands of properties scattered in hundreds of countries around the globe. The CRE now has the information to be able sense what the business units will need to perform and can respond with the appropriate asset strategy. They also can use a BI tool to mine the data and monitor the performance of these assets at all locations. Another critical component for these companies is the integration to their SAP financial database.

Only organizations that have the data in their IWMS, can effectively demonstrate how real estate can have a positive influence on business-related performance measures by analyzing the  metrics such as these listed below:

• Operational Metrics: Improving the Efficiency and Affordability of Operations: By being able to capture total cost of occupancy (TCO) of the buildings associated with each of the business units, a KPI of TCO/revenue ratio (E/R) can result in increased performance. By measuring the actual costs of CRE, inefficiencies can be driven out of the TCO. Metrics include TCO as a percentage of net revenue, occupancy costs as a percentage of total expenses, net present cost of surplus space and surplus space to total space. Keith Perske of Sun Microsystems has observed, “If an increase in revenue causes an associated increase in expense, better management of facility resources that leverage existing investments can create a wider profit spread with less ongoing expenditures. A four percent reduction in operating costs can result in the same profit as a 25 percent increase in sales because we’re able to shift the savings from RE actions to places in the company where it can be highly leveraged.” John Suyker of Johnson Controls, in a recent review of internal infrastructure, described how a 10 pecent occupancy cost saving resulted in a 28 percent EBIT increase.

• Productivity Metrics: Improving the Productivity of People and Place: By creating metrics that measure revenue/person (gross), EBIT/person (net) and comparing these to revenue/sf (particularly with retail space), the productivity of the employees can be measured by location and benchmarked with others both within the company and outside. In addition, metrics which determine how efficiently an organization is making use of its real estate include identifying total occupancy costs and doing a comparison with the company’s turnover and operating costs.

• Value Metrics: Improving Return on Assets: These metrics define how the real estate portfolio is affecting the value drivers in the organization. They include determining what the CRE cost of capital is and comparing it to the company’s cost of capital, as well as calculating the TCO as a percentage of the free cash flow the organization generates.  Another metric would be to capitalize the value of the CRE’s debt and equity and measure it against the company’s enterprise value. The ROA metrics aid in setting key targets for measuring performance. The metrics include cost/occupant, cost/capacity, cost/sf, and cost/sales, goods and administration (SG&A) to determine how high their return on assets are, and then they compare the results with other similar financial services companies.

By investing in the implementation of IWMS systems and processes, corporate real estate management, along with the expertise of IT, can be assured not only that controls are in place for more efficient and effective standardized business processes, but there is better financial reporting. This should ensure the decisions that are made on the real estate and asset portfolio are more transparent and are done so in light of the business strategies. However, Deloitte warns, “…those who fail to take advantage of these opportunities will be left behind in the competitive global economy.”¹³

Case Study

Recently a large, global financial institution selected the Integrated Workplace Management System (IWMS) from Manhattan Software as the business solution to manage one of the most extensive corporate real estate portfolios in the world.

This bank serves individual consumers, small businesses and large corporations and institutions with a full range of banking, investing, asset management and other financial and risk management products and services. The Corporate Workplace and Security group of this organization is responsible for the management of office space, operations/data centers, retail banking centers and ATMs which comprise one of the largest corporate portfolios with more than 85 million sf of Bank owned and leased space worldwide. Managing a portfolio of this size, and accommodating the rapid growth of the Bank, which is constantly acquiring other banks, required the Corporate Workplace group to implement an enterprise-wide Integrated Workplace Management System.

Manhattan has a fully contained financial management suite of applications. With these modules, Finance and Portfolio teams now are able to easily manage at the general ledger account level from a true real estate perspective. Industry standard cost coding conventions replaced current codes which allowed for better analysis, benchmarking and reporting. Bill preparation and payment was made much easier now that all vendor information is consolidated in one location. Manhattan interfaced to the Bank’s business intelligence systems which enabled intuitive Web-based queries and custom reporting. Now critical KPIs can be compared across the portfolio, whether it means measuring the performance of two different properties or two different regions within a country.

Conclusion

Leveraging an IWMS increases the cost savings for real estate and infrastructure, and gives a real estate organization the ability to adapt to the complex and changing environment of the financial services industries. In one case study following a merger, Manhattan succeeded in helping improve the financial position of CRE and asset management leadership resulting in consolidation, disposition and efficiency projects saving millions of dollars. The implementation of a Manhattan solution, often initiated and always supported by IT, has followed business process improvement projects and supported these by embedding these new processes in their workflow tools. Information is available to anyone who needs it, either inside the organization or externally by outsourced service providers through a Web-based portal.

By Nick Moore and Nancy Johnson Sanquist

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ISSN: 1096-4894