Strategic property management - Essay Example

Order: 212278 Topic: Property Asset Management-report on strategic property management Introduction Property has been recognized as an input element for any type of organizations' success. "For local authorities, property is the environment in which people work and from which services are delivered" (Gibson, 1994, p.9). Both employee and clients are somehow affected by the property management. It also affects the economy, efficiency and effectiveness of the organizations service as well as all the activities. It is considered as a crucial element of the organization as it has a great impact on the organization. The management of an organisation needs to evaluate the significance of property management in their decision making policies. Strategic property management According to Gimeno (1999). "[t]he term 'strategy' is derived from the Greek word 'art of the general'" (p.101). "Strategy formulation and strategy implementation - which are put into action - are two side of the coin, called strategic management" (Barnat, 2005). Ian and Phillips (n.d.) states that "[s]trategy is all about setting direction - not just for the organisation but also in the hearts and minds of employees and customers." At first, it needs to formulate the strategy and then the strategy needs to implement. It should be stated that it is no matter how the creative strategy is formulated unless it is not correctly implemented. "Strategy meant a series of goal-directed decisions and actions, matching an organization's skills and resources, with the opportunities and threats in its environment" (Carmela, 2008). Strategic management analyzes the situation and take actions in planning, organizing, directing and controlling. Strategic property management is consisted of the plans and functioning of marketing programs to build, measure and manage the property or asset. It's a wide and vast area to deal with and there are some internal and external factors that need to maintain. It is applicable for the organizations regardless of its kind which owns and uses property. Asset management can be defined as, "the active and strategicpursuit of an owner's long term social, physical and financial goals from predevelopment through the administration and disposition of a property or portfolio". (LISC, 2007). It is very essential for any organization to build and improve their performances by using strategic property management. It is strongly recommended that, in providing efficient manpower, goods, materials and property, the local authorities' needs to make sure the fiscal use of capital. But there is a huge amount of costs to deal with these for why these costs receive an enormous deal of consideration, though property has received comparatively less attention. The 3 'Es' in the management of property asset There are two key factors regarding the term strategic property management. "These are: - 1. The efficient and effective management and use of the council's capital assets; And 2. Effective management and budgetary control over council" (Doncaster Metropolitan Borough Council, 2008). Like other organizations, the management of property resources need to apply and maintain the 3'E's, economy, efficiency and effectiveness in a best way in their decision making policies. Figure : The 3 'E's in the management of property asset Example ECONOMY EFFECTIVENESS EFFICIENCY Source: 212278_3 es-background material.pdf Now it is needed to explain the 3 'E's in the management of property asset. At first, the management focuses on emphasizing starting a given job and spending the money to provide the salary cost. Their task is always to get the maximum output by providing the minimum input that refers the optimum uses of resources. This stage is called the economy stage though here efficiency is equally needed to do so. Then at the next stage, activities and other works by the employees are done and the management evaluate the retainable efficiency, whether it is ok or not. Then in the next stage the authority puts emphasis on the output of the first two stages. This refers the job output done from the previous two stages. Here both efficiency and effectiveness are considered as the measurement of this process. In this stage, the organization gets the first touch of their achievement. Then at the final stage the whole process is done and again the process started. Property types and management issues The management issues are different for each type of property (212278_Local property management handbook-background material.pdf ) TYPES OF PROPERTY MANAGEMENT ISSUES Held for direct service provision These properties are Occupied by local authority staff to provide direct services, Schools, Social services establishments, Libraries, Offices, Leisure centres, swimming pools, Open space and sports grounds, Car parks, Theatres, Fire and police stations, etc The management issues while dispensing with such properties are :Opportunity cost of site utilization, property running costs, additional uses if under occupied, acquisition and disposal at the right time and value Tenanted property 1. Indirect service property: industrial starter units, farms and smallholdings, council estate shops, etc... 2. Investment property: commercial offices, shopping centres, completed industrial estates The management issues relating to tenanted properties may be categorised as :Occupancy, rate of return, and hence implicit subsidy ( if any) required to achieve, service objectives, initial capital subsidy Influence on planning and development, return on capital, capital, capital appreciation, opportunity value. Vacant property: land held in advance of requirements, property surplus to service requirements Other uses How long in advance, speed and value of disposal Table : relation with property types and management issues The Audit Commission has encouraged the proper utilization of community money by ensuring the proper stewardship of public finances and helps those responsible for public services to achieve economy, efficiency and effectiveness. For example: (a) The quality of the services that the organization offers can be reduced if the wrong types of property are selected. That indicates that the right thing should be at right place and in a right way. (b) There should not be any type of unplanned building that makes the cost increased. Otherwise it would be termed as wastage for the company. (c) There may be some wrong use of