Property gets with the programme
Property players should look to the infrastructure and natural resources sectors to drive change across their programmes
Property directors are under intense pressure to unlock value from their real estate portfolios. Growth in the global economy means that property spend is once again on the up; but investors and corporates alike are demanding more accountability and greater returns.
The highly regulated and capital-intensive infrastructure and natural resources sectors have long faced similar challenges, and property directors are now looking to these sectors for inspiration.
Water companies are under constant pressure to align the delivery of their multibillion-pound capital expenditure programmes with regulatory targets, including enhancing efficiency and customer service. The asset management principles developed within this challenging environment are now being applied by property directors looking to align their property portfolio with corporate goals.
The benefits are clear. Organisations are able to prioritise what to spend, and when and where to spend it, in order to maximise business benefit, boost return on investment and enhance shareholder value.
Currently, capital projects are often selected in an ad hoc way, with variance in the basis for approving investment. Additionally, the detailed asset condition of most properties is often unknown or not regularly recorded; with the result being that maintenance and repair issues are in danger of impacting negatively on some parts of the business.
By prioritising projects in terms of their contribution towards corporate strategy – which will include ensuring that buildings meet current legislative, safety and environmental requirements – it is possible to bring more value to the business for the same capital expenditure or less.
A programmes mindset
Programme management is a framework that allows senior managers to control performance across multiple projects. The objective is to generate and maximise efficiencies and economies of scale across capital investments, and ensure alignment to an organisation’s strategic goals and objectives. Without that overview, the success of one project will often be achieved at the expense of another, and – more importantly – to the detriment of an organisation’s strategic aims. Smart real estate leaders, faced with increased complexity, interdependencies and corporate risk, are adopting a programmes mindset.
By considering the overall investment programme and how it is delivered, demands on the supply chain, team and management functions can be evened out. And in return for guaranteed and better-profiled workloads, the client can often negotiate a better deal from its supply chain.
Applying programme-level risk management
In a move borrowed from power, water and highways companies, enlightened programme managers are looking to divide their risk contingencies into two pots. One pot holds the contingency for project-level risks and the other for programme-level risks. This might not be popular with everyone – such as those project managers who might prefer to hold all of the risk contingency for their project, and use it as they see fit. But it should mean that the overall risk spend can be reduced, and spent in a more transparent way.
Some programme risks will be shared across several projects; other risks are time-dependent so that the contingency can be released to be used elsewhere. The other impact is that project managers are less likely to request the release of contingency funds held at programme level, so they will be forced to exercise tighter risk management controls or find cost savings elsewhere.
Some of our infrastructure clients are seeing an overall reduction in their risk spend of between ten and 30 percent using this approach. Money that can be saved, reinvested to enhance projects, or used to extend the programme. Some property companies are now employing key staff and advisors from the infrastructure sector to help them drive this change.