Public sector property asset management

Thus,RICS 2008 defines asset management as ‘a structured processthat seeks to ensure best value for money from property assets in serving the strategic needs of public sector organisatio

Asset Management

Public Sector Property Asset Management

Malawi Ngwira and David Manase

School of Engineering and Built Environment

Glasgow Caledonian University

© 2016 by John Wiley & Sons, Ltd

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Library of Congress Cataloging-in-Publication Data

1 Real estate management 2 Government property–Management.

I Manase, David II Title.

HD1394.N49 2015

352.5–dc23

2015019383

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Set in 10.5/13.5pt, MinionPro by SPi Global, Chennai, India.

1 2016

Acknowledgements xi

1 Asset Management Concept and Development

2.2.1 Internal factors behind asset management

2.2.2 External forces behind asset management

vii

2.4 Asset management development in Scotland 44

2.4.2 Publication of the asset management

2.4.4 Publication of ‘Value for Money’ by audit

2.7.1 Asset management development in New

2.7.2 Asset management development in the

3.3.1 Significance of strategic management

3.3.2 Asset management as a significant change

3.3.3 Asset management team and project

3.3.4 Asset management and organisational

3.3.8 Asset management and stakeholder

4 Strategic Asset Management 77

4.4 Formulation of strategic plan or corporate

4.4.1 Development of vision, mission goals

4.4.2 Review of the organisation’s internal and

4.4.3 Asset information, data collection and

4.4.4 Identification of size of strategic task or

5 Asset Management Planning 99

5.4.2 Non-financial factors 1285.4.3 Multi-criteria analysis – analytic

6 Asset Management Plan 151

6.5.2 Organisational aims and objectives,property asset implications and property

6.5.3 Corporate vision and strategy and its

It is a pleasure to acknowledge the many authors and organisationswhose work we consulted and took us a great way towards com-pleting this book We are also highly indebted to our employer,Glasgow Caledonian University, for the excellent support given to

us during the development of this book Last but not least, specialthanks go to our families for their support and patience

xi

1 and Development in the

Public Sector

Public Sector Property Asset Management, First Edition.

Malawi Ngwira and David Manase.

© 2016 John Wiley & Sons, Ltd Published 2016 by John Wiley & Sons, Ltd.

1

1.1 Introduction

This chapter reviews the literature on property asset management

in the public sector by focusing on three areas First, the reviewexplains the concept of asset management Second, literature isreviewed in order to highlight the structure of operational prop-erty assets in the public sector in the United Kingdom (UK) Third,the evolution of asset management is reviewed by tracing its ori-gins, the forces behind asset management reforms, as well as thetrends in the development of asset management in the UK andinternationally A review of the trends in the development of assetmanagement in the UK includes establishing the status of assetmanagement practice in public sector organisations

1.2 The concept of asset management

This section explains the concept of asset management by definingand identifying the components that it comprises

Different sources variously describe and define the term ‘assetmanagement’ For instance, the Royal Institute of CharteredSurveyors (RICS) (2008) settled on a definition and description

of the term asset management in public sector organisationsafter evaluating a number of published definitions from varioussources, such as those by RICS/Office of the Deputy PrimeMinister (ODPM) (2005), Male (2006) and Lyons (2004) Thus,RICS (2008) defines asset management as ‘a structured processthat seeks to ensure best value for money from property assets

in serving the strategic needs of public sector organisations’

In considering this definition and other definitions of assetmanagement, RICS (2008) concludes that ‘there appears to beconsiderable consensus over the basic characteristics of strategicasset management for land and buildings and a distinctionbetween strategic asset management and operational propertymanagement’

Asset management is characterised by:

● the adoption of an integrative approach (Institute of AssetManagement, 2006; British Standard Institution (BSI), 2008;Edwards, 2010);

● defining service levels and performance standards and limitingthem to strategic planning objectives;

of property assets’ (Institute of Asset Management, 2006b) in asystematic and coordinated manner (British Standard Institution,2008) The Audit Commission (2000) states that the strategicapproach to managing public sector organisation propertyportfolios involves two broad strands of activities, as illustrated

in Figure 1.1 The strands are Strategic Property Considerations and Property Services.

Strategic property considerations are in effect assetmanagement, and include decisions about the number, typeand location of assets required to meet a public sector organisa-tion’s objectives It is the activity that ensures that the land andbuilding asset base of a public sector organisation is optimallystructured and aligned with its corporate goals and objectives(RICS, 2008) Strategic property considerations ask questionssuch as: where should the property be located; why shouldthe property be sited in a particular location; and what size ofproperty is needed to support a service?

