Leveraging Facility Management in Real-estate
Facility management (FM) sector started gaining roots in India in 1990s. After a reluctant start, it has seen robust growth in the past two decades. However, the facilities management market still remains highly untapped given current market penetration of only 40%. Realty plus analyses the FM sector challenges & potential going forward
As per the report published by Research and Markets, the FM services market in India is predicted to grow at a CAGR of 17.19 per cent in 2016-2020. The key driver for the growth is the demand mainly from manufacturing, retail, healthcare, infrastructure& education sectors and especially from IT/ITES/BPO/BFSI segment. Various hard services and soft services required in these industries include – Hard Services (Plumbing and Air Conditioning, Maintenance, Fire Protection Systems, Mechanical and Electrical Maintenance & Others) and Soft Services (Cleaning, Laundry, Catering, Waste Management, Security, Others Administrative Services).
Growing demand for employee-centric workplaces is one trend that is bringing FM services in limelight. The various studies have established strong linkages between facilities, employee experience and productivity. For example, a well maintained HVAC system for improved indoor air quality IAQ) may be perceived as a cost, but the better IAQ reducing employee sick leaves and the corresponding work hours makes the cost directly proportionate to increase in productivity and company profits.
Rajesh Shetty, Senior National Director, Facilities Management, Colliers International India mentioned another important aspect of FM, “With FM business being all about sourcing support and alternate solutions, supply chain management has become an integral part of the business. And with more and more diligence coming into FM business, and with intent to strike a right balance between costs and quality, supply chain management is taking on a larger dominant role in the FM business. And in order to drive consistency in service delivery over a sustained period of time, it is critical to have longevity of service partners, which could be achieved by careful selection and consequently nurturing an on-going relationship creating a long term benefit for all stakeholders.”
Why FM Services
An organization’s building or property is its biggest expense and maintaining that asset for optimum efficiency and longer life cycle can directly add to the bottom line of the company. FM can also translate the intangible corporate branding into tangible office environment by providing services and amenities that strengthen overall work productivity and customer/client experience. With the intent to maximize value and minimize costs inherent in owning or leasing facilities, corporates, major industries and IT sector are employing professional facility management services.
The professional facility manager assistance in leasing and property management provides strategic direction to meet the business objectives. Also, the complex building designs and ecosystem of mechanical, engineering and procurement services require combination of skill sets to run them smoothly. FM service providers deliver that and more in terms of letting the businesses focus on their core operations.
Moreover, as businesses rely heavily on the proper running of the facility, FM services aid in maximizing the value of equipment and fixtures, reducing operational and maintenance expenditure. The growing emphasis on sustainability and government regulations to ensure energy-efficiency has also made the role of FM service provider critical in the commercial, retail and industrial sectors.
As projects go multinational and multicultural, there is a growing demand for FM service providers who can manage cultural diversity within the workplace and understand the local regulations for organizations to establish in new markets.
The Global & Indian Market
According to Transparency Market Research (TMR), the global facilities management market is expected to reach US$1,887 billion by 2024 with Europe at the forefront and Asia Pacific being the most promising market in the coming period.
The demand for FM services from corporate sector such as banking and finance, insurance, and IT is on the rise and the changing government rules for carbon footprint and waste management are expected to propel the demand for FM in manufacturing industries across the world.
Energy consumption is the vital factor for the small-scale and medium-scale businesses to hire facilities management vendors. FM services are also helping organizations world over to comply with sustainability standards and CSR mandates.Some of the key global FM companies are ISS World Services A/S, Sodexo, Inc., Bilfinger HSG Facility Management GmbH, Broadspectrum Pvt. Ltd. (Australia)Aramark Corp., Emcor Group, Carillion, Atkins, Macro, MITIE, Rentokil Initial, among others.
In comparison, Indian facility management market size is estimated to grow to USD 56.67 Billion by 2021.The leading FM vendors in India are – Avon FMS, CBRE, Cushman & Wakefield, Jones Lang LaSalle, Knight Facilities Management, UDS, Atkins, ISS, Nouvel to name a few.
The Indian FM market is geographically strong in cities such as Bangalore, Delhi, Mumbai, and to some extent Pune and Chennai. Bangalore commands 40% share of the overall facility management market revenues. Though Indian FM sector has presence of international FM companies and major domestic organized players, the major chunk of the market is dominated by unorganized and small scale FM vendors.
