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

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Presentation on theme: "Copyright 2004 Expense Management Solutions, Inc. Outsourcing: Threat or Opportunity? Scott S. Tibbo, CFM Director Real Estate Advisory Services Expense."— Presentation transcript:

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

2 Copyright 2004 Expense Management Solutions, Inc. Background Given the significant pressure to reduce overhead costs within all companies today, outsourcing is a major topic of discussion…and consideration. Given the significant pressure to reduce overhead costs within all companies today, outsourcing is a major topic of discussion…and consideration. Even for companies who have already outsourced (first generation), it is still a major topic of discussion…and in many instances, a significant issue, given low satisfaction levels with their current arrangement. Even for companies who have already outsourced (first generation), it is still a major topic of discussion…and in many instances, a significant issue, given low satisfaction levels with their current arrangement. Should outsourcing be viewed as a threat or opportunity? It can be either depending on the approach taken. Should outsourcing be viewed as a threat or opportunity? It can be either depending on the approach taken.

3 Copyright 2004 Expense Management Solutions, Inc. Presentation Goal To provide a balanced view on outsourcing, To provide a balanced view on outsourcing, review the steps you should consider BEFORE you pursue outsourcing as an option, review the steps you should consider BEFORE you pursue outsourcing as an option, key factors you should consider DURING the evaluation process, key factors you should consider DURING the evaluation process, critical success factors & management strategies you should implement AFTER the decision has been made… critical success factors & management strategies you should implement AFTER the decision has been made… to help you ensure your department is positioned effectively to face the outsourcing dilemma. to help you ensure your department is positioned effectively to face the outsourcing dilemma.

4 Copyright 2004 Expense Management Solutions, Inc. What Outsourcing Dilemma? A Few Very Typical Scenarios The Chairmans Challenge (or the new CFO) The pitch on the 19 th Hole The company-wide strategic cost assessment

5 Copyright 2004 Expense Management Solutions, Inc. What Are Your Options? Hide and hope it never happens to you, Try to convince your senior management that everyone else is wrong Be Proactive – have a very clear picture of your operation, know where you stand relative to the market, communicate your plan…and control the process!

6 Copyright 2004 Expense Management Solutions, Inc. The Process Fully assess your current environment Benchmark and develop key findings Identify opportunities for improvement Evaluate alternative solutions Determine recommended solution

7 Copyright 2004 Expense Management Solutions, Inc. Know Your Organization Have a very clear picture of your organization Have a very clear picture of your organization Be able to define what you do, why you do it and how much it costs Be able to define what you do, why you do it and how much it costs Understand the underlying business drivers Understand the underlying business drivers Know your customers and what they expect from you Know your customers and what they expect from you Know how your customers perceive you Know how your customers perceive you

8 Copyright 2004 Expense Management Solutions, Inc. Analyze Current Organizational Alignment Analyze Current Organizational Alignment

9 Copyright 2004 Expense Management Solutions, Inc. Analyze Current Portfolio Analyze Current Portfolio Region High Technology Assets Office/Consumer Service Distribution/ Warehouse/Other Total Number of Locations Square Footage Number of Locations Square Footage Number of Locations Square Footage Number of Locations Square Footage Region I33332,36614122,5722172,28368527,221 Region II27399,34116449,4032059,95063908,694 Region III53455,38235212,9832197,058109765,423 Region IV18225,78922259,1471265,48952550,425 Total1311,412,878871,044,10574294,7802922,751,763

10 Copyright 2004 Expense Management Solutions, Inc. Document Provision of Services Document Provision of Services

11 Copyright 2004 Expense Management Solutions, Inc. Define Service Levels Define Service Levels

12 Copyright 2004 Expense Management Solutions, Inc. Analyze Current Resource Utilization Analyze Current Resource Utilization

13 Copyright 2004 Expense Management Solutions, Inc. Analyze Current Resource Utilization Analyze Current Resource Utilization

14 Copyright 2004 Expense Management Solutions, Inc. Document Workload Volumes Document Workload Volumes

15 Copyright 2004 Expense Management Solutions, Inc. Establish Financial Baseline

16 Copyright 2004 Expense Management Solutions, Inc. Establish a Chart of Accounts

17 Copyright 2004 Expense Management Solutions, Inc. Define Alloc of Total Occupancy Cost

18 Copyright 2004 Expense Management Solutions, Inc. Determine other Standard Unit Costs

19 Copyright 2004 Expense Management Solutions, Inc. Compile Labor Hours, Material Costs and Volumes

20 Copyright 2004 Expense Management Solutions, Inc. The Process Fully assess your current environment Benchmark and develop key findings Identify opportunities for improvement Evaluate alternative solutions Determine recommended solution

21 Copyright 2004 Expense Management Solutions, Inc. Benchmarking Sources/Approaches Independent research using published benchmarks such as IFMA and BOMA Independent research using published benchmarks such as IFMA and BOMA Participate in regional or national special interest groups such as IFMA Industry Councils Participate in regional or national special interest groups such as IFMA Industry Councils Self-Managed Benchmarking Group on a local or regional basis Self-Managed Benchmarking Group on a local or regional basis Facilitated Benchmark Consortiums with select number of companies within similar industry Facilitated Benchmark Consortiums with select number of companies within similar industry