Property servicescomprise two strands: property managementservices and professional technical services Both strands deliverthe strategic asset management objectives by undertaking theprofessional/technical and management work necessary to ensurethat property is in the condition, form, layout and location

Property services Strategic property considerations

Property management

services

Professional technical services

• Accommodation review and space

management

• Property information

• Contract and budget management

• Energy management

• Acquisition and disposals

• Valuation, rating and planning

• Lease and rental management

• Building maintenance

Where?

Figure 1.1 Strategic property considerations and property services.

desired Property services include ensuring that property is plied with the services required; surplus property is disposed ofand new property acquired and constructed; property is valued;property rates are catered for; and all this is done in a cost-effectivemanner It also involves offering advice to decision-makers on thebest way of managing operational property assets (RICS, 2008).What can be discerned from the various activities associatedwith property services is that it comprises two elements, namelyproperty management (PM) and a concept known as facilitiesmanagement (FM)

sup-Ali (2007) cites Brown et al (1993) who define facilities

management services as coordinating the needs of people,equipment and operational activities into the physical workplace

It focuses on the provision of a quality working environmentthrough various responsibilities such as facilities design, energyconservation and environmental control (Ali, 2007; Tay and Ooi,2001) On the other hand, property management, according

to Gibson (1994), is concerned with the care of buildings totenants’ or owner occupiers’ satisfaction Both FM and PMhave responsibility for premises, although the focus of activitiesfor meeting those responsibilities is different The core of PMactivities, also known as estate management, involves valuation

of property; acquisition and disposal of buildings; provision

of advice on property investment; administration of leases;administration and accounting for service charges; supervision

of building repairs; rent reviews and rating advice; strategicreviews of property and accommodation and sales of surplusspace (Stansall, 1994; Balch, 1994)

Conversely, activities associated with FM include: control

of operating budgets and occupancy costs; management andmaintenance of building services; planning and management ofmoves; selection of furniture; management of space allocationand use; supervision of cleaning; security, IT/communicationand telecommunications services; catering and office supportservices; materials and equipment purchase management; officeequipment and furniture purchase and management; as well asmaintenance of the building itself (cleaning, heating and lighting)and maintenance of all mechanical and electrical equipment andbuilding fabric in terms of decoration and repair of internal andexternal equipment (Stansall, 1994; Balch, 1994)

In practice, the functions of PM and FM are not so neatlyseparated There are some common roles between them Theinterface between operational property management and facilitiesmanagement within an organisation is shown in Figure 1.2

Strategic property management activities: FM and PM

• Building maintenance;

• Record keeping;

• Landlord advice

Figure 1.2 Asset management: FM and PM activities.

1.3 Benefits of asset management

The integration of facilities and property management vices, the hallmark of asset management, is the most beneficialarrangement for supporting public sector organisation objectives.There are practical and business benefits that accrue fromutilising property asset management arrangements (NationalAsset Management Steering Group (NAMS), 2006a) The holisticand long-term view adopted by asset management makes it anefficient approach to property management as it ensures thatproperty assets, which represent a major investment built up overhundreds of years in some cases, continue to deliver the desiredservices for as long as required Additionally, the benchmarking

ser-of condition and performance, both ser-of which are integral toasset management, promotes innovation and efficiencies (NAMS,2006a) Furthermore, asset management provides a structuredand programmed approach to long-term change This is nec-essary because property assets are slow to respond to changedue to the long lead-in times needed to create them as well astheir illiquid nature Annual incremental change is thereforeinsufficient and, as such, it is practically desirable to adopt astrategic approach, which asset management provides (RICS,2008) An asset management framework also offers businessbenefits, which include amongst others: improved governanceand accountability (Scottish Executive, 2003); enhanced servicemanagement and customer satisfaction; improved risk man-agement (NAMS, 2006a); improved financial efficiency; andimproved decision-making (Worley, 2000)

Through effective asset management, a public sectororganisation will improve its governance and accountabilityarrangements with regard to its stewardship of property assets.Improvements are possible because the public sector organisation

is able to demonstrate to tax payers and those who use its servicesthat these are being managed sustainably and delivered effectivelyand efficiently Improvement in accountability with regard toresource use is also enhanced by having in place and publishingfinancial and performance indicators (NAMS, 2006b; ScottishExecutive, 2003) Furthermore, associated asset managementtechniques provide the basis for evaluating and balancing service,price and quality trade-offs Having performance indicators inplace ensures that public sector organisations have the ability

to benchmark asset management performance results againstother or similar public sector organisations (Worley, 2000).Benchmarking ensures that the organisations deliver continuousimprovement in their asset management arrangements throughperformance management Asset management activities areundertaken in a systematic and coordinated manner According

to Worley (2000), such an approach improves governance andaccountability as it ensures that there is a clear audit trail forthe appropriateness of decisions taken and the associated risks.Also, through effective asset management service management,service user satisfaction can be enhanced Improvement inservice management and appreciation of services by users can

