Copyright 2004 Expense Management Solutions, Inc. Outsourcing: Threat or Opportunity? Scott S. Tibbo, CFM Director Real Estate Advisory Services Expense

Copyright 2004 Expense Management SCopyright 2004 Expense Management Solutions, Inc.olutions, Inc.

Outsourcing:Outsourcing:Threat or Threat or

Opportunity?Opportunity?

Scott S. Tibbo, CFMScott S. Tibbo, CFM

Director Real Estate Advisory ServicesDirector Real Estate Advisory Services

Expense Management Solutions, Expense Management Solutions, Inc.Inc.


BackgroundBackground

Given the significant pressure to reduce Given the significant pressure to reduce overhead costs within all companies today, overhead costs within all companies today, “outsourcing” is a major topic of discussion…and “outsourcing” is a major topic of discussion…and consideration. consideration.

Even for companies who have already outsourced Even for companies who have already outsourced (first generation), it is still a major topic of (first generation), it is still a major topic of discussion…and in many instances, a significant discussion…and in many instances, a significant issue, given low satisfaction levels with their issue, given low satisfaction levels with their current arrangement.current arrangement.

Should outsourcing be viewed as a threat or Should outsourcing be viewed as a threat or opportunity? It can be either depending on the opportunity? It can be either depending on the approach taken.approach taken.


Presentation GoalPresentation Goal

To provide a “balanced view” on outsourcing, To provide a “balanced view” on outsourcing, review the steps you should consider review the steps you should consider

BEFORE you pursue outsourcing as an BEFORE you pursue outsourcing as an option, option,

key factors you should consider DURING the key factors you should consider DURING the evaluation process, evaluation process,

critical success factors & management critical success factors & management strategies you should implement AFTER the strategies you should implement AFTER the decision has been made… decision has been made…

to help you ensure your department is to help you ensure your department is positioned effectively to face the outsourcing positioned effectively to face the outsourcing dilemma.dilemma.


What Outsourcing Dilemma?What Outsourcing Dilemma?A Few Very Typical ScenariosA Few Very Typical Scenarios

The “Chairman’s Challenge” (or the new CFO) The “Chairman’s Challenge” (or the new CFO)

The “pitch” on the 19The “pitch” on the 19thth Hole Hole

The company-wide “strategic cost assessment”The company-wide “strategic cost assessment”


What Are Your Options?What Are Your Options?

Hide and hope it never happens to you,Hide and hope it never happens to you,

Try to convince your senior management Try to convince your senior management that everyone else is “wrong”that everyone else is “wrong”

Be ProactiveBe Proactive – have a very clear picture – have a very clear picture of your operation, know where you stand of your operation, know where you stand relative to the market, communicate your relative to the market, communicate your plan…and control the process!plan…and control the process!


The ProcessThe Process

Fully assess your current environmentFully assess your current environment

Benchmark and develop key findingsBenchmark and develop key findings

Identify opportunities for improvementIdentify opportunities for improvement

Evaluate alternative solutionsEvaluate alternative solutions

Determine recommended solutionDetermine recommended solution


Know Your OrganizationKnow Your Organization

Have a very clear picture of your Have a very clear picture of your organizationorganization

Be able to define what you do, why you Be able to define what you do, why you do it and how much it costsdo it and how much it costs

Understand the underlying business Understand the underlying business driversdrivers

Know your customers and what they Know your customers and what they expect from you expect from you

Know how your customers perceive youKnow how your customers perceive you


Analyze Current Organizational Analyze Current Organizational AlignmentAlignment

Vice President

Real Estate

Regional FM Director

(38 staff)


(40 staff)


(39 staff)

Design and Construction

(5 staff)


(22 staff)

Total Dept: 139 Unit Cost: $6,502,061

Box Moves Design & Construction Move Coordination Space Planning Project Management Minor Construction Commissioning

Tenant Services Customer Relations Utilities/Energy Standards/Specifications Call Center/Help Desk Landlord Interface

Asset Management Building Operations Repairs & Maintenance Building Services Grounds Protection/Security

Portfolio Planning Space Planning Design & Construction Project Management Construction Mgmt Capital Projects