22 Copyright 2004 Expense Management Solutions, Inc. Use Consistent Conventions - Or Youll 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

23 Copyright 2004 Expense Management Solutions, Inc. Individual OpEx Benchmark Analysis vs. BOMA

24 Copyright 2004 Expense Management Solutions, Inc. OpEx Comparison Against BM Group

25 Copyright 2004 Expense Management Solutions, Inc. Detailed Comparison Against BM Group

26 Copyright 2004 Expense Management Solutions, Inc. Beyond BOMA…now what?

27 Copyright 2004 Expense Management Solutions, Inc. Benchmark Current vs. Market Comps

28 Copyright 2004 Expense Management Solutions, Inc. Benchmark Current vs. Market Comps Example: Box Move Costs

29 Copyright 2004 Expense Management Solutions, Inc. The Process Fully assess your current environment Benchmark and develop key findings Identify opportunities for improvement Evaluate alternative solutions Determine recommended solution

30 Copyright 2004 Expense Management Solutions, Inc. Identify Gaps & Areas of Opportunity Compare company performance to benchmark results obtained from research Compare company performance to benchmark results obtained from research For areas where improvement is needed define desired target or goal For areas where improvement is needed define desired target or goal Identify actions required to bring performance into target range Identify actions required to bring performance into target range Build an integrated implementation plan to achieve overarching strategic goals Build an integrated implementation plan to achieve overarching strategic goals

31 Copyright 2004 Expense Management Solutions, Inc. Identify Potential Cost Saving Opportunities

32 Copyright 2004 Expense Management Solutions, Inc. Determine if Internal Solution is Viable Assess your organizations ability to successfully implement the needed changes/improvements. Evaluate in view of: Assess your organizations ability to successfully implement the needed changes/improvements. Evaluate in view of: Sufficient Resources (Both Managerial & Technical) Sufficient Resources (Both Managerial & Technical) Technology and Reporting Capabilities Technology and Reporting Capabilities Process Improvement/Ability to meet Service Levels Process Improvement/Ability to meet Service Levels Procurement Sophistication/Appropriate Leverage Procurement Sophistication/Appropriate Leverage Senior Management Support/Alignment of Goals Senior Management Support/Alignment of Goals

33 Copyright 2004 Expense Management Solutions, Inc. If Viable – Implement Proposed Changes Clearly articulate the objectives Clearly articulate the objectives Ensure the message is understandable at all levels Ensure the message is understandable at all levels Share the impact of the objective if met Share the impact of the objective if met Communicate progress toward goals frequently, with a consistent format, and through multiple channels Communicate progress toward goals frequently, with a consistent format, and through multiple channels

34 Copyright 2004 Expense Management Solutions, Inc. The Process Fully assess your current environment Benchmark and develop key findings Identify opportunities for improvement Evaluate alternative solutions Determine recommended solution

35 Copyright 2004 Expense Management Solutions, Inc. If Uncertain – Evaluate Outsourcing Develop overall bid strategy – decide what services are to be included in the bid Develop overall bid strategy – decide what services are to be included in the bid Clearly define the scope of all services and identify specific service level expectations Clearly define the scope of all services and identify specific service level expectations Based on scope/bid strategy, research firms most qualified to include in the bid process Based on scope/bid strategy, research firms most qualified to include in the bid process Develop appropriate pricing models and contracting approach Develop appropriate pricing models and contracting approach

36 Copyright 2004 Expense Management Solutions, Inc. What Outsourcing Is Not A panacea for all problems with in-house facilities A panacea for all problems with in-house facilities A guarantee that expenses will decline A guarantee that expenses will decline An assurance that service levels will improve An assurance that service levels will improve A simple decision followed by an easy transition A simple decision followed by an easy transition An opportunity to divest oneself of any further concerns regarding Facilities Management in the future An opportunity to divest oneself of any further concerns regarding Facilities Management in the future

37 Copyright 2004 Expense Management Solutions, Inc. What Outsourcing Is One method of managing resources to meet strategic or operational targets One method of managing resources to meet strategic or operational targets An often complex structure of independent contractors each specializing in a functional area An often complex structure of independent contractors each specializing in a functional area A long term commitment to a new way of doing business A long term commitment to a new way of doing business A decision that can be made in total or for selected functions within the operation A decision that can be made in total or for selected functions within the operation

38 Copyright 2004 Expense Management Solutions, Inc. What Outsourcing Can Be A strategic advantage for your operation A strategic advantage for your operation An opportunity to invest valuable resources elsewhere An opportunity to invest valuable resources elsewhere An opportunity to increase operational flexibility An opportunity to increase operational flexibility A chance to benefit from expertise and technology investments available from others, or A chance to benefit from expertise and technology investments available from others, or ….an unmitigated, poorly executed, tremendously expensive disaster. ….an unmitigated, poorly executed, tremendously expensive disaster.