be realised through a variety of mechanisms Such mechanisms,according to the Scottish Executive (2003), include: improvedperformance and control of service delivery to the requiredstandards, thereby maximising efficiency of service delivery;improved understanding of service requirements and options;formal consultation and agreement with users on the servicelevels; and a more holistic approach to asset management withinthe organisation through multidisciplinary management teams.Improved risk management is another beneficial outcome thatcan flow from effective asset management According to NAMS(2006b), asset management processes and practices ensure thatassets are assessed for the probability and consequences of failureand issues relating to continuity of service are addressed Apartfrom improved risk management, effective asset managementpractice has the potential to enhance the financial efficiency of

a public sector organisation At the heart of asset managementpractice is the concept of optimised decision-making (ODM),involving whole lifecycle cost and option appraisal of the assetmanagement lifecycle activities of asset creation, operation andmaintenance and disposal decisions ODM, NAMS (2006a)argues, leads to improved decision-making ODM ensures thatdecisions are based on evaluating both financial (costs) andnon-financial costs and the benefits of alternatives In addi-tion, the decision-making framework based on ODM enablesthe prioritisation of investments, interventions and asset careactivities as well as justification for introduction of or bringingforward works programmes and funding requirements Further-more, ODM makes it easier to recognise all costs of creating,owning, maintaining, operating and disposing of assets over

the lifecycle of the assets Additionally, it ensures that a publicsector organisation has a lean, well-maintained portfolio thatallows the authority to live within its means by being able tofund both capital and revenue, by managing property runningcosts effectively and efficiently and releasing capital and thenrecycling it into corporate priorities (Scottish Executive, 2003).Apart from financial, governance and service improvement thereare other benefits that flow from effective asset management.For instance, according to the Department for Communitiesand Local Government (DCLG) (2008), asset management canimprove the economic wellbeing of an area by supporting andfacilitating wider objectives such as regeneration and help tointroduce new working practices and trigger cultural organisa-tional changes Furthermore, well-managed property assets canassist in reducing carbon emissions and improve environmentalsustainability through low energy consumption The potential toincrease co-location, partnership working and sharing of knowl-edge are other positive outcomes associated with effective assetmanagement; others include improvements in the accessibility ofservices and ensuring compliance with statutes and regulations.Since the need to ensure that assets are in good condition isone of the key goals of asset management, it follows thereforethat a public sector organisation is likely to end up having aportfolio of properties that are likely to be in good condition, that

is both physically and aesthetically Properties that are in goodcondition are not only fit to support service delivery but also help

to improve the quality of the public realm The advantages offered

by a structured approach to property management, as is the casewith asset management, have not always been appreciated bypublic sector organisations

1.4 Asset management development in the

public sector

Asset management evolution is investigated by examining theforces that have driven the adoption of asset management bypublic sector organisations The evolution of asset management isalso considered by tracing the trends in the development of assetmanagement in the UK public sector and for similar institutionsinternationally

1.4.1 Origins of asset management

There is a lack of consensus among researchers and tators over the origins of asset management However, there isunanimity among commentators that asset management evolvedfrom other disciplines For instance, Edwards (2010) argues thatthe concept is a relatively new description of activities that havebeen undertaken for many decades but until recently in a frag-mented way This argument is shared by Piling (2010), who statesthat asset management is not a new discipline but rather a conceptthat has evolved over a number of decades from the industrialage Throughout its development phases, asset management haslearned from and incorporated other disciplines and techniques.Piling (2010) further argues that, over time, there has been agradual evolution of these different disciplines and techniques tothe management of the business and management systems andframeworks that have supported them However, from the 1970s,realisation started to take hold in organisations that the effectivemanagement of assets involved an enterprise-wide approach.The enterprise approach is one where organisations look attheir entire asset portfolio and the interactions between assetsystems This integrative and entrepreneurial-wide approach

commen-is what commen-is presently understood to be associated with assetmanagement

However, there is no agreement over the nature and type ofbusiness activities from which asset management originated.Woodhouse (2009) is of the view that asset management evolvedprincipally from the UK’s North Sea oil and gas industry duringthe late 1980s and early 1990s The catalysts for the changeare said to have been the survival pressures of the late 1980sfollowing the Piper Alpha disaster and the crash in oil price(Woodhouse, 2009) These events forced a rethink on the part

of these sectors In response, the oil and gas industrial sectorsintroduced an initiative known as CRINE (Cost Reduction inthe New Era) The initiative challenged many of the existingpractices culminating, for most of the industry players, in thecreation of business units with clear lines of budget authorityand performance accountability and given active encouragement

to challenge the status quo The improvements that ensued led

to significant cost reduction and a management model akin towhat is now termed asset management arose (Woodhouse, 2009)