Analyze Current PortfolioAnalyze Current Portfolio

Region

High Technology Assets

Office/Consumer Service

Distribution/Warehouse/Other

Total

Number of

Locations

SquareFootag

e

Number of

Locations

SquareFootag

e

Number of

Locations

SquareFootag

e

Number of

Locations

SquareFootag

e

Region I 33 332,366 14 122,572 21 72,283 68 527,221

Region II 27 399,341 16 449,403 20 59,950 63 908,694

Region III 53 455,382 35 212,983 21 97,058 109 765,423

Region IV 18 225,789 22 259,147 12 65,489 52 550,425

Total 1311,412,8

78 871,044,1

05 74294,78

0 2922,751,7

63


Document Provision of ServicesDocument Provision of Services

Service Level Agreements Bldg 1 Bldg 2 Bldg 3

BUILDING OPERATIONSElectrical Services X X XElevator/ Escalator Services XFire Life Safety X X XGeneral Building Maintenance X X XMechanical Services X X XPlumbing Services X X XPreventive Maintenance X X X

BUILDING SERVICESGeneral Cleaning X X XRecycling X X XTrash Removal X X XWindow Cleaning X X X

TENANT SERVICESAudio/ Visual Services XConference Room Set-Up XParking Administration XReceptionist Services X

PROJECT MANAGEMENTMAC Project Management X X XMove Coordination X XSpace Planning Services X X


Define Service LevelsDefine Service Levels

PROJECT MANAGEMENT (MAC)

Primary Responsibilities:

On all assigned projects, serve as primary project resource responsible for coordinating resources and Suppliers, managing the budget and schedule, taking corrective actions as warranted, and integrating related functions such as Property Services, Multimedia, IS, Reprographics, Mail Services, Copier Services, Amenities and Security and any required base building trades.

Directly manage the hiring and supervision of the moving company retained to complete the physical relocation of employee materials and equipment.

Develop and maintain project schedules and budgets and prepare the appropriate documentation to obtain Company approvals as required.

Coordinate all internal and external resources and firms to ensure projects are addressed in a cohesive manner with strong and effective communications occurring throughout the duration of a given project.

Coordinate with end-user representatives to ensure that the end-user business groups are properly prepared for a given move activity.

Maintain an on-site move administration presence during moves to ensure smooth, responsive and successful move execution. Establish escalation procedures to respond to issues or conflicts that might arise during a given move activity.

Develop a post move follow-up process to evaluate the overall move process and end-result. Prepare punch list summaries and monitor the completion of all punch list items.

Ensure as-built drawings and revised space plans are properly filed.


Analyze Current Resource Analyze Current Resource UtilizationUtilization

12%

58%

7%

5%

10%

9%

7%

59%

8%

8%

10%

8%

29%

39%

9%

3%

10%

10%

8%

65%

11%

3%

7%

5%

23%

5%

31%

8%

21%

11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% Salary Spent

REG I REG II REG III REG IV REG IVARegions

General Support and OthersSecurityTenant ServicesAdministrativeProject ManagementBuilding Operations


Analyze Current Resource Analyze Current Resource UtilizationUtilization

Staff Position

Current Headcount

Sal & Benefits/ ea

Total Sal & Benefits

Fully Loaded Labor

Rate/ Hr

Annual Salary at Union

Scale/ ea

Total Annual at

Union Scale

Difference Union to Actual

Overtime Rate/ Hr

Overtime Hours

Calculated

Average Overtime Per Person

Building Operations

Chief Engineer 1 $113,058 $113,058 $37.99 $79,019 $79,019 $34,039 $56.99 597 597

Lead Engineer 1 $109,157 $109,157 $36.74 $76,419 $76,419 $32,738 $55.11 594 594

Engineer 3 $102,104 $306,312 $34.48 $71,718 $215,155 $91,157 $51.72 1,763 588

General Maint Tech 2 $96,986 $193,972 $32.84 $68,307 $136,614 $57,358 $49.26 1,164 582

Sub-total 7 $722,466 $295,464 $507,208 $215,291 4,118 590


Document Workload VolumesDocument Workload Volumes

Preventive Maintenance Workorders Region I Region II Region III Region IV Region IVA Totals