When compared to Global standards, FM in India is yet to see the maturity that western countries have attained. The Indian FM market continues to remain price sensitive and thus remains fragmented with unorganized local players offering to match the target prices and thereby failing to bring in a longer vision of enhancing the overall asset value.
Nellie Samuel, Joint Chief Executive, Knight Frank Property Services Ltd. said, “The global FM is top driven and identifies this service as an inseparable part of the overall structure. The skill levels are high and the emphasis is on automation backed by technology based solutions.Indian FM on the other hand is manpower intensive and is seen purely as a support function. It is handled mostly by the administration department and the governance is focused on cost reduction. The process itself is manpower intensive and the skills at the functional level are inadequate.”
The Indian FM Market Drivers
Realty sector Growth:The real-estate sector in India is slated to grow at 30% and is predicted to reach USD 180 billion by 2020. According to CBRE, 2016 witnessed record office space absorption levels of over 43 million sq. ft. reflecting a 9% y-o-y growth.In 2017, the office sector is likely to maintain its momentum with an anticipated absorption of 40 million square feet and IT/ ITES being the key demand driver for space across the country. In retail segment, seven million square feet of additional Grade A supply is expected to hit the market, led by Southern cities. Similarly, there will be an increased demand for modern warehousing and industrial parks that has already crossed 10 million sq. ft. mark in 2016. Such vigorous growth in real-estate provides immense potential for integrated FM services companies. Deepak Uppal, Executive Director, Vatika Hotels Pvt. Ltd.Corroborated, “The growth of the facility management sector in India is directly proportional to the growth of real-estate sector. The increasing Grade ‘A’ commercial spaces, multi-national companies offices and luxury residential are driving the demand for services like housekeeping, security, maintenance etc.”
Growing IT/ITES/BPO sector: The country accounts for approximately 65% of the global IT market which is expected to continue to grow at a rate of 12%-13%.Global occupiers account for sizable share of leasing activity and demand from domestic corporates is also on the rise. These commercial space occupiers follow innovations in workplace strategies and space utilization while implementing their expansion plans for which various hard and soft facility management services are required.
Sandeep Sethi, Managing Director – Integrated Facilities Management, JLL (West Asia) added, “FM in a lot of ways mirrors the growth trajectory of the IT/ITeS sector, with very similar talent demands as well as talent-related challenges. There is a minimum year-on-year additional manpower demand of about 14%. If one adds an approximate attrition rate of 25% to this, the minimum employability opportunity is 39% at a principle employer level. At a sub-contractor level there is a similar demand.”
Adoption of BMS: The advancement in building technology and deployment of Building Management Systems (BMS) allow FM companies to function efficiently. Linking of various services like Security system, HVAC, Access control etc., on a single dashboard for monitoring enables timely action without disrupting organizations workflow. This brings in transparency and client confidence on FM providers boosting the FM business.
Increasing FM Outsourcing:The complex business and regulatory environments are forcing businesses to focus on their core objectives and outsource non- core functions like maintenance and property management. The growth in technology in FM sector is also making it easier for variety of facility services to be managed by outside vendor.
Outsourcing Facilities Management
While jury is still out whether in-house or outsourcing of FM services is better, it all depends on the end-user sector as well, as to which FM model works best for them. The role of FM is to support non-core business so that the organization can focus on its revenue generating core business. For example, in commercial sector, buildings perform a supporting function and income is generated in general from non-building-related activities whereas, in a hotel industry, income is generated directly from activities within the building itself and building becomes the primary generator of revenues.
Therefore, the effect and influence of FM on its users largely depends on its importance within a given sector. Industry research points out that outsourcing of FM has been more prevalent and successful in environments where the facilities are part of the non-core activities of the organisation.
Benefits of Outsourcing: As a non-core activity, operating of FM in-house can be costly, in terms of both money and time. Outsourcing not only saves the company’s staff time spent on overseeing FM but also minimizes expenses related to FM software and their timely updates.
Also, KPI performance monitoring is a vital aspect of ensuring that the outsourced FM vendor is working efficiently. This KPI monitoring also enables the companies to keep evaluating their existing goals and amend them to be more effective as per the future goals.
With such changing requirements and business strategies, the in-house FM systems would need to be changed or upgraded. A good outsourced FM system will offer the flexibility of selecting the services from his existing bouquet of services as per the company’s goals, saving time, effort and cost of change over.