There were certain features that characterised this managementmodel The features included first, an increased focus on the role

of assets that supported the gas and oil business activities Second,there was increased interest in establishing how assets performed

in supporting such business activities Third, the gas and oilindustries came to greatly recognise the role and creative input

of operators and technicians Finally, the management of assetssupporting gas and oil activities came to be based on ‘whole life’asset management plans From these origins, asset managementcontinued to evolve and this resulted in growing interest fromorganisations such as the Institute of Asset Management (IAM)

to codify best practice for managing assets In 2004 there was aninitial attempt by the IAM to capture the minimum requirementsand best practices The Institute of Asset Management (IAM)and the British Standards Institution (BSI) launched a project

on a standard for the management of physical assets known asBSI PASS 55 The BSI PAS 55 was, and is now increasingly seen

as, the framework for good asset practices, particularly in theengineering and utilities sectors BSI PAS 55 is still the ‘publiclyavailable specification’ for optimised management of physicalassets and infrastructure

Edwards (2010) suggests that privatisation of the rail andutility companies in the 1990s was a spur to asset management

in the UK After privatisation, the rail and utility entities startedpursuing efficiencies through higher levels of productivity andoutsourcing of various services Edwards (2010), further arguesthat, with time, these types of efficiency savings of increasedproductivity and outsourcing became harder to find The railand utility organisations responded by starting to challengetheir asset renewal and maintenance activities to see if renewalscould be deferred or planned maintenance intervals extended

In order to defer or plan maintenance, organisations neededbetter asset knowledge and control over their work manage-ment processes These organisations then began to developand implement asset registers and work management systems.Although the initiatives led to improved asset registers, they didnot deliver the expected efficiency gains Risk management andcost control remained a problem Understanding, quantifyingand managing risk, therefore, became increasingly important tounlocking the efficiencies associated with optimisation of renewal

and maintenance regimes The demands of the regulators overcontrolling longer-term risks associated with asset managementalso led to pressures to provide better guidance on the holisticmanagement of risk Edwards (2010) is of the view that theneed to holistically manage risks was one of the drivers for theInstitute of Asset Management and British Standards Institution

in developing BSI PAS 55 Regardless of the origins of assetmanagement, its beneficial impacts are increasingly being appre-ciated by organisations in both the public and private sector.These beneficial effects are echoed by Piling (2010), for instance,who argues that the integrative approach associated with assetmanagement has contributed to a situation where organisationsnow see asset management as a powerful tool to help themadd value to a business, rather than as just a cost centre Assetmanagement brings value addition to organisations because theconcept applies an enterprise-wide approach through the wholeasset lifecycle

In this chapter, it has been pointed out that while the exact origins

of asset management cannot be identified, they can nonetheless

be traced to the North Sea gas and oil sector or to the privatisedutilities in the UK Despite lack of agreement over the origins ofasset management, there is consensus that the concept evolvedfrom other disciplines

2 Management

Public Sector Property Asset Management, First Edition.

Malawi Ngwira and David Manase.

© 2016 John Wiley & Sons, Ltd Published 2016 by John Wiley & Sons, Ltd.

13

2.1 Introduction

Up to this point what has been stated is the theoretical process

of asset management In this chapter, we give an evaluation ofhow the process of asset management in the United Kingdomand internationally is practised The application of the theoreticalprocess of asset management by public sectors in the UnitedKingdom and elsewhere has been aided by various asset man-agement guidelines Therefore, this chapter seeks to evaluate thevarious guidelines that have been issued by central governments,public sectors, professional bodies and associations It also seeks

to evaluate the drivers in asset management reforms; trends in thedevelopment of asset management; and the structure of opera-tional assets in the public sector in the UK This chapter considersthe role of external forces in contributing to asset managementreforms in public sector organisations It concludes by apprais-ing the use and development of asset management in variousparts of the world and also gives an explanation of New PublicManagement (NPM), the ideology underpinning NPM, thereasons for its emergence, and how it relates to asset managementreforms

2.2 Drivers of asset management reforms

in the public sector

During the past two decades or so it has become more able that there has been an increasing trend – with an interna-tional dimension – towards the adoption of asset managementapproaches by public sector organisations (Kaganova, 2006) Twotypes of reform drivers are behind the adoption of asset manage-ment practices by public bodies The first set relate to the internalfactors associated with property management practices prior tothe introduction of asset management The second concerns theexternal forces that have impacted on public bodies and whichhave forced such bodies to give greater attention to the way theymanage their property assets

notice-2.2.1 Internal factors behind asset

management reforms in the public

sector

Prior to the introduction of asset management, all public sectororganisations faced similar problems in managing their propertyassets These included a lack of a central policy framework;fragmented management of public property assets; economicinefficiencies associated with public property; a lack of infor-mation needed for managing property portfolios and a lack oftransparency and accountability (Audit Commission, 1988a).Only in the past two decades or so have public sector bodiesbegun to understand the full implications of managing theirproperty assets Up until the late 1980s and prior to the adoption

of asset management approaches to property management,

Kaganova et al (2006) observed that public sector organisations

tended to take incremental change actions associated with erty management Initially, public sector organisations responded

prop-by questioning the processes associated with acquisition anddisposal of real property assets The questioning of processes wasfollowed by interest on the part of public sector organisations

in outsourcing services such as property sales and propertymaintenance The focus on property management was principallytargeted at those responsible for managing properties This was arelatively small group of staff relative to the overall public sectororganisation machinery and its associated range of activities

Kaganova et al (2006) further note that only recently have

governments, including public sector organisations, begun torealise the usefulness of implementing broad policies that address

the users as well as the managers of these assets Kaganova et al.

