Survival of the Facility Manager

PBSRG GLOBAL

Dean T. Kashiwagi, PhD, IFMA Fellow Director, Professor

Performance Based Studies Research Group

CIB W117 Coordinator Fulbright Scholar

Pbsrg.com

August 14, 2013

What pressures are the FM community facing?

• Cost cutting

• Procurement forcing low price awards

• Increased transactions

• A new model is required

• Lack time and funding

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We Are Supply Chains P

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Child

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Sim

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ity/D

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Info

rmation

Technical Details

30K Foot Level

Practices

• Minimize MDC

• Minimize communications

• Use dominant information [early, no analysis required, no – brainer]

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Practices

• Minimize MDC

• Minimize communications

• Use dominant information [early, no analysis required, no – brainer]

• Helps if the information is accurate

• Utilize expertise

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Initial

conditions

Final

conditions

Natural Laws identify the future outcome [marriage or business]

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Time

Laws Laws

Industry Structure

High

I. Price Based

II. Value Based

IV. Unstable Market

III. Negotiated-Bid

Wrong person talking

Management, direction, and control [MDC]

No transparency

Buyer selects based on price and performance

Utilization of expertise

Vendor uses schedule, risk management, and quality control to track deviations

Buyer practices quality assurance

Perceived Competition

Pe

rfo

rman

ce

Low

High

Minimized competition

Long term

Relationship based

Vendor selected based on performance

Contractor minimizes risk

Client minimizes risk

PBSRG Best Value Research (Performance Based Studies Research Group)

“Win-win” , common sense, logical

• 1992-present, $12.8M research (20 year research program, 1600+ tests)

• Delivered $5.7 Billion Services • 100% increase in Vendor profit • Minimize up to 90% of client/buyer

transactions • 98% Customer satisfaction and LT 1% vendor

deviations • Testing: Finland, Netherlands, Canada, Malaysia,

Africa and U.S. • ASU – investments of over $100M over 10 years

due to “change in paradigm

Overall MEDCOM Performance by NTP 2007-2011

Completed Projects NTP 2007 NTP 2008 NTP 2009 NTP 2010 NTP 2011

# of Projects 110.00 129.00 122.00 92.00 27.00

Original Awarded Cost ($$) $181,945,282.27 $177,275,551.80 $183,989,041.03 $107,091,486.62 $16,278,439.41

Final Awarded Cost ($$) $193,881,007.60 $187,844,708.77 $192,602,961.59 $110,952,677.38 $16,352,909.79

Total Over Budget ($$) $11,935,725.33 $10,569,156.97 $8,613,920.56 $3,861,190.76 $74,470.38