Contract Transition Management (CTM): A transition plan is important while transitioning from internally provided services to an outsourced contract to avoid repetition of past mistakes and ensure a win/win contract for both the provider and facility manager. A CTM should address:
- Infrastructure and technology (e.g., CMMS/IWMS)
- Processes (e.g., evaluation and monitoring)
- Communication & Collaboration
- People Management
According to Teena Shouse, CFM, IFMA Fellow, Vice President of corporate services at Facility Engineering Associates, “CTM should involve change management, clarification of roles and responsibilities and a systematic approach to managing the transition, the risks, and the change. Most of the time failure occurs because both parties did not do the necessary due diligence leading to lack of coordination between procurement and the business unit, weak program scope and full understanding of client expectations, etc. A successful transition takes time. Even for very simple conversions to be successful, at least four to five months are needed. It is essential to have clear transition expectations, as well as the time and the funding necessary to achieve those expectations. Finally, a successful transition requires a well-developed risk management plan, identifying the potential issues and the effects it will have on the transition process.”
Understanding innovation in FM
It’s hard to quantify ‘innovation’ which needs to be fueled by creativity and ideas. It would involve integrating long term vision, market analysis and product development as well as plans to improve outcomes. Innovation is about up-skilling FM professionals to use new techniques, equipment and technology and creating new options that reflect quality of life proposition.
Innovation in Facility Management is not as straightforward as in product-centered companies. The service innovation cannot be a series of random improvements but, has to be a planned approach, coordinated across the business and practiced bottom-up or top-down.
Statistics show that the costs allocated to innovation in the FM industry are three times lower than in the production industry. The reason is that FM sector provides intangible products which make them difficult to perceive and innovate. Larger the service providers are, more likely it is that there will be innovation as they may have robust experimentation processes in place as well as many sites on which idea generation can take place. Also, in-house facility management teams innovate less than outsourced facility management vendors because of cultural inertia, lack of size and processes, and lack of outside inspiration.
The New age FM
Global and Indian organizations are putting forth well-defined KPIs (key performance indicators) for purchase, maintenance and insurance of property, plant and equipment (PPE), and other related costs to enable FM companies to provide accurate data regarding expenses and savings and improve the service delivery of the organization. In addition, the emergence of web-based technologies like EVM, GIS, CMMS and BIM, allow access to information in multiple locations and facilitate transparent communication. Thus, service providers can now easily identify opportunities for resource optimization and cost efficiency.
Advancements in Enterprise Asset Management (EAM): EAM or CMMS (Computerized Maintenance Management System) tools now have mobile apps that allow for maintenance validation with photo submission,GPS location validation, time stamping the work order, scanning the bar code, or an RFI attachment to the equipment. The applications are seamless, end-to-end systems from the initiation of the work order request to payment of the vendor. The technology for these applications has been enhanced to include customer satisfaction surveys, life cycle management of the assets, CAPEX budgeting and benchmarking.
Building Information Modelling (BIM):BIM gives building owners and operators a complete visual of building before it is constructed. Facility Managers are using BIM for project deliver and data accessibility. When integrated with existing work order programs or facility maintenance software, facility teams realize an improved ability to retrieve O&M manuals, floor plans and asset information. The enhanced integration of construction data into the facility management space is still going on but, BIM has proved to be the enabling technology for collaboration among all the stakeholders of a facility.
Internet of Things (IoT): IoT refers to the network of internet accessible devices utilized by the facility that may include sensors, thermostats and actuators to evaluate data etc. By utilizing IoT systems, Facility Managers are better informed of current temperature, light, vibration or even sound levels in areas of a building and can manipulate the levels for better efficiency. Though the technology is costly to set up, it will continue to develop and be a cohesive part smart buildings and their maintenance.
Advanced HVAC & BAS: The advancements in heating, ventilation and air-conditioning (HVAC) and building automation systems (BAS) are programmed to enable notification to facility management teams for preventive and corrective maintenance. This helps optimize facility management, prevent costly equipment failure and saves money by solving problems before they occur. The further integration of these advanced systems with facility maintenance software will auto create and assign work orders to team members based on the type and location of the problem.
Automated FM Software:Automation is the key to FM success as these systems automatically surface the needed information when a work order is created, avoiding uncertainty even in the absence of Facility Manager. Automated FM technology provides timely and relevant information to prevent data entry duplication and clutter.