(2006) further argue that, to be effective, such a broad policyframework must come from the highest levels In addition, thepolicy framework must be driven by a clear understanding of why

a public sector organisation requires or retains real property andwhat steps are required if that need no longer exists Such a policyframework involves utilising asset management approaches to

managing property assets (Kaganova et al., 2006).

In recent years, Kaganova et al (2006) report that the public

sector has come to appreciate the value of implementing broadpolicies that address the users of assets as well as propertymanagers The appreciation by public sector organisations ofthe value of implementing such broad policies is as a result ofthe problems they encountered in managing property assetswithout such a framework, as observed by CIPFA (2008) whostate that: ‘in the past public sector organisations did not in anysystematic way consider how property assets had been used anddeployed Issues about asset condition, asset fitness for purpose,long term sustainability of assets, delivery outcomes, and howassets were positioned relative to service user needs were hardlyconsidered.’ The absence of a strategic focus embodied in abroad policy framework for managing property assets in publicsector organisations is emphasised by Gibson (1994) following astudy reviewing reports highlighting the inadequacies associatedwith public sector property asset management Gibson (1994)concluded that the main criticism of these reports was that therehad been no strategic approach to management of public propertyassets The lack of strategic approach was further observed by theAudit Commission (2000), commenting that: ‘across the publicsector, there appears to be a long way to go before it is generalpractice for property assets to be routinely managed in a strategicfashion Property is a resource which, alongside others such

as ICT and staff, needs to be actively managed at both serviceand corporate levels.’ It is now recognised that effective assetmanagement involves developing a broad policy framework formanaging property assets that addresses asset users as well as

property managers’ needs According to Kaganova et al (2006)

an asset management framework for managing public sectororganisation assets helps to achieve efficiency and effectivenessthrough increasing the efficient use of facilities; minimisingoperating costs; locating offices and services in functional andnot necessarily in prime areas; and by knowing the highest andbest use of assets among other benefits

One of the consequences of not adopting an asset managementapproach for managing public sector organisation properties wasthat the management of such properties tended to be fragmented

Fragmented management, according to Kaganova et al (2006)

and Kaganova (2006), involved respective departments of publicsector organisations becoming involved in managing, financing

and using property assets In the case of the majority of publicsector organisations in the United Kingdom, one of the reasonsindividual departments became involved in managing propertieswas because property was considered to be ‘owned’ by the individ-ual service committees occupying it (Audit Commission, 1988b).Such fragmented management of property assets was made worse

by a lack of public sector organisation-wide strategies, policiesand rules that are normally only available where asset manage-ment practices are in place In practical terms, fragmentationimplies that criteria unrelated to asset management effectiveness

or efficiency split public property into many portfolios, andthese portfolios were managed quite independently Even ifsome departments of public sector organisations managed theseproperties well, the overall result was that the performance

of property assets and management practices tended to besuboptimal In addition, as a result of fragmented management,public sector organisations experienced economic inefficienciesassociated with the performance of their property assets Suchinefficiencies included physical and economic underutilisation

as well as insufficient maintenance and repair Worse still, as aresult of fragmented management, public sector organisationscould not promote and implement policies that encouragedjoint occupancy of properties with partners or other publicagencies Furthermore, they could not readily exploit surplus orunderutilised property as there were no mechanisms to transferproperty between committees or to encourage the identification

of surplus property for disposal This was due to the lack of assetmanagement approach The weaknesses that emerged as a result

of the fragmented management manner in which public sectororganisations managed their property assets led to a number ofspecific problems According to the Audit Commission (1988a)these specific problems included:

a) Public sector organisations not having adequate informationabout their property The fact that public sector organisationsdid not have adequate information about property assetsmeant they could not make informed property managementdecisions

b) There were no incentives for users to efficiently and effectivelymanage the properties they occupied as they perceived littlebenefit in surrendering ‘their’ vacant or underused propertieseither for disposal or use by other service areas

c) Public sector organisations failed to carry out regular propertyreviews, which are necessary if property is to be managed as adynamic rather than as a static resource.