Business Continuity 59 4,580 3,984 978 128 9,729Drinking Water 5 1,946 118 170 44 2,283Electrical Services 4 535 1,333 205 0 2,077Elevator Repairs 9 25 28 36 8 106Energy Conservation 2 906 24 1,741 0 2,673Fire/ Life Safety 234 7,225 338 338 268 8,403General Building Maintenance 14 5,842 978 308 1,616 8,758Mechanical Services 502 2,625 1,814 133 480 5,554Plumbing Services 1 190 875 180 1 1,247Pest Control 72 424 858 196 158 1,708Window Cleaning 1 900 35 223 24 1,183Asphalt/ Concrete Repair 1 416 55 0 4 476Electronic Security 0 205 936 0 0 1,141

Totals 904 25,819 11,376 4,508 2,731 45,338

RSF 260,941 908,694 765,423 507,793 223,360 2,666,211

W/ O's per RSF 289 35 67 113 82 59


Establish Financial BaselineEstablish Financial Baseline

EXPENSE CAPITAL

BASE BUILDING

Plow the driveway Maintain the landscaping Change a light bulb Touch up paint in the corridor Maintain HVAC controls Repair an entry door lockset Patch holes in the parking lot

Install HVAC rooftop unit Renovate the lobby Upgrade the restrooms Replace exterior windows Replace main water supply lines Replace ceiling within major area Repave a parking lot

TENANT SERVICE

Hang a white board Paint a wall purple for the VP Reconfigure a workstation Install a telecom cable in office Repair a printer Install a refrigerator in office area

Replace carpeting in tenant space Build new space for a department Renovate a training center Install new exhaust hoods in lab Construct a new Cafeteria Install UPS for the Customer Call Ctr


Establish a Chart of AccountsEstablish a Chart of AccountsChart of Accounts

Reporting Category 2003Actual

Cost Per RSF

40000 Cleaning40200 Routine Contract Services $0.0040300 Specialized Contract Services $0.0040400 Cleaning Supplies/ Materials/ Miscellaneous $0.0040500 Trash Removal $0.00

Sub-total $0 $0.0040100 Allocation of Salary and Benefits $0.00

Total Cleaning $0 $0.00

41000 Repairs and Maintenance41200 Elevator/ Escalator $0.0041300 HVAC $0.0041400 Electrical $0.0041500 Structural/ Roofing $0.0041600 Plumbing $0.0041700 Fire & Life Safety $0.0041800 General Building R&M (Interior) $0.0041850 General Building R&M (Exterior) $0.0041900 Other $0.00

Sub-total $0 $0.0041100 Allocation of Salary and Benefits $0.00

Total Repairs & Maintenance $0 $0.00


Define Alloc of Total Define Alloc of Total Occupancy CostOccupancy Cost

Tenant Expense

Asset RSF Property Operating Expense

Fixed (Taxes & Insurance)

Sub-total Property

Operating Costs

Depreciation & Leasing

Building Total

Tenant Depreciation

Tenant Services

Total Occupancy

Cost

1,000,000 $9,000,000 $1,150,000 $10,150,000 $3,850,000 $14,000,000 $4,000,000 $2,000,000 $20,000,000

Building Cost


Determine “other” Standard Unit Determine “other” Standard Unit CostsCosts

Service/ Function Cost Driver Indicated As

A & E Design Services Cost Per USF $0.00/ USF

Box Move Services Cost Per Person Moved $0.00 each

Project Management Cost Per USF $0.00/ USF

Telecom Cable Drop Cost Per Drop $0.00 each

Transaction Mgmt Cost Per RSF $0.00/ RSF

Lease Admin Cost Per Lease/ month $0.00 each/ month

Mail Services Avg. Cost Per Transaction $0.000/ piece


Compile Labor Hours, Material Compile Labor Hours, Material Costs Costs

and Volumesand VolumesUnit Cost Rate DevelopmentBranch Electric Installation Activities

Hrs Req. $/ hr $/ Job $/ ActivityBranch Electric Installation - Cellular Floor Unit Cost $157.50

Administration 0.5 40.00 20.00 Annual Volume 500 Branch Electric Labor costs * 2.5 35.00 87.50 Branch Electric Material costs * 50.00

- Total Cost $78,750.00Total Cost/ ea 3 75.00 157.50

Branch Electric Installation - Above Ceiling Installation Unit Cost $132.50

Administration 0.5 40.00 20.00 Annual Volume 350 Branch Electric Labor costs * 1.5 35.00 52.50 Branch Electric Material costs * 60.00