Robotics & Drones:Robotic cleaning for HVAC vents and roof inspections by drones are just some of the advantages for facility managers.As this technology gets more refined it will become more common place with a reduced cost to use in facility management.The biggest opportunity for robots and drones is in safety and automation.
Regardless of the type of facility, it is important to ensure that the facility management contract fulfills its required purpose. The contract should set out the precise scope of the facilities management services to be performed by the service provider together with the KPIs which the service provider is required to achieve. Such KPIs should be Specific, Measurable, Achievable, Relevant and Time based so as to be capable of being assessed objectively for the benefit of both the parties.
A ‘work plan’ subject to periodic review from the service provider will demonstrate how the services will be discharged and fulfill the KPIs. It is important that the service provider has carried out all reasonable investigations and inspections of the asset to be managed as per the standards prescribed by the facilities management contract and is aware of the day to day use and operation of the asset to avoid any loss. Also, a clause for submission of regular reports to the employer regarding the status of the facilities management services and a scheduled maintenance plan pre-agreed in terms of scope and cost including responsibility for procuring spare parts (employer or FM provider) is vital.
A process of financial penalties for relevant requirements not attained and bonuses available if KPIs are exceeded should be in-built in the contract. Practical penalties should be worked out bearing in mind the specific characteristics of the project. For example, a service interruption during non-peak hours will call for lesser penalty than the interruption occurring during peak hours of business.
Financial penalties need to be significant enough to incentivize the service provider to comply with KPIs but not unduly onerous so as to be counterproductive, damaging the service provider’s cashflow and therefore its ability to adequately provide the services.
Failing to plan for termination can lead to considerable uncertainty and increased costs for both the parties.The termination clauses worked out together with an exit management plan will build in any demobilisation costs and handover procedures.
Rajesh Shetty added, “For the main FM contract, and for an emerging organization, the Cost plus model is the best option, as it would accommodate all variations to services, while also offering scope to bundle up services as per organization’s size and scale. In the next growth phase, as service requirements get defined in a predictable manner enabling realistic assumption, the contract with Fixed (or Not to Exceed) costs with fixed fees for the longer period of time is more appropriate. In a further mature & stable growth phase, often referred as 3rd generation sourcing contract, Fixed (Not to Exceed) Costs with an open book policy at the end of the longer term (say 3 -5 years), allowing for any course corrections subjecting to nominal 5% variation on either side, would be ideal.”
“The FM industry has in the past, focussed a lot of its efforts competing on cost. However, as the world economies on the whole recover from recession, the focus will quickly shift from cost to value; this is a great opportunity for our industry, but it will require a change in mind-set and maybe even skills.”Andrew Wilkinson, Marketing Director at Sodexo, UK
Challenges to overcome
In India, still FM is considered as a cost to the company rather than a contributor to the corporate bottom line. The FM industry is also facing a serious skills gap as demand for trained professionals exceeds the supply.Moreover, keeping up with the dynamic regulations and frequently changing codes is one of the major challenges for FM vendor. Now, with sustainability becoming an important factor, facility managers need to take a top-down approach to facility management considering installations, upgrades and maintenance and building operation.Some of the pertinent issue facing the Indian FM sector include:
- Lack of regulation and representation at statutory decision making bodies
- Absence of formal education in FM subjects at all levels.
- Inadequate training facilities
- Shortage of skilled manpower at functional level
- High attrition rate in the workforce
- Non-involvement of FM professionals at design and development stage of buildings to facilitate better maintenance
Nellie Samuel pointed out, “The labour laws are focused on factories and are not suited for the maintenance related services. Well-conceived labour regulations for the FM sector will go a long way in making this sector attractive to the workforce. Regulations specifying skill levels, proficiency and certifications should be formalized and implemented for the FM industry.”
According to International Facility Management Association (IFMA) report, the top challenges facing FM professionals are:
- Lack of access to the C-Suite hinders the ability to adequately and proactively align facilities with core business strategy.
- Smaller staffs mean managing a number of outsourced service providers and still meeting or exceeding expectations of the business units and delivering cost savings.
- Challenges in transitioning from traditional rear view mirror and static benchmarking to forward-looking dynamic, innovation oriented analytics.
- Need to develop the soft skills and the technical skills of FM workforce
Indeed, the role of the facility manager has changed drastically over the past decade. It is now a tech- savvy and problem-solving position that is required to keep up to date with emerging facility management expertise, ever changing regulations and labour laws as well as be an innovator, financial manager and a people’s person.