money caused by inefficient management. (d) The construction must fulfil the organizations' purposes and goals. (e) There must be some alternative ways considering the unexpected situations that may happen in the future. Notably, many companies try to improve and maintain their properties and services by making best use of their resources. But in most of the cases, they are required to overcome their internal and external limitation. "Successful strategy design and implementation requires an understanding of the firm's external environment and its internal resources and capabilities." (BMGT 673 Strategic Management). Earlier, the local authority emphasized the concentration of service, not the resources. But now most are now taking some different approaches regarding this matter. Because there are some pressures, which make them to think about this different approach. These pressures include:- (a) Reduction of capital allocations. (b) There are always some changes occurring in various sectors. In this case, the resources which are determined for a particular area can be redirected from that of another. (c) The ownership is not permanent; because in future it would be used for future generations. Property management portfolio The following figure shows an approximate breakdown property portfolio of the local government (Audit commission study team analysis of data from a sample of authorities): - (Excluding land values and property let to tenant) Authority category Number of authorities Range of values million Total value billion Inner London boroughs 12 90-180 4 outer London boroughs 20 230-540 8 Metropolitan boroughs 36 260-1700 19 county councils 47 140-1900 40 district councils 333 Apr-60 4 total for all authorities 75 billion Table : the replacement value of local authorities direct service property From the management point of view, there are three divisions of local property portfolio. These are:- 1. Direct service property- Property holding by the local authority for their services or used for supporting those services. Examples: - Schools, colleges, hospitals, play ground, church, music institution, auditoriums. 2. Tenanted properties- when the authority owned property and let it to third parties, it would be categorized as tenanted property. Examples of such property may be included as Industrial starter units, farms & smallholding, 3. Vacant properties- The property which is used for additional needs owned by an authority and not occupied by either the authority or by a third class. This type of property is used for some momentary reasons that get the advance focus for which it was owned Key challenges A. Corporate Asset Management Plan. B. Accommodation Strategy. C. Property Management & Valuation. D. Establish and maintain Database of Council Assets. E. Property advisory (consultancy) service. F. Management of the Property Portfolio (including collection of general fund lettings income and service charges). G. Capital Programme & Strategy. H. Corporate monitoring of capital programmes and promoting good practice capital programme management. An Effective means for the proper Utilization of the property For the proper understanding over the issue, it is necessary to know how the local authorities deal with commercial properties and other services. According to Audit Commission: - "These assets are valued at around 78 billion" (212278_hot property briefing audit commission-background material.pdf). "They cost at least 5 billion a year to run and manage" (212278_hot property briefing audit commission-background material.pdf). "They include over 21,000 schools, 3,800 libraries, 1,800 leisure facilities and 2,200 community centres" (212278_hot property briefing audit commission-background material.pdf). It is very hard to calculate the worth of local government property. But "it may be more than 100 billion. The portfolio of local government properties include: 2200 primary school 4500 secondary schools 550 polytechnics and further/higher education colleges 3500 libraries 20 airports 200 crematoria 3500 police operational buildings 17500 police houses 1500 fire stations 3500 offices 4500 social services homes 1000 day centres 500 adult training centres 1500 swimming pools and leisure centres 155000 hs smallholdings 100000 hs urban parks and open spaces Table : the extent of local authority property holdings (Source: 212278_Local authority property- a management overview b&w-background material.pdf) It is necessary to add here that "a typical county may have a portfolio worth some 600 million; a typical metropolitan authority may have a (non-housing) portfolio worth 400 million" (212278_Local authority property- a management overview b&w-background material.pdf). County Council Metropolitan District Number of properties Replacement value Number of properties Replacement value Education 480 449 307 244 Official services 105 46 92 40 Libraries 50 10 27 22 offices 45 30 18 24 Fire station 39 8 _ _ Police station 54 13 _ _ Halls _ _ 4 10 Miscellaneous 45 30 600 m 400 m Table : portfolio of typical county council and metropolitan district Property review There are three types of property review. These are:- 1. Single service property review: - the evaluation of the property that is hold by individual service. 2. Single property review: - the evaluation, when an individual property are not used for its inventive purpose. 3. Corporate area review: - the evaluation of all property that is owned by the local authority in a given location. 4. Single service property review: It is so much needed to make an investigation or review over the property to determine whether it is suitable for the original purpose. The service department can successfully review the property holdings and can always be alert about delivering their services. Single property review: 5. It has been recognized that the local authority reviewed the property as usually by team to team. This is done for reducing the expenditure and taking the advantages. By using this method, the authority gets some facilities; but, sometimes the others may have to face some unexpected situation. The objectives of property review There are some certain objectives of property review. Of them, some of the objectives can be summed up as such: a. By reviewing the property, the service department can increase their efficiencies and provide high class services in every aspect. b. Ensuring the best use of property as much as possible. It meant that the property