- Total Cost $46,375.00Total Cost/ ea 2 75.00 132.50

* Based upon 125 LF of installationTotal Annual Cost $125,125









Benchmarking Benchmarking Sources/ApproachesSources/Approaches

Independent research using published Independent research using published benchmarks such as IFMA and BOMAbenchmarks such as IFMA and BOMA

Participate in regional or national special Participate in regional or national special interest groups such as IFMA Industry interest groups such as IFMA Industry CouncilsCouncils

Self-Managed Benchmarking Group on a local Self-Managed Benchmarking Group on a local or regional basisor regional basis

Facilitated Benchmark Consortiums with select Facilitated Benchmark Consortiums with select number of companies within similar industrynumber of companies within similar industry


Use Consistent Conventions - Use Consistent Conventions - Or You’ll end up with Fruit Salad !Or You’ll end up with Fruit Salad !

==++Keys To Success

• Common methodology

• Clear set of definitions

• Sophisticated data collection tools

• Valid assessment of data

• Meaningful sharing of findings & actionable steps


Individual OpEx Benchmark Individual OpEx Benchmark Analysis Analysis vs. BOMAvs. BOMA

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Cos

t/R

SF

Cleaning Repairs &Maintenance

Utilities Total Grounds &Security

Administrative

BOMA Category

Main Building

BOMAComparison


OpEx Comparison Against BM OpEx Comparison Against BM GroupGroup

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

Cleaning Repairs & Maint Utilities Grounds &Security


Detailed Comparison Against BM Detailed Comparison Against BM GroupGroup

Cleaning - Normalized Costs

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

Routine Contract Services $0.71 $0.44 $1.03 $1.67 $0.86 $0.69 $3.54 $2.34 $0.69 $0.73 $0.00

Specialized Contract Services $0.14 $0.03 $0.00 $0.03 $0.06 $0.04 $0.12 $0.20 $0.13 $0.02 $0.01

Cleaning Supplies/ Materials/ Miscellaneous $0.14 $0.07 $0.00 $0.00 $0.17 $0.09 $0.00 $0.00 $0.09 $0.12 $0.21

Trash Removal $0.06 $0.10 $0.04 $0.00 $0.03 $0.00 $0.03 $0.09 $0.02 $0.12 $0.01

Allocation of Salary and Benefits $0.00 $0.00 $0.00 $0.37 $0.00 $0.02 $0.00 $0.00 $0.00 $0.00 $2.51

Total Cleaning $1.05 $0.63 $1.07 $2.07 $1.12 $0.83 $3.69 $2.63 $0.94 $0.98 $2.75

P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11


Beyond BOMA…now what?Beyond BOMA…now what?

BOMA Categories Include:

Cleaning Repairs and Maintenance Utilities Roads and Grounds Security Administrative Parking Operations (fee) Fixed Expenses Leasing Expenses Building Depreciation Interest Ground Rent

Audio/ Visual Support Conference Room set-up EH&S General Tenant Services Interior Plants Parking Administration Signage Landlord Oversight

MAC Project Management Project Mgmt (Large Proj) Move Labor A&E Services Furniture Management Ergonomic Adjustments Warehouse Services Communications Cabling General (Tenant) Const Construction Management Commissioning

Copy, fax, printer services Document Destruction Fleet Management Office Supply Provisioning Receptionist Records Management Special Events Support Switchboard Services Courier Services Mail Distribution Parcel Delivery Shipping & Receiving Client Unique Services

Facilities Management

Services

Other FM and Tenant

Support Services

Project Related

Services

Other Services


Benchmark Current vs. Market Benchmark Current vs. Market CompsComps

ActivityActivity Cost

Activity Volume

Current Cost / Activity

Market Comp Variance

Premium over Market

Project Management $150,000 75,000 $2.00 $1.50 $0.50 $50,000Design Services $75,000 75,000 $1.00 $0.50 $0.50 $50,000W/ S Installation: Minor $50,000 250 $200.00 $150.00 $50.00 $17,000

W/ S Installation: Major $45,000 100 $450.00 $250.00 $200.00 $18,000Move Labor $75,000 1,000 $75.00 $70.00 $5.00 $5,000Cabling $150,000 500 $300.00 $250.00 $50.00 $25,000Electrical $50,000 250 $200.00 $150.00 $50.00 $12,500