d) The opportunity costs of holding property were not nised, meaning that properties were not put to their highestand best use

recog-e) There was a lack of coordinated maintenance strategy,resulting in maintenance budgets being used for what publicsector organisations saw to be more pressing needs, withfew local authorities carrying out full condition surveys ofbuildings to assess the scale of their maintenance backlog.f) Public sector organisations did not have effective financial andmanagerial procedures to aid proper accountability (AuditCommission, 2000)

g) Evidence that in most public sector organisations there waspolitical apathy and opposition to change property manage-ment practices

h) Public sector organisations did not challenge the need forowning property or did not review the manner in which prop-erty services were organised and obtained As a consequence,most public sector organisations retained and maintainedbuildings that were in the wrong place, of the wrong size, orwere otherwise unsuitable for their existing use

According to the Audit Commission (1988a, 2000) the propertymanagement problems identified and highlighted had unwelcomeconsequences These consequences included:

a) poor control of running costs;

b) badly utilised property tying up capital resources and divertingrevenue resources from areas of more immediate use;

c) failure to generate capital receipts as resources were sarily tied up in property which could be released to generatecapital receipts;

unneces-d) holding of excessive vacant property; and

e) deteriorating building stock due to the accumulation ofbacklog maintenance

Figure 2.1 shows the inter-relationship between a lack ofstrategic approach to property management and the resultantproblems and consequences These management problems andconsequences arose because public sector organisations failed to

Fundamental weakness Management problems Consequences

Failure to carry out property reviews

Confused objectives for tenanted /vacant property

Badly utilised property

Failure to generate capital receipts

Excessive vacant property held

Full cost of providing service unknown

Poor performance of investment portfolio

Deteriorating building stock

No coordinated maintenance strategy

Opportunity cost of holding property not recognised

No incentives to users

Poor control of running costs

Figure 2.1 Lack of strategic approach to property management and the resultant problems and consequences.

recognise the corporate aspects of property portfolio ment which necessitate the need to adopt a strategic approach tomanagement (Audit Commission, 1988a)

manage-The lack of a strategic approach to the way public sectororganisations managed their property assets and the resultantmanagement problems and consequences meant that propertymanagement introduced economic inefficiencies Economic inef-ficiencies included poor control of running costs; failure to putproperties to their highest and best use through poor utilisation;and deteriorating building stock According to Kaganova (2006)such inefficiencies persisted in most public sector organisationsand led to an established belief, common amongst public bodies,that property held by a government was a ‘free good’, owned by

the taxpayers and not subject to economic rationalisation Thefailure on the part of public sector organisations to rationalisetheir property asset holding had consequences The consequencesincluded first, that public sector organisations seldom accountedfor the real cost of holding a property asset and the opportunitycost Second, public sector organisations incurred opportunitylosses stemming from economic underutilisation Economicunderutilisation relates to failure on the part of public sectororganisations to capture the property’s highest and best use.Apart from economic underutilisation, there was also physicalunderutilisation where vacant or underutilised properties wereunnecessarily retained Opportunity losses also stemmed fromdeferring maintenance and repair of public sector organisationproperties leading to accumulation of deteriorated stock Thelack of adequate and appropriate property information needed tosupport asset management decisions has been an issue in most

public sector bodies For instance, in a recent study Ngwira et al.

(2012) reported that less than half of the Scottish public sectororganisations indicated that they had sufficient data on propertysufficiency, usage, sustainability or condition Furthermore, theproperty systems of Scottish public sector organisations conveyedinadequate information about the environmental performance

of buildings in terms of CO2 emissions, health and safety veys, energy performance, required maintenance, maintenancespending patterns, benchmarking, agreed performance targetsand processes for consulting with partners There have beenother similar findings that Scottish public sector organisationslacked reliable information in property asset registers to assistwith management decisions For instance, following a study ofasset management practice in Scotland by the Audit Commission(2009), it was reported that, ‘the majority of Scottish public sectororganisations report good arrangements for collecting propertydata, but good operational data is not always used to support deci-sion making’ Even on the world stage it is noticeable that publicsector organisations have difficulty introducing effective property

sur-information management systems For instance, Grubisic et al.

(2009) observed that despite the age of information technologyand worldwide computer use, many public sector organisationsstill did not have asset registers that would enable them to have

a true reflection of the total value of assets owned, or their public

asset registers were incomplete making it difficult to monitor andcontrol the way public assets are used or misused Kaganova andMcKellar (2006) cite the research by Bond and Dent (1998) whostate that as of 1996 only 65% of all public sector organisations

in New Zealand and 66% in England had their property recordscomputerised As of 1997, Washington DC had duplicative andinconsistent inventory records of buildings that the city ownedand a substantial incomplete inventory of in and out-leases.The situation was no different in the case of the US federalgovernment that, in early 2002, had no reliable government-widedata on property holdings For example, Ungar (2003) states thatthe US federal government’s worldwide asset register lacked suchkey data as space utilisation and facility condition