would be used only where it is so necessary. c. In order to get the maximum output, it is necessarily needed to spend a huge amount of costs to maintain and run the property (Bryman, 1997). d. The amounts of money that are received during a period of time can be generated. e. The right decision at the right time in a right way make sure the maximization of return over investment property. Property running cost The following elements are involved in running the property cost: - a Building maintenance b Energy (heating, lighting and power) c Cleaning and caretaking (wages and materials) d Rates and rents (including water rates and charges) e Grounds maintenance f Insurance g Fixtures and fittings Figure : property running cost Source: Audit commission study team analysis of data from a sample of authorities Successful Property review: An experiment The issue of property review is a complex done. In order to accomplish a successful property review, following steps may be undertaken: 1. The members of the organization must have the co-operative mentality and they have to have the willingness to give their time and energy to do something that they believe in. Moreover, their attitude should be always promising and dedicated. 2. The information regarding property is needed to be sufficient and precise and correct. 3. The review should not be much detailed. On contravention of this, it would not be possible to maintain the procedure with due manner. 4. The members will get the authority to deal with and make the negotiation. 5. The chief or leader of the review team should be efficient and reliable. 6. There should be right rules and regulation, that fulfil the organizational objectives and these should be implemented properly. Recommendation "OFFM is improving asset management throughout the Federal Government by coordinating asset management activities in the areas of real property and financial assets" (Combs, 2007). Again, "Many funders and government contractors ask to see an organization's "strategic plan" as part of the application process" (NetMBA, 2007). Strategic property management need to "represent the best interest of our clients, investors, and employees by setting the standard for the highest quality of professional management of real estate" (Property Management, 2007). "Responsibilities for property services are spread across the Authority and the opportunity should be taken to clarify any areas of overlap or uncertainty" (Kelly, 2001). It is recommended that the authority or council need to identify weakness of the organization and then to treat them in a right way. The council needs to identify where they are, then to decide where they want to go, then to make the way how they will go there and finally to ensure the arrival. Besides considering these, the management of the authority or organisation needs to focus on the following things:- (a) The qualities of the services that are provided by the organization are needed to improve. (b) The property should be utilized according to the company's objectives and also meet the requirements of these objectives. (c) There is a large amount property running costs to maintain. The organization(s) can reduce this cost by taking some effective and right action. It refers the increasing rate of speculation from that of the expenditure. (d) Through the implementation of proper steps, the efficient management system can evenly minimize these costs. By doing this, they can ensure the best return from the expenditure. (e) A congenial environment should be introduced so that the capital proceeds are properly drawn and utilized. (f) Provisions should be made to avoid spending money for unplanned or serious buildings that may affect on the lives of the people. (g) With a view to drawing more results, chances should be taken to join up with other agencies. (h) The technology refers the use of information and communication to get better result and means of reducing a huge amount of cost. So, it is a sine qua non to ensuring the introduction and implementation of technology on a wider scale. (i) The local authorities must have to practise an active management by improving their professional skills. (j) Client's real estate investment portfolio should be introduced and gradually improved by maximizing returns, decreasing expenses and growing profits. (k) Often the local authority gives up some scheme that may result in unexpected situation. In this situation, it is recommended that the local authority or service department should not wait for the end of the property review. Immediately they should take some suitable and correct action. (l) It should be logically stated that every local authority must have the knowledge and information regarding the property holdings and all of the necessary data. These should be available wherever it is needed. It is recommended that this information should be saved in a computer system. The availability of that information can help to maintain and run the management. The relevant information of the authorities helps identifying their properties. In addition, it helps them to put attention on the considerable areas as a priority concern. If the case happens to be that that the information provided or obtained are insufficient inaccurate, the working and sound management system is expected to categorically check every relevant information. Of course, in doing this, the supporting staffs or personnel are needed to be efficient and skilled. References 212278_3 es-background material.pdf 212278_hot property briefing audit commission-background material.pdf 212278_hot property briefing audit commission-background material.pdf 212278_hot property briefing audit commission-background material.pdf 212278_Local authority property- a management overview b&w-background material.pdf 212278_Local authority property- a management overview b&w-background material.pdf 212278_Local property management handbook-background material.pdf 212278_Local property management handbook-background material.pdf Audit commission study team analysis of data from a sample of authorities, Retrieved 13 March 2008 from http://www/auditcommission.uk.com Barnat, Ryszard. (2005). Strategy Control. Retrieved 13 March 2008 from http://www.strategic-control.24xls.com/ BMGT 673 Strategic Management. Lincoln University. 10 March 2008. Retrieved 13 March 2008 from http://www.lincoln.ac.nz/story2424.html Bryman, A. (1997). 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