Empire State Building - Project Management and Budget Planning

Transcription

1 Your Facilities Master Plan: Building a Better Business Case Presented by Jim Turner

2 Contents Learning Objectives Consider this project A simplified five-step process Develop Objectives Prepare Criteria Consider Alternatives Analyze and Evaluate Alternatives Rank and Recommend Other approaches Q & A

3 Learning Objectives Business cases analyze the costs, benefits, and risks of a facilities project to support good decisions The current and planned future use of the building is a major driver for facilities investment decisions It is a good practice to consider as many alternatives that meet your requirements as possible Business case evaluation metrics often include net present value and payback period

4 Consider this project Strategy: Retrofit for energy efficiency Renew and retrofit to reduce capital program Reduce current costs: O&M, utilities Add new tenant offerings including chilled water and reliable emergency power Increase occupancy, improve rents, gain other tenant income based on updated services Eight major program elements: Radiative barrier Tenant ventilation control Tenant day lighting Lighting and plugs Direct digital controls Chiller plant retrofit VAV air handling Tenant energy management New York City (not Las Vegas) Program cost estimate: $500 million Sources: A Landmark Sustainability Program for the Empire State Building, Jones Lang LaSalle; Serious Materials on-line case study. Photos: Wikipedia

5 Drilling Down: ESB Windows Windows update became a key project element Originally estimated at $20 million, came in at under $5 million On-site process to upgrade rather than replace windows Detail of the 6,500 operable, double-pane ESB windows Learning Objective 1: Business Cases should analyze a projects costs, benefits, and risks.

6 Constructing the Business Case Assessment of Future State Evaluation of Alternatives Present Findings, Including ROI and Cost/Benefit Assessment of Current State Gap Analysis Specification of Alternatives Risk Analysis Cost Analysis Benefits Analysis Sensitivity Analysis Context and Objectives Evaluation Criteria Alternative Courses of Action Evaluation of Alternatives Ranking and Recommendation A simplified five-step process

7 Context and justification examples Major drivers might include: Current and future use of the facility Forecast of utilization and other performance metrics Legal, regulatory, or policy criteria of high importance Learning Objective 2: Current and planned future use of the facility is a major driver of investment decisions. CRITERIA Personnel Impacts Facilities Impacts Environmental Impacts Facility longevity Ease of travel to/from Political implications INSIGHTS Changes in attrition that would result from the relocation; the ability to recruit civilian personnel as measured by cycle-time to fill a position and number of unfilled positions; assessed by job category Quality of destination space as measured by commonly used space quality standards (e.g., class A space) The anticipated level of migration efforts required to satisfy national Environmental Protection Act requirements Timeframe that facility will be available compared to period of interest Average commute times; transportation infrastructure Expected implications from moving from one political district to another

8 Consider a comprehensive range of alternatives Learning Objective 3: It s a good practice to consider a wide range of alternatives that will meet your requirements. For a soccer field project, alternatives that might be considered are: status quo, improved natural turf field, and artificial turf field For each of the alternatives (COA stands for courses of action), a simple but thorough description might include: A summary or overview of the COA A list of assumptions about the COA A list of requirements that may have to be put in place (these aid in the development of the cost evaluation) A list of benefits that will be achieved A list of risks A cost analysis focus on relevant cost, with enough detail to make a valid comparison

9 Alternatives Development Example Strategy COA Number COA Description Status Quo 1 Status Quo: Limited recap, retire in place Existing Site 2a Existing Site: Data Center Equipment Recap Only Existing Site 2b Existing Site: Data Center Densification Only Existing Site 2c Existing Site: Phased Renovation including New Building, Data Center Centralization and Office Space Realignment Partial Relocation 3a Partial Move: Non-essential Administrative Functions Move (Lease or Other Owned Facilities) Partial Relocation 3b Partial Move: Non-essential Data Center Equipment and Related Support People Move Off-site (Co-location) Partial Relocation 3c Partial Move: HQ, Data Center and Core Functions Remain On-site, Other Functions and Support Move Off to Leased or Owned Facilities Partial Relocation 3d Partial Move: All Functions Remain Except Data Centers and Tenant Data Center Equipment and Support Partial Relocation 3e Partial Move: Partial Move, Tenant and Equipment Relocates, All Existing Functions Remain and are Realigned Full Move 4 Full Move: New Site, New Building Note: Since this project had so many alternatives, we did a down-select to focus on the two most likely to be selected.

10 Fleshing out Alternatives Summary description: For Alternative 1, the current facility must live within its means by meeting future requirements within current capacity. When capacity is reached, limit and control any additional mission and program growth that would imperil the reliability and mission continuity - capacity expansion is not proposed and mission creep will be managed. Configuration Management and strict controls when accommodating new mission activities at the Site will be the key to ensuring the short-term success of this COA. Assumptions: Assumes that new missions can be turned away. No growth beyond capacity of current electrical switchgear. Assumes that configuration management and controls on new activities on-site are effective. Existing facilities and infrastructure can be sustained without substantial recapitalization actions. Increased risk is acknowledged and acceptable.

