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Integrated Facility Management is becoming a common strategy for organizations with larger, complex facilities portfolios. Many Clients are concerned about the risks associated with giving broad accountability for Facility Operations to a third party Service Provider. This article discusses how these risks can be mitigated by ensuring appropriate measures are taken through each phase of the outsourcing process. You may want to reference the Definitions provided at the end of the white paper before reading it.
Outsourcing refers to using one or more Service Providers to deliver a broader scope of Facility Management services. The number of Vendors under contract to one client for facilities services in an out-tasked environment can range from a few dozen to more than one thousand. Outtasking inefficiencies can include:
- Excessively high Vendor labor rates
- Call-out charges for labor
- Minimal vendor accountability for asset performance
- Improper invoicing and billing practices
- High management overhead (managing work, vendor relationships, contracts, invoices)
- Unfavorable contracting terms
These issues represent some of the reasons why facility organizations are consolidating the delivery of their facility services under the care of a single or small group of Service Providers. This “Integrated Facility Management” solution can create cost-saving efficiencies and transfer broader performance accountabilities to Service Providers. It may also introduce unique risks when it comes to operations, service delivery and finances. The correct management of these
risks does not have to be any more difficult than the risks associated with self-managed service delivery.
Understanding Outsourcing, Understanding Risk
The Integrated Facility Management Value Proposition
Integrated Facility Management presents the following opportunities for value
- Cost reduction and certainty
- Increased strategic focus
- Better access to Facility Management technology and best practices
- Improved workforce training and management
- Data-driven performance benchmarks
- Increased operational flexibility
Transfer of some financial and operational risks to Service Providers.Clients often express valid concerns about cost overruns, underperformance of service and the potential loss of organizational knowledge. The perceived loss of direct control can actually cause a Client to feel that they are exposed to greater risk than may actually be the case. Outsourced service delivery is not risk free, but rather presents a different—not necessarily greater—risk profile when compared to a self-managed service delivery solution.
Integrated Facility Management Outsourcing Risks Explored
The following risks are typically associated with Integrated Facility Management Outsourcing
- Critical service or asset failures
- Service Provider underperformance
- Financial underperformance
- Cultural rejection
- Loss of knowledge
- Labor risk.
All of these identified risks can have a pervasive negative impact on operations.
Risk Management Overview
The most effective method of dealing with the risks associated with outsourcing is for the Client to understand and manage risks through each phase of an outsourcing initiative
1. Preparing for outsourcing
2. Service Provider Selection
3. Structuring the outsourcing deal
4. Deal negotiation
5. Transition
6. Service Provider Governance
1. Preparing for Outsourcing
Organizations which do not prepare adequately for outsourcing often discover that they did not accurately convey the true cost or scope of delivered services, have correct service level information or have adequate support from their senior leadership teams. This can cause serious problems, including:
- Cost over-runs
- Errors in service delivery
- Implementation delays
- Resistance from facility users
The preparation phase of Facility Management outsourcing is the period during which the Client’s mandate to outsource services is established, baseline information gathered, and the business case established. A clear definition of Client outsourcing goals is crucial. The priorities and objectives determined at the beginning serve as a guide to building a solid service contract.
Understanding Current Client Operations
The first step towards establishing these goals is to obtain a good picture of current operations. This includes developing and documenting a baseline from the financial, performance and service level perspectives in order to measure possible gains in efficiency as well as cost savings from outsourcing. This makes it easier to effectively communicate service level and budget expectations to a Service Provider.Critical systems and services must be clearly identified, required operating procedures documented and critical service levels established.
Creating Ownership in the Client Organization
Once clarified, outsourcing objectives must be understood across the entire Client organization. Supporting business units and internal business customers should be consulted for their input regarding the proposed changes. Enrolling the support of key personnel is essential. Finally, it is also important that the Client’s senior management maintain ownership of the outsourcing right from the beginning.
2. Service Provider Selection
Key to outsourcing success is the identification of the best fit Service Provider. The risks of working with the wrong Service Provider include
- Slow implementation or mobilization of services
- Delays in the deployment of expected processes and technologies
- Disruptions with employees or third party vendors
- Service delivery failures
While Agile OAK recommends strong contracting structures, strong contracts cannot compensate for gaps in Service Provider capabilities.
During the selection phase, efforts are focused in two areas:
- Assessing the Service Provider’s organization and capabilities
- Evaluating the Service Provider’s proposed service delivery solution
A careful understanding of each of these two points is an important part of Service Provider
selection.
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