Total % Over Budget 6.56% 5.96% 4.68% 3.61% 0.46%

% due to owner 4.58% 5.59% 3.61% 2.36% 0.46%

% due to Designer 0.00% 0.14% 0.00% 0.21% 0.00%

% due to contractor 0.11% -0.17% -0.01% 0.08% 0.00%

% due to unforeseen 1.88% 0.40% 1.09% 0.96% 0.00%

Total % Delayed 51.56% 48.43% 36.77% 28.53% 3.31%

% due to owner 41.38% 39.96% 28.51% 16.53% 9.20%

% due to Designer 0.00% 0.49% 0.00% 1.32% 0.00%

% due to contractor 1.86% -0.02% 1.29% 0.12% -6.40%

% due to unforeseen 8.32% 8.01% 6.97% 10.56% 0.51%

Performance in Minnesota Best Value records sources of all deviations

Overview Overall Group A Group B Group C Group D Group E Group F Group G Group H

Total Number of Projects 415 355 7 10 3 4 33 2 1

Total Awarded Cost ($M) $483.0 $330.9 $37.7 $37.4 $29.5 $4.1 $29.6 $1.6 $12.4

Projects BV lowest cost 59% 55% 57% 60% 67% 75% 55% 100% 0%

Awarded Below Budget 4% 1% 17% -5% 12% 9% 7% -26% 29%

Cost Increases

Change Order Rate 8.2% 10.5% 5.1% 0.4% 2.5% 0.7% 4.0% 2.1% 4.8%

Client 7.0% 9.6% 3.1% 0.1% 0.3% 0.0% 1.5% 0.1% 1.2%

Vendor 0.0% 0.0% -0.2% 0.0% 0.0% 0.0% -0.1% 0.0% 0.2%

Designer 0.7% 0.3% 2.0% 0.2% 1.6% 0.0% 1.5% 1.6% 2.5%

Unforeseen 0.5% 0.5% 0.1% 0.1% 0.6% 0.7% 1.1% 0.3% 0.9%

Schedule Increases

Delay Rate 38.5% 48.4% 33.0% 14.5% 7.4% 2.2% 1.5% 214.1% 12.7%

Client 28.1% 36.3% 21.7% 2.8% 3.9% 2.2% 1.0% 83.9% 5.5%

Vendor 2.1% 2.4% 5.6% 0.0% 3.5% 0.0% 0.0% 0.0% 0.0%

Designer 3.9% 4.5% 4.3% 9.2% 0.0% 0.0% 0.3% 0.0% 7.3%

Unforeseen 4.4% 5.1% 1.3% 2.6% 0.0% 0.0% 0.2% 130.2% 0.0%

Satisfaction Ratings

# of Surveys 240 214 2 0 3 1 18 1 1

Overall Satisfaction 9.6 9.6 9.1 N/A 9.3 9.9 9.9 8.1 9.4

Which approach costs less and takes less time? MDC or Utilizing Expertise

• FM must be continually educated

• FM is “educated” expert

• FM is certified in technical areas

• FM is decision maker

• MDC

• No performance metrics

• Contract becomes more important

• Silo based “me vs. them”

• FM knows they don’t know

• Recruits experts

• Experts bring measurements

• BV expert [know, do, measure, increase quality and value]

• Environment becomes transparent

• Supply chain based

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Best Value Delivers in Short Summer Schedules

Rochester Public Schools

Background • 16,427 students; 2,148 staff

• 23 schools over 225 square

miles

• First project in April 2009

• Tight summer break construction schedule (~3 months)

• Very high contractor performance

Highest performance results

Performance Criteria Rating

Total number of completed and in-progress projects 33

Total awarded cost $29.6M

Average number of proposals per project 4

Percentage of awards where Best Value was the lowest price 55%

Average Contractor Change Order Rate 0%

Average Contractor Delay Rate 0%

Average Customer Satisfaction Rating (1-10) 9.9

Construction Director’s Comments

• “In low-bid, you’re getting a low number, you’re getting low performance, you get low quality. Sometimes it works out, sometimes it doesn’t… I feel much more comfortable with the PIPS process because of the consistent higher level of performance…”

• “I wish we would have started using PIPS much sooner… before best value, we’ve had a really high-percentage of change orders…”

• “Because of the high success of best value, we are now looking at using the philosophy in curriculum, HR, Technology, and other services…”

Expansion into other services

• Application of best value into other services

– Use the philosophy in education of students.

• Major milestones:

– High success on projects

– Board member attends meeting – “this should be used in student education”

– Presentation to partial board

– Presentation to full board and cabinet

Best Value for the Lowest Cost

Plymouth, Minnesota

Keys to Success

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“Preplanning is key for the contractors in order to

have a successful project. Using best value on

the NEC project has saved me a lot of

headaches, time, and decisions. Get educated

in the process because it’s definitely not ‘magic

words’ in an RFP; it’s truly a system that aligns

experts to the project.”

-Tom Shultz, Director of FacilitiesIFMA Member, Minneapolis/St. Paul Chapter

North Education Center

• Completed Projects ($29.5M)

– General construction: $25.9M

– Technology systems: $1.6M

– Demountable walls: $2.0M

• Overall Change Order & Schedule Delays

Criteria Overall General Technology Demountable

Client 0.3% 0.2% 5.2% 0.2%

Contractor 0.0% 0.0% 0.7% 0.0%

Design 1.6% 0.9% 0.2% 0.1%

Unforeseen 0.6% 0.3% 0.0% 0.0%

Best Value vs. Low Bid

Construction Project

# of Change Orders

Total Cost of Change Orders

% Contingency of Budget

Contingency Budget

NEC (best value) 110 $1,448,243 4.8% $1,357,613

SEC (low bid) 422 $1,523,902 8.0% $2,051,597

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74% fewer change orders

Savings of $2M

NEC contingency budget 40% less than SEC

Awards

• 2013 MCA Choice Award

• 2013 IFMA President’s Award (Tom Shultz)

• 2011 Facility Practitioner of the Year (Tom Shultz)

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Model of the Future: Performance Information Procurement System (details documented in manuals at pbsrg.com and ksm-inc.com)

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Expertise identified by natural law

BV expert’s proposal must be acceptable to user

Expertise is utilized

Identify expertise Dominant Simple Differential (non-technical performance measurements)

Clarification Technical review Detailed project schedule Resource & Man- power schedule

Risk Management Quality Control Quality Assurance

SELECTION CLARIFICATION/

PRE-AWARD

MANAGEMENT

BY

RISK MINIMIZATION

BV Approach

• Procurement system

• Project management model

• Risk management model

• Value added model

• Use logic, common sense and observation

• Constraint is time and money [optimize]

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What is an Expert?