There is general agreement that where public sector isations lack reliable information about their property assets

organ-it means that revenues and expenses are not tracked on aproperty by property basis mainly because this information

is not collected within public sector organisations’ budgetingsystems Furthermore, the potential market value of operationalproperty assets is also frequently unknown or bookkeepingvalues for property so outdated as to be meaningless Kaganovaand Mckellar (2006) argue that where information managementsystems do not have information about lease arrangements

or access to the information that a lease document provides,effective property management practices cannot be instituted.Since leases record space utilisation as well as operating costs,detailed recordkeeping is essential to cope with owner–tenantdisputes, to ascertain market trends and set prices, to determinevalues, and to compare performance against industry standardsand benchmarks (Kaganova and Mckellar, 2006)

Tanzi and Prakash (2000) argue that having reliable tion in asset registers would increase public sector efficiency, andcould serve a number of other useful purposes These purposesinclude:

organisation or indeed central government that could helprating agencies in determining credit ratings;

● facilitating the calculation of the balance sheet or the net worth

of the public sector organisation;

● reducing the possibility that some public assets ‘disappear’; and

● permitting a public body to impute capital charges to publicagencies, institutions or other public sector organisationdepartments that use these assets and force them to use theseassets efficiently

The lack of transparency associated with property assetdealings in most public sector organisations was another con-sequence of not adopting an asset management approach to

operational property management Kaganova et al (2006) assert

that property asset dealings in most public sector organisationswere by no means transparent This kind of lack of transparency

in property asset transactions created problems in most countriesand included suspect dealings, ‘insider’ transfers and otherabuses The pressures for transparency reforms in public propertyasset transactions therefore gained momentum, requiring thatproperty asset management practices be subject to codifiedprocedures and processes

management reforms in

public sector organisations

The drive for reforms in property asset management has takenplace as an integral element of the major externally driven changesthat have affected the role of the public sector organisations.These changes, known as New Public Management (NPM), haveemerged over the past three decades or so Mackie (2005) statesthat in the case of the UK, NPM related changes have taken placesince the election of Thatcher’s Conservative Government in 1979and have been asset management drivers

2.2.2.1 New Public Management (NPM): explanation

and ideological beliefs

Mackie (2005) explains what is meant by the concept of NPMand states that it is a movement on the part of the public sector

to become more like private business, coupled with greateraccountability to funders, stakeholders and service users forresults achieved There are certain ideological beliefs about theprovision of goods and services by public sector organisations

that drive the NPM movement According to Dawson and Dargie(1999) the movement believes that public sector provision of

services or goods is inefficient and often ineffective In addition,

there is also a belief that public sector provision of such goods or

services leads neither to cost containment, nor quality

improve-ment Furthermore, the movement believes that the public

sector opens the way to undue influence for employees from their

membership of professional associations or mass trade unions.Finally, the movement believes that if the public sector is leftunchecked to continue providing goods and services, this is likely

to result in unacceptable growth in publicly funded spending.Growth in publicly funded spending, mostly by taxation, in turnhas consequences of an increasingly dissatisfied electorate anddeclining standards of public service

On the basis of these beliefs and the potential problems ciated with cost containment, performance and public supportthat can arise from public sector provision, the movement hasidentified three goals as main drivers of public sector reforms.The goals include containment of cost, securing of public supportand performance improvement (Dawson and Dargie, 1999).The NPM movement believes in the merits of the private sectorand considers that these goals can be realised through marketmechanisms The contention is that the private sector knows

asso-how to engage in ‘turnaround management’, the objectives of

which are to cut costs, eliminate waste and instil competitiveness.According to Hoque and Moll (2001) the introduction of NPM

in the public sector sought to bring about a turnaround by a shift

in management focus The shift in management focus related to

moving from adherence to formalised procedures to an emphasis

on resource allocation and goal achievement According to Dawson

and Dargie (1999), NPM’s intentions are to create an institutionaland organisational context that mirrors what are seen as criticalaspects of private sector models of organising and managing,such as the construction of market mechanisms A key feature ofthe market mechanism was the creation of quasi-markets whereinnew organisations were created and a split imposed betweenthose public organisations that were to commission or purchasepublic services and those organisations, private or public, thatwere to be contracted to provide the services Mackie (2005)states that politicians in the UK and elsewhere came to accept the

NPM doctrine that private sector management was superior andwhenever possible the public sector should emulate the privatesector or simply privatise the public function.

