Balanced Performance Measurement

Objective and quantifiable measurement of portfolio performance is one of the missing links in CREprofessional ranks – a worry for an industry that is heading towards extreme outsourcing. This gap also directly impacts the ability of CREexecutives to prove their worth to the board. If you can’t measure it, you can’t improve it – a simple concept that is true in life. In business, this has resulted in a flight to all things financial. Finance and accounting measures are well developed, many faceted, data rich and easily understood in business – particularly at board level. But these represent only part of the story and other, more meaningful and sustainable business measures are often non-financial. In the past, CREplaced too much focus on pure property costs, but these are only a small part of overall operating costs. Consider a company with property costs at 20 percent of budget – a 10 percent saving has far less impact than a 10 percent increase in productivity, if people costs represent 50 percent of the budget.

Measurable, manageable and meaningful

Quantifying on-going successful performance requires that data be measurable, manageable, and meaningful. Objective measures are obviously ideal. But, if not possible, more subjective ones based on surveys and opinion polls are better than no measures at all. Performance improvement can then still be tested from one period to the next.

The concept of ‘less is more’ holds good for performance measures. If requirements are arduous and time-consuming to report, they soon become neglected and ultimately forgotten. If the data used lacks accuracy and consistency, reliability is compromised and the process becomes suspect. Strive for fewer but more manageable measures.

Meaningful is just that. Performance measures are only worth reporting if they have potential material impacts on the business. If not, why measure them? Measures should be results focused on business outcomes and outputs. The ultimate selection of performance indicators needs to be based on providing information that is useful to decision makers

Balanced scorecard approach

In 1992, Kaplan and Norton developed and published their balanced scorecard model for performance measurement in business. This model was based on measures reflecting the four primary business success components in corporate value and business outcomes – finance, internal business processes, the external customer perspective and the internal human dimension.

For CRE, this means measuring performance at the intersection of business, human behaviour both external and internal, and property related financial metrics. Practically, this means making sure portfolio costs are under control, but also establishing real estate priorities and performance measures across these other key components of the business model.

Let’s start with money – the commodity that makes everything go round. In the corporate world financial matters mean cost reductions; asset utilisation, be these financial, physical or intangible; and revenue growth. That’s how businesses think. But business strategies evolve over time from grow, through sustain and to harvest, depending on market condition and life-cycles. These will impact the emphasis on specific financial measures.

In response, the CREexecutive needs to report on measures such as total cost of occupancy; costs per FTEor work-point; life-cycle and churn costs; project budget variances; portfolio vacancy rates; and the like. The irony is that, although these are easily quantifiable and objective to measure, the data is often still not readily available and easy to report.

Business process measures are all about measuring efficacy. Operational process times, capabilities, costs and quality measures; new product development cycles; and post sales service and are the domain of the operations or corporate services director.

For CRE, this all about the corporate physical built environment supporting work processes and improving productivity. Although some measures are easy to measure, others are far more subjective. Portfolio utilisation rates; shared facilities use; and percentage breakdown repairs versus planned maintenance, can be measured objectively but may not adequately reflect productivity issues.

Other productivity measures such as output, workplace effectiveness, innovation and knowledge sharing, portfolio flexibility and sustainable practices, are difficult to measure and difficult to isolate from other factors. Asurge in productivity after moving to new premises may be related to physical workplace design or other factors may also have an impact, such as new management, or sustained change management efforts. The choice is difficult but CRE-related productivity measures cannot be ignored.

The external customer perspective is about customer acquisition, retention and satisfaction; market share; and ultimately profitability. Corporate measures include brand consistency and image, customer engagement, service quality and speed, and sales volume. Information age customers seldom interface with a company’s physical environment, so it is difficult to measure CREperformance. But for retail related businesses, the physical manifestation of the business is paramount. Turnover measures linked back to location, brand and image, physical layout, down-time or inconvenience during un-planned maintenance, are direct indicators of CREperformance. Similarly, time-to-market measures in securing and opening new outlets are critical.

The human capital dimension is the final domain of measurement. This is all about innovation, learning, growth and well-being of employees. Corporate measures in this domain cover: employee motivation, empowerment and alignment; retention of key workers; ability to hire; and employee organisational awareness.

Objective and quantifiable CREmeasures are once again difficult to collate. Measures such as airconditioning and building performance complaint numbers and response times for repairs and requests are easy but one dimensional. Measures of environment quality, personal comfort and wellbeing and corporate engagement are more problematic because other impacting factors need to be isolated from the built environment elements under the control of CRE. Once again, the choice is difficult but this dimension cannot be ignored.

Measure fewer but measure regularly

In measuring performance – do it selectively, do it regularly and report it transparently. Measuring performance annually does not permit timely corrective remedies. To bring about change, performance reporting needs to be accessible to all involved, particularly if services are outsourced and the performance measures are linked to incentive payments or profits forgone.

The implications of such arrangements and linkages to performance measures need to be carefully considered. What happens if performance is measured against a range of balanced scorecard benchmarks and performance in some are exceeded by great margins, yet some other performances are dismal?

Beware setting performance measures as critical minimum standards. If these are not achieved the service provider is in default. Corrective actions must be instituted or contracts may need to be cancelled, so do not make every performance measure a critical minimum standard when it is not.