Total $595,000 $445,000 $177,500

Premium over Market 35.1%


Benchmark Current vs. Market Benchmark Current vs. Market CompsComps

Example: Box Move CostsExample: Box Move Costs

Move Services Annual Volume Annual Cost Avg. Cost Per

MoveMarket Comp

Market Annual Cost

Potential Annual Cost Reduction

Box Moves (2002) 400 $75,000 $188 $100 $40,000 -$35,000

Box Moves (2003) 500 $105,000 $210 $100 $50,000 -$55,000









Identify Gaps & Areas of Identify Gaps & Areas of OpportunityOpportunity

Compare company performance to Compare company performance to benchmark results obtained from benchmark results obtained from researchresearch

For areas where improvement is needed For areas where improvement is needed define desired target or goaldefine desired target or goal

Identify actions required to bring Identify actions required to bring performance into target rangeperformance into target range

Build an integrated implementation plan Build an integrated implementation plan to achieve overarching strategic goalsto achieve overarching strategic goals


Identify Potential Cost Saving Identify Potential Cost Saving OpportunitiesOpportunities

RECOMMENDATION SAVINGS ASSUMPTIONESTIMATED ANNUAL

SAVINGS

Organizational & Staffing Changes

Streamline Company on-site staffing Reduce 1.5 headcount (1Facility Planner, 50% Tech Coord) $125,000

Streamline Sub-contracted staffing Reduce 3 headcount (1 Tech, 1 Planner, 1 Maint Tech) $300,000

Operating and Tenant Expense Reductions

Property Operating and Admin Expenses Bring "compressible" Operating Expenses in line with market $600,000

Move Management Bring Box Move Expenses in line with market $50,000

Mail Services Bring Mail Service Expenses in line with market $65,000

Total Potential Savings Per Year $1,140,000


Determine if “Internal Solution” is Determine if “Internal Solution” is ViableViable

Assess your organizations’ ability to Assess your organizations’ ability to successfully implement the needed successfully implement the needed changes/improvements. Evaluate in view of:changes/improvements. Evaluate in view of:

Sufficient Resources (Both Managerial & Technical)Sufficient Resources (Both Managerial & Technical) Technology and Reporting CapabilitiesTechnology and Reporting Capabilities Process Improvement/Ability to meet Service LevelsProcess Improvement/Ability to meet Service Levels Procurement Sophistication/Appropriate LeverageProcurement Sophistication/Appropriate Leverage Senior Management Support/Alignment of GoalsSenior Management Support/Alignment of Goals


If Viable – Implement Proposed If Viable – Implement Proposed ChangesChanges

Clearly articulate the objectivesClearly articulate the objectives Ensure the message is Ensure the message is

understandable at all levelsunderstandable at all levels Share the impact of the objective if Share the impact of the objective if

metmet Communicate progress toward goals Communicate progress toward goals

frequently, with a consistent format, frequently, with a consistent format, and through multiple channelsand through multiple channels









If Uncertain – Evaluate If Uncertain – Evaluate OutsourcingOutsourcing

Develop overall bid strategy – decide what Develop overall bid strategy – decide what services are to be included in the bidservices are to be included in the bid

Clearly define the scope of all services Clearly define the scope of all services and identify specific service level and identify specific service level expectationsexpectations

Based on scope/bid strategy, research Based on scope/bid strategy, research firms most qualified to include in the bid firms most qualified to include in the bid processprocess

Develop appropriate pricing models and Develop appropriate pricing models and contracting approachcontracting approach


What Outsourcing Is NotWhat Outsourcing Is Not A panacea for all problems with in-house A panacea for all problems with in-house

facilitiesfacilities A guarantee that expenses will declineA guarantee that expenses will decline An assurance that service levels will An assurance that service levels will

improveimprove A simple decision followed by an easy A simple decision followed by an easy

transitiontransition An opportunity to divest oneself of any An opportunity to divest oneself of any

further concerns regarding Facilities further concerns regarding Facilities Management in the futureManagement in the future


What Outsourcing IsWhat Outsourcing Is One method of managing resources to One method of managing resources to

meet strategic or operational targetsmeet strategic or operational targets An often complex structure of An often complex structure of

independent contractors each independent contractors each specializing in a functional areaspecializing in a functional area