11 Benefits Specifications Fleshing out Alternatives

12 Risks Fleshing out Alternatives

13 Evaluating costs, benefits and risks Develop a thorough framework to evaluate the relevant costs and benefits of each alternative

14 ESB Windows Retrofit ESB Windows Retrofit Windows update became a key project element Originally estimated at $20 million, came in at under $5 million On-site process to upgrade windows rather than replace them Detail of the 6,500 operable, doublepane ESB windows Costs Benefits Risks Windows project reduced by $15 million Chiller project reduced by $8 million $414K annual utilities savings from windows alone Green benefits from reuse of windows Typical cost and schedule risks for a large project

15 ESB Windows Costs Examples Costs Windows project reduced by $15 million Chiller project reduced by $8 million Detail of the 6,500 operable, double-pane ESB windows Other relevant project costs Design up to 10% Life-cycle maintenance Periodic repairs

16 ESB Windows Benefits Examples Benefits $414K annual utilities savings from windows alone Green benefits from reuse of windows Other benefits that we could assume: Additional rent revenues of up to 10%/SF Mid-town rentals average $71/SF ESB has over 2.85-million SF Tax incentives Access to capital for financing

17 ESB Windows Summary Item Cost* Item Benefit* Design $0.5M Utilities (Ann/ 20-years) $0.4M/ $8.0M Rental Space $0.2M Raised Rent (Ann./20- Years) $3.0M $60.0M Materials and Labor $4.0M Tax Savings $? M Life-cycle repair and maintenance $0.5M Easier Capital Access $? M Total $5.2M Total $68+M * These are illustrative calculations! Sources: A Landmark Sustainability Program for the Empire State Building, Jones Lang LaSalle; Serious Materials on-line case study. Photos: Wikipedia

18 Evaluating Project Risks The Project Management Institute has useful tools for risk analysis, essentially evaluating likelihood of the event and estimated impact. Scale Very Low Low Moderate High Very High Cost Impacts Insignificant < 5% 5-10% 10-20% > 20% Schedule Impacts Scope Impacts Quality Impacts Insignificant < 5% 5-10% 10-20% > 20% Barely Noticeable Degradation Barely Noticeable Minor Areas Affected Affects Only Demanding Apps Major Areas Affected Quality Reduced, Client Approval Needed Scope Reduction/ Client Won t Accept Quality Reduced, Client Won t Accept End Item Unusable End Item Unusable

19 Emphasize Quantifiable Metrics Strategy COA No. COA Description Benefits Costs Risks Status Quo 1 Status Quo: Limited recap, retire in place Existing Site 2a Existing Site: Data Center Equipment Only Existing Site 2b Existing Site: Data Center Densification Only Existing Site 2d Existing Site: Phased Renovation including New Building, Data Center Centralization and Partial Relocation Partial Relocation Partial Relocation Partial Relocation Partial Relocation 3a 3b 3c 3d 3e Office Space Realignment Partial Move: Non-essential Administrative Functions Move (Lease or Owned Facilities) Partial Move: Non-essential Data Center Equipment and Related Support People Move Off-site (Co-location) Partial Move: HQ, Data Center and Core Functions On-site, Other Functions and Support Move to Leased or Owned Facilities Partial Move: All Functions Remain Except Data Centers and Tenant Data Center Equipment and Support Partial Move: Partial Move, Tenant and Equipment Relocates, All Existing Functions Remain and are Realigned Full Move 4 Full Move: New Site, New Building Grade the alternatives on an appropriate scale, (e.g., 1 to 10; high, medium, low; if a full cost and benefits estimate was developed, use those dollar values)

20 Examples of Payback Measures Learning Objective 4: Business case decision metrics include net present value and payback period. NPV compares investment life-cycle costs with its returns by taking a sum of their discounted value. Essentially, it measures the excess or shortfall of cash flows. ROR is stated as a percentage, and is calculated as the ratio of the return from the investment relative to investment cost. The returns can be interest, profit, or net income, and the investment may be referred to as capital or principal. Payback period is the period of time required for the investment s returns to repay the original cost. It measures how long it takes for the investment to pay for itself. Other customized measures may be used. Cost per customer describes the cost of acquiring a customer by dividing the total investment cost by the expected number of new customers gained.

21 Putting it All Together Executive Summary Introduction/Overview Subject, Purpose, Scope, Objectives Background Organization Methodology Major Assumptions and Constraints Criteria and Financial Metrics Description of Cost Analysis Methodology Analysis of Alternatives Description of Status Quo and Alternatives Cost Analysis Comparison of Alternatives Sensitivity and Risk Analysis Conclusions and Recommendations Results Discussion Recommendation Scenarios for Implementation (Sources of Funding, Timeframes, etc.)

22 A Few More Tips Imagine you re telling a story Start with the problem the business need you re solving Identify your characters Stakeholders who will approve or reject your business case Beneficiaries who stand to gain from your proposal Subject-matter experts to clarify how to solve the problem Identify the alternatives for meeting the business need the different ways your story might play out Choose the best one, and create a project plan the plot After you estimate and analyze the costs, benefits and risks, and calculate the return on investment (ROI), you ve reached the story s satisfying end Remember this isn t a mystery novel your story needs to be clear and easy to understand.

23 Learning Objectives Recap Business cases analyze the costs, benefits, and risks of a facilities project to support good decisions Slide 5 The current and planned future use of the building is a major driver for facilities investment decisions Slide 7 It is a good practice to consider as many alternatives that meet your requirements as possible Slide 8 Business case evaluation metrics often include net present value and payback period Slide 20

24 Wrap up Questions? Thank you! Las Vegas (not New York City) Photo: Wikipedia The presentation is in your Conference packet, but you can also request a copy electronically from me at jturner@markonsolutions.com Connect on LinkedIn:

25 Types of Costs to Consider Type Initial Purchase Cost or Capital Investment Financing Costs O&M Costs Repair and Replacement Costs Alterations and Improvements Functional Costs Salvage or Disposal Costs Short Definition Costs associated with initial planning, design, and construction; including acquisition, transportation, and installation Includes one time financing costs, or interest on interim construction financing Associated with maintaining or restoring to original condition, including routine maintenance, utilities, taxes, and contracted servicing Associated with maintaining or restoring to original performance, including major renovation and repair, and non-annual services Costs of planned additions, alterations, major reconfigurations, and other improvements Costs associated with performing intended use of the facility Values of land, building, or building elements at the time they are removed from service