39 Copyright 2004 Expense Management Solutions, Inc. Sourcing Process Overview Clearly define the services to be included Clearly define the services to be included Develop Bid Strategy Develop Bid Strategy Pre-Qualification/Develop the bid list Pre-Qualification/Develop the bid list Determine Contract & Pricing Structure Determine Contract & Pricing Structure Detailed Assessment of Proposals Detailed Assessment of Proposals Interviews & Reference Checks Interviews & Reference Checks Scoring Evaluation Scoring Evaluation Determine final recommendation Determine final recommendation

40 Copyright 2004 Expense Management Solutions, Inc. Develop SLAs

41 Copyright 2004 Expense Management Solutions, Inc. Develop Bid Strategy

42 Copyright 2004 Expense Management Solutions, Inc. Develop Overall Pricing Strategy

43 Copyright 2004 Expense Management Solutions, Inc. Bid Process Conduct Bid Conference, Tours, Interviews Conduct Bid Conference, Tours, Interviews Analyze proposals in view of: Analyze proposals in view of: Relevant/Demonstrated Experience Relevant/Demonstrated Experience Operational Capability Operational Capability Key Resources/Proposed Project Team Key Resources/Proposed Project Team Technology/Procurement Capability Technology/Procurement Capability Geographic Alignment/Strategic Fit Geographic Alignment/Strategic Fit Willingness to agree to Contract Terms Willingness to agree to Contract Terms References References Economics Economics

44 Copyright 2004 Expense Management Solutions, Inc. The Process Fully assess your current environment Benchmark and develop key findings Identify opportunities for improvement Evaluate alternative solutions Determine recommended solution

45 Copyright 2004 Expense Management Solutions, Inc. Determine Recommended Solution Compare internal to external, and external to each other Compare internal to external, and external to each other Assess ability to meet the strategic objectives Assess ability to meet the strategic objectives Assess life-cycle cost of each proposal Assess life-cycle cost of each proposal Qualitatively analyze best fit culturally Qualitatively analyze best fit culturally Evaluate speed and ease of implementation Evaluate speed and ease of implementation Ensure buy-in of all impacted team members Ensure buy-in of all impacted team members Communicate plan, implement, measure Communicate plan, implement, measure

46 Copyright 2004 Expense Management Solutions, Inc. Transition & Transformation Establish the appropriate internal structure to manage the selected solution – realign responsibilities accordingly but do not create a shadow organization Establish the appropriate internal structure to manage the selected solution – realign responsibilities accordingly but do not create a shadow organization Redefine job responsibilities (focus & role) of those responsible to manage the new model Redefine job responsibilities (focus & role) of those responsible to manage the new model Establish a detailed transition plan with key milestones and roles & responsibilities clearly defined Establish a detailed transition plan with key milestones and roles & responsibilities clearly defined Recognize that the transformation process will take some time so be flexible and open to change Recognize that the transformation process will take some time so be flexible and open to change

47 Copyright 2004 Expense Management Solutions, Inc. Establish Strong Internal Controls Sarbanes-Oxley Section 404 Management is required to attest that internal controls over financial reporting are effective Management is required to attest that internal controls over financial reporting are effective Have to take proactive steps to ascertain effectiveness Have to take proactive steps to ascertain effectiveness If outside service organizations are used, management must certify adequacy of outside providers controls If outside service organizations are used, management must certify adequacy of outside providers controls Cannot rely on internal auditors assessment, need independent verification to ensure transactions are properly authorized, recorded and reported Cannot rely on internal auditors assessment, need independent verification to ensure transactions are properly authorized, recorded and reported

48 Copyright 2004 Expense Management Solutions, Inc. Continuously Assess the New Model A compliance review program provides an independent review of the contract and the relationship and measures the reality of what is happening versus what is supposed to occur. A compliance review program provides an independent review of the contract and the relationship and measures the reality of what is happening versus what is supposed to occur. In the event the review identifies issues of non- compliance, a resolution plan is developed and the vendor manager is held accountable to execute on the plan. In the event the review identifies issues of non- compliance, a resolution plan is developed and the vendor manager is held accountable to execute on the plan. Findings of full compliance provide both organizations with the assurance that all is well. Findings of full compliance provide both organizations with the assurance that all is well.

49 Copyright 2004 Expense Management Solutions, Inc. Common Pitfalls Insufficient senior level support Insufficient senior level support Scope too broadly defined Scope too broadly defined Costs evaluated too narrowly Costs evaluated too narrowly Predisposition to a given solution Predisposition to a given solution Forgetting the impact of culture Forgetting the impact of culture Jumping to conclusions too early in the process Jumping to conclusions too early in the process Lack of time/resources/skill to manage process Lack of time/resources/skill to manage process

50 Copyright 2004 Expense Management Solutions, Inc. THANK YOU Scott S. Tibbo, CFM Director Real Estate Advisory Services EXPENSE MANAGEMENT SOLUTIONS, INC 144 Turnpike Road, Suite 330 Southborough, MA 01772 (508) 460-7014 www.expensemanagement.com


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