A long term commitment to a new way of A long term commitment to a new way of doing businessdoing business

A decision that can be made in total or A decision that can be made in total or for selected functions within the for selected functions within the operationoperation


What Outsourcing Can BeWhat Outsourcing Can Be A strategic advantage for your operationA strategic advantage for your operation An opportunity to invest valuable An opportunity to invest valuable

resources elsewhereresources elsewhere An opportunity to increase operational An opportunity to increase operational

flexibilityflexibility A chance to benefit from expertise and A chance to benefit from expertise and

technology investments available from technology investments available from others, orothers, or

…….an unmitigated, poorly executed, .an unmitigated, poorly executed, tremendously expensive disaster.tremendously expensive disaster.


Sourcing Process OverviewSourcing Process Overview Clearly define the services to be Clearly define the services to be

includedincluded Develop Bid StrategyDevelop Bid Strategy Pre-Qualification/Develop the bid listPre-Qualification/Develop the bid list Determine Contract & Pricing StructureDetermine Contract & Pricing Structure Detailed Assessment of ProposalsDetailed Assessment of Proposals Interviews & Reference ChecksInterviews & Reference Checks Scoring EvaluationScoring Evaluation Determine final recommendationDetermine final recommendation


Develop SLA’sDevelop SLA’sAccount Management Building Services

Finance and Administration Cleaning

General Management Trash Removal

Operational & Financial Reporting Window Cleaning

Technology Grounds

Vendor Management Asphalt/ Concrete Repair

Building Operations Landscape Maintenance

Asset Management Snow Removal/ Ice Treatment

Business Continuity Protection

Customer Service Requests Electronic Security

Electrical Services Tenant Services

Elevator Services Audio/ Visual Management

Energy Conservation Conference Room Set-up

Fire/ Life Safety Services EH&S

General Building Maintenance General Tenant Services

Preventive Maintenance Interior Plants

Mechanical Services Signage

Plumbing Services Project Management


Develop Bid StrategyDevelop Bid Strategy

PROPOSED BID STRUCTURE OUTSOURCE TO TWO PRIMARY SERVICE FIRMS, RETAIN CERTAIN FUNCTIONS INTERNALLY

Basic Services provided by Facility Mgmt firm:

Building Operations

Preventative Maintenance

HVAC, Electrical

Plumbing ,Fire Protection

General Maintenance

Janitorial Services

Landscaping & Snow

Capital Project Mgmt

Add’l Services provided by Facility Mgmt firm:

Call Center/ Help Desk

Leased Building Support

Conference Room set-up

Audio/ Visual Support

Company Switchboard

Receptionists

Waste Treatment Op’s

Security Guard Services

Services provided and/ or managed by PM-Arch Firm:

MAC Project Coordination

Design Services

Voice/ Data Wiring

Branch Electrical

Move Relocation Svcs (including coordination of Furniture Installations)

Internal Rent / Space Allocation Mgmt

Services provided and/ or managed directly by Client:

Risk Management (EH&S, OHS and Fitness Ctr)

Strategic Space Planning

Corporate Fleet Car Program

Records Retention

Calibration

Food Services, Mail & Copy

W/ S Installation Contract

FACILITIES

MANAGEMENT SERVICES

TENANT SUPPORT

SERVICES (Managed by FM firm)

PROJECT MANAGEMENT

& DESIGN SERVICES

Services

Not Included in Bid


Develop Overall Pricing Develop Overall Pricing StrategyStrategy

Bid Summary

F-8

Transition FeeF-7

Ad-Hoc Pricing

F-6

Unit PricingF-5

Mgmt FeeF-4

Operating Budget

F-3

StaffingF-2

VolumesF-1

Pre-Populated, or Auto-Feed Sheets

Supplier Input SheetsBid

SummaryF-8

Transition FeeF-7

Ad-Hoc Pricing

F-6

Unit PricingF-5

Mgmt FeeF-4

Operating Budget

F-3

StaffingF-2

VolumesF-1

Pre-Populated, or Auto-Feed Sheets

Supplier Input Sheets


Bid ProcessBid Process Conduct Bid Conference, Tours, Conduct Bid Conference, Tours,

