FM solutions and option appraisals

Journal of Facilities Management

ISSN: 1472-5967

Article publication date: 1 July 2006

464

Citation

Pitt, M. (2006), "FM solutions and option appraisals", Journal of Facilities Management, Vol. 4 No. 3. https://doi.org/10.1108/jfm.2006.30804caa.001

Publisher

:

Emerald Group Publishing Limited

Copyright © 2006, Emerald Group Publishing Limited


FM solutions and option appraisals

FM solutions and option appraisals

I would like to use the editorial to invite the submission of academic or practice based papers in the area of FM and option appraisal.

Option appraisal techniques offer a way of systematically comparing options that may be very different from one another. It does this by estimating the costs and benefits of each and presenting them in a common form. The techniques strive for objectivity and encourage dispassionate examination of proposals. Ideally the appraisal process should commence early in the project life before subjective preferences take hold in the minds of the decision makers. As with all tools it can be manipulated by selective use of data, unrealistic assumptions and it can be used to rationalise decisions that have been taken on other grounds. It is only as objective as the user and is best used honestly and early to inform the decision-making process.

Ideally after a project has been completed it should be monitored to see if it conforms to the projections of the appraisal so that future appraisals can be improved in the light of experience, and if possible to enhance the management of the existing project to ensure that it meets or exceeds its targets.

An appraisal is usually carried out where major expenditure is planned or major obligations are being considered which involve significant cash-flows. A typical example for example would be where an organisation that is the result of several mergers is looking to rationalise its operational property. As facilities management is essentially focused on serving the core business, an FM option appraisal will take into account the full corporate implications of a real estate decision. This is the principal distinction between the property and the facilities management processes.

The approach to and format of an appraisal

Approaches to appraisals vary from problem to problem but there is normally a consistent pattern. It is crucial to:

  • set the aims of the appraisal;

  • list the alternative options;

  • establish the costs;

  • establish the savings;

  • establish the revenues;

  • determine the risks;

  • determine the uncertainty/sensitivity;

  • consider alternative outcomes; and

  • reach conclusions.

It is important to distinguish between property appraisal and business solution appraisal such as that used within FM. The aims of these different types of appraisal will be completely different.

Who the appraisal is for is absolutely crucial as it provides the reference point for the assessment of costs and benefits. A FM business option appraisal is on behalf of the whole firm. The reference point is therefore the overall profitability or well being of the organisation. Defining the objectives gives the appraiser a clear reference point to refer back to during and after the detail of the task.

The timing of the appraisal is a more complex issue. In a simple property appraisal it is relatively straightforward to define the date to which all costs can be brought back in the form of a discounted cash flow. In a full facilities option appraisal where functions occur over different time frames it is more problematic to obtain an accurate assessment of the time factor.

I would be very interested to receive papers based on case studies of the use of option appraisal in the field of FM

Michael Pitt30 March 2006

Related articles