• See into the future

• Communicates with dominant language

• Project manager first, technical expert second

• Utilize expertise

• Accountable using dominant information

– Before the event happens

– Has a plan that can be measured against

– Plan comes before coordination with stakeholders

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Language of Metrics

• How essential is in the method of BVP the role

of verifiable performance information or metrics?

• Dominant information

• Transparency (clear, simple, no decision making)

• Need for trust is minimized

• Need for relationships is minimized

• Utilizing metrics is easier than making decisions

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Non-Transparency

• Relationships

• Trust

• Complexity

• Costs may be 20 – 30 % higher

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Risk Mitigation

• Decision Less Structure

• No management, direction and control (MDC) Approach (use expertise)

• Results

– Transparency

– Accountability

– Experience and expertise

– Detailed pre-planning

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Risk Model

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50% 50%

Whose Fault? • Decision Making • Transparency • Risk • Accountability

Risk Model

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100% 0%

V B C

Buyer Controls Vendor Through Contract

V B C

Vendor Manages/Minimizes Risk With Contract

Plan

• Detailed schedule from beginning to end

• Expertise used in areas where there is insufficient information

• Risk that cannot be controlled [requirements]

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Deliverables [metrics]

Milestones [metrics]

Paradigm Change: MDC to Utilizing Expertise of the Vendor

Client Defines Project Management, Direction and Control (MDC)

Utilize Expertise of Expert Vendors

Owner / Consultants Identify intent

Traditional MDC

Best Value

Hire vendor for lowest cost

Planning Risk management

Owner tries to decrease cost Owner tries to minimize risk Specifying solution to contractors

Confusion

• Expert is more expensive

• Expert’s profit is too high

• Transfer risk to vendor

• MDC experts

• Vendors are not experts and only think in their own best interest

• FM must be an expert in all areas [education, certification, MDC, know all the answers]

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Other Efforts

• Dutch

• DRC

• India

• Australia

• Canada

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Interest in India

• Bangalore

• Mysore

• Chennai

• Pune

• New Delhi

• Indian Railways • SJCE [Sri Jayachamarajendra College

of Engineering] • Supply Chain Management • ITT Madras

INGA3 “Hope of Africa” Project (Hydro-Electric Dam)

Expected to light up all of Africa Inga3 is first phase of seven phases ($60B) 4,800 megawatts Power Plant will produce two times more power than the 3 Gorges Dam[40,000 megawatts]

Current Performance of the Delivery of Construction in Congo

• 16 current projects [avg value $162M]

• Time and cost deviation: 50%

• Average delay: 2.3 years, max: 4 years

• None of the projects are currently completed; performance could worsen

• All countries have the same problem

• Problem has been there for the past 20 years

• No good solution has been proposed

• The problem is not technical, it is process/ structural

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Existing Inga 3 Project Situation

• Traditional approach will deliver financial closing in 2016-2017 if everything goes right [2022-2023]

• Past performance of delivering construction using traditional methodology identifies that being on time and on budget may be an issue

• A methodology is needed to speed up the procurement and the administration of the delivery of the service

• The cost of not meeting delivery of construction is $4.8M/day [$164M/month, $1.958B/year]

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Potential Impact of BV Approach on Inga3

• Improve delivery times by 50%

• Minimize transactions by up to 90%

• Minimize cost and time deviations by 50%

• Increase service performance and value

• Utilize expertise instead of MDC to minimize risk of late delivery

• Minimize cost of late delivery by $4-$8B

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DRC Request for Assistance

• Minister Bruno Kalala announced on July 15th that ASU’s construction process will help DRC deliver INGA3.

• During July 23rd official INGA3 meeting. Dr. Dean briefed all participants of the BV PIPS process.

Major stakeholders

• DRC

• DRC energy minister and agency

• DRC project management team [not officially identified]

• Orrick [contracted to integrate project delivery]

• DRC representatives [Max Munga and Emmanuel Moteng]

• International banks [including World Bank and African Development Bank]

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Presenting at WWP:

October 4th at 8:00am to 9:00am

Avoiding Risky Projects: A Closer

Look at Value Based Contracting and

Performance Measurements

Visit ASU Booth at EXPO!

Best Value Annual Conference January 13-16, 2014 in Tempe, AZ

I am on Linked In & Youtube Dean.kashiwagi@asu.edu Can’t get a hold of me please contact Sylvia Romero at (480) 965-1252

Books for Sale &

Conference details at:

www.pbsrg.com

THANK YOU FOR ATTENDING!

Want to learn more please contact

sylvia.romero@asu.edu

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