InterviewsInterviews Analyze proposals in view of:Analyze proposals in view of:

Relevant/Demonstrated ExperienceRelevant/Demonstrated Experience Operational CapabilityOperational Capability Key Resources/Proposed Project TeamKey Resources/Proposed Project Team Technology/Procurement CapabilityTechnology/Procurement Capability Geographic Alignment/Strategic FitGeographic Alignment/Strategic Fit Willingness to agree to Contract TermsWillingness to agree to Contract Terms ReferencesReferences EconomicsEconomics









Determine Recommended Determine Recommended SolutionSolution

Compare internal to external, and external Compare internal to external, and external to each otherto each other

Assess ability to meet the strategic Assess ability to meet the strategic objectivesobjectives

Assess life-cycle cost of each proposalAssess life-cycle cost of each proposal Qualitatively analyze best fit culturallyQualitatively analyze best fit culturally Evaluate speed and ease of implementationEvaluate speed and ease of implementation Ensure buy-in of all impacted team membersEnsure buy-in of all impacted team members Communicate plan, implement, measureCommunicate plan, implement, measure


Transition & TransformationTransition & Transformation

Establish the appropriate internal Establish the appropriate internal structure to manage the selected solution structure to manage the selected solution – realign responsibilities accordingly but – realign responsibilities accordingly but do notdo not create a shadow organization create a shadow organization Redefine job responsibilities (focus & Redefine job responsibilities (focus & role) of those responsible to manage the role) of those responsible to manage the new modelnew model Establish a detailed transition plan with Establish a detailed transition plan with key milestones and roles & key milestones and roles & responsibilities clearly definedresponsibilities clearly defined Recognize that the transformation Recognize that the transformation process will take some time so be flexible process will take some time so be flexible and open to changeand open to change


Establish Strong Internal Establish Strong Internal Controls Controls Sarbanes-Oxley Section 404Sarbanes-Oxley Section 404

Management is required to attest that Management is required to attest that internal controls over financial reporting internal controls over financial reporting are effectiveare effective Have to take proactive steps to Have to take proactive steps to ascertain effectivenessascertain effectiveness If outside service organizations are If outside service organizations are used, management must certify adequacy used, management must certify adequacy of outside provider’s controlsof outside provider’s controls Cannot rely on internal auditor’s Cannot rely on internal auditor’s assessment, need independent assessment, need independent verification to ensure transactions are verification to ensure transactions are properly authorized, recorded and properly authorized, recorded and reportedreported


Continuously Assess the Continuously Assess the New ModelNew Model

A compliance review program provides an A compliance review program provides an independent review of the contract and the independent review of the contract and the relationship and measures the reality of what is relationship and measures the reality of what is happening versus what is supposed to occur. happening versus what is supposed to occur.

In the event the review identifies issues of non-In the event the review identifies issues of non-compliance, a resolution plan is developed and compliance, a resolution plan is developed and the vendor manager is held accountable to the vendor manager is held accountable to execute on the plan. execute on the plan.

Findings of full compliance provide both Findings of full compliance provide both organizations with the assurance that all is organizations with the assurance that all is well.well.


Common PitfallsCommon Pitfalls Insufficient senior level supportInsufficient senior level support Scope too broadly definedScope too broadly defined Costs evaluated too narrowlyCosts evaluated too narrowly Predisposition to a given solutionPredisposition to a given solution Forgetting the impact of cultureForgetting the impact of culture Jumping to conclusions too early in the Jumping to conclusions too early in the

processprocess Lack of time/resources/skill to manage Lack of time/resources/skill to manage

processprocess


THANK YOUTHANK YOU

Scott S. Tibbo, CFMScott S. Tibbo, CFMDirector Real Estate Advisory ServicesDirector Real Estate Advisory Services

EXPENSE MANAGEMENT SOLUTIONS, INCEXPENSE MANAGEMENT SOLUTIONS, INC

144 Turnpike Road, Suite 330144 Turnpike Road, Suite 330

Southborough, MA 01772Southborough, MA 01772

(508) 460-7014(508) 460-7014www.expensemanagement.comwww.expensemanagement.com

Documents

Copyright 2004 Expense Management Solutions, Inc. Outsourcing: Threat or Opportunity? Scott S. Tibbo, CFM Director Real Estate Advisory Services Expense