2.2.2.2 Reasons for emergence of NPM

According to Hoque and Moll (2001), three factors contributed

to the emergence of NPM as a movement They were a conceptknown as economic overload; the role of Public Choice Theory;and the rise of Conservative Party ideology

Economic overload relates to fiscal crisis of the state (Boyne,2002) In the UK, fiscal crisis occurred in the mid 1970s Masseyand Pyper (2005) have charted developments leading up to then.According to them, in the period from 1945 to 1975 the size ofthe peace-time public sector and the proportion of the economytaken in taxes to fund it grew to nearly half the nation’s GDP.The tax burden combined with a period of high inflation andrising unemployment from 1974 brought about a fiscal crisis

of the state This created a situation whereby a perception grewamong some US and British observers that the commitments

of the welfare state were outstripping the ability of taxpayers to

fund it, a concept known as economic overload (O’Connor, 1973).

Apart from the problem of meeting welfare commitments, the

UK also experienced other problems such as poor public serviceprovision and strikes because of the power of trade unions.According to Dawson and Dargie (1999), free market politiciansfaced with the problems of containment of cost, employee power

and poor public sector performance associated with economic

overload turned to private sector models on how to effect change.

Public Choice Theory was one such model/concept to which theyresorted

According to Mackie (2005), Public Choice Theory encourages

the use of marketplace practices to improve public serviceprovision The theory developed from three theoretically linkedschools of thought, namely the Chicago, Virginia and Austrianschools One of the main contributors to the Public Choicetheoretical arguments is the conservative market economistHayek (1944) of the Austrian school The basic argument thatunderlies Public Choice Theory is that government bureaucracy(public sector organisations) restricts the freedom of choiceand power of the individual In addition, Public Choice Theory

contends that the traditional public sector model of adherence to

formalised procedures does not provide an equivalent structure

of incentives and rewards to those of markets Such a modelrestricts the choice and power of individuals In addition, themonopoly situation associated with the traditional public sectororganisation model means that there is a lack of informationavailable on the extent to which the public service organisation is

delivering value for money.

According to Public Choice Theory (PCT), the restrictive andmonopolistic characteristics associated with public sector organi-sations make them inherently inefficient (Boyne, 2002) The inef-ficiencies are a result of the way public sector organisations areowned, funded and controlled (Boyne, 2002) PCT entails thatcommon ownership, which is a hallmark of public sector organisa-tions, ‘leads to lower efficiency since property rights in the publicsector are diffuse and vague’ In addition, the fact that public sec-tor organisations are publicly funded makes them unresponsive

to the preferences of the people who receive their services This

is because the service providers do not necessarily consider thatthey are accountable to service users Inefficiencies in public sectororganisations also arise as a result of the manner in which they arecontrolled Since public sector organisations are subject to politi-cal controls they are likely to face multiple choices of authority thatare potentially conflicting Instead of public sector services beingprovided via the traditional public sector model with its inherentinefficiencies, PCT argues for the need for a public sector model

that emphasises resource allocation and goal achievement Such a

model is found in private sector provision of public services onthe basis that markets are a more efficient way of allocating scarcenational resources The theory assumes that by introducing com-petition in service provision followed by performance monitoring,review and evaluation, public sector organisations can enhancethe value for money demonstrated by public service providers.According to Massey (2005), the PCT arguments profoundlyimpressed politicians, leading to the UK government – andmany others around the world who were faced with similar fiscalcrises, especially New Zealand, Australia and Canada – from

1975 onwards implementing what has been described as NewPublic Management (NPM) (Massey, 2005) The pressuresfor substantive changes in the funding and delivery of public

services were intended to increase the efficiency, effectivenessand responsiveness of service delivery to users (Crawford, 2003).Since the 1980s, governments have responded to these pressures

by introducing political initiatives, such as the practices andprocesses of the commercial marketplace, which have sought tomodify the manner in which public sector organisations operate;and their organisational cultures changed (Baldry, 1998) andultimately improved performance (Hood, 1991)

2.2.2.3 NPM and asset management reforms

According to Massey and Pyper (2005) there are several linkingthreads contained in PCT that are behind NPM ideology Theseare the threads or ideas that have influenced public sectorreforms, including property asset management reforms, in the

UK, New Zealand, Australia and the USA, among others Whilethere is no formal definition of NPM, there are some mostcommonly identified elements in the literature associated withthe implementation of key NPM initiatives Such commonlyidentifiable NPM initiatives include:

cost-effectiveness, supported by performance monitoring andincentives (Christensen and Laegrid, 2001);

economy, including privatisation or commercialisation of viously public enterprises and services, increased contracting,and application of private-sector management approaches tothe public sector (Sehested, 2002);

pre-● separation of policy-making and service delivery functions;

● decentralisation or devolution of service responsibilities fromhigher to lower levels of government; greater managerialflexibility in financial management; and

operations (Hoque and Moll, 2001; Grubisic et al., 2009).

Externally led reforms in property asset management that haveforced public sector organisations to adopt asset management as

a framework for managing their property assets are said to firmlybelong to NPM (Organisation for Economic Cooperation andDevelopment (OECD), 1995) Some of these external influences