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The Third Resource
Property Management

by John O'Shaughnessy

People and money are two resources enterprises either manage well or pay a high price for neglecting. The third resource, property, is very often under-managed by many businesses and public-sector organizations. A new main committee has formed within ASTM on Property Management Systems (Committee E53) to create standards for the many aspects of managing the third resource.

Introduction

For nearly a year the National Property Management Association (NPMA) has been working with ASTM to establish a new standards committee, dedicated to the development and documentation of standards, practices, and systems for use by property professionals and resource managers, and to advance the field of property management. The new ASTM Committee E53 on Property Management Systems is the result of that effort.

Property management is a specific branch of resource management. To gain a clearer understanding of this field it must be viewed from the context of managing critical resources. A brief overview should help establish the position of property management within the broader resource management arena.

What Is Property Management?

Resource management is the art and science of managing the three primary resources critical to the success of most enterprises: people, money, and property.

Property management refers to all of the knowledge, skills, processes, and systems directly related to the management and administration of this third resource throughout its life cycle, from initial acquisition to final disposition. It includes capital assets as well as real and personal property, both tangible and intangible, when used across a broad spectrum of public and private enterprises. These include federal, state, and local government agencies; medical facilities; universities; and commercial, industrial, and service organizations. It includes all types of property—both capital and expense—that are considered critical to the successful accomplishment of an enterprise’s goals.

Property management and administration is a field bound by legal, regulatory, financial, and contractual requirements, and is governed by a variety of both practical applications and ethical principles and considerations. The purpose of the new ASTM Committee E53 is to document and codify the best processes, practices, tools, techniques, measurements, and systems as standards of performance in the field of property management and administration.

The creation of a standards committee specifically focused on the management and administration of property, as defined above, is a milestone in the field of property management.

This venture will provide much-needed exposure for this critical and often little-understood area of resource management. There are few unexplored areas for improvement in business today. The third resource is definitely one of these.

The Three Resources

Property management and the opportunities it presents to managers everywhere can best be understood from a resource perspective.

As observed earlier, most endeavors require three fundamental resources: people, money, and property (or assets). The timeliness, adequacy, and effectiveness of these three resources ultimately determines the success or failure of the venture.

The First Resource—The first resource, people, is well understood and accepted as a critical element in the success of most activities, particularly when related to the conduct of business. Too many or not enough people (not in the right place at the right time with the right skill set, or worse, ineffectively or inefficiently utilized) could spell disaster for a business. Literally hundreds of books are available on the management of people in a business environment. Undergraduate and post-graduate programs are available at most universities for the effective management of human resources in a business environment. There are literally dozens of metrics and measures of effectiveness for determining the adequacy, productivity, efficiency, and effectiveness of both the workforce and those that supervise or manage them. All of this has a foundation of professional training and certification programs geared to improve the people resource management skills of individuals at all levels and from all disciplines.

The Second Resource—The same is true for the second resource: money. Again, not enough in the right place, at the right time, and at the right rate, can quickly lead to failure. Money spent on the wrong things can have equally costly consequences. Like the first resource, there are undergraduate and postgraduate programs at universities all over the world addressing the effective management of money in the business sector. Countless metrics, performance measures, and standards have been established and many have been incorporated as law. There are library shelves of books published on the subject. Often, a manager’s performance ratings and bonuses are based in large part on how well they manage their financial resources. As is the case with people resources, financial management is taught across all disciplines. Managers, regardless of their primary field of interest, are expected to be competent in the effective management of this vital resource.

The Third Resource—That brings us to the third resource: property. Although it holds much of the same potential as the other two—to function as a powerful enabling force or a serious impediment to the success of a venture—it is seldom managed as one would any other critical resource. In many instances it is ignored until major problems arise, caused by the lack of attention to this resource. There are no degree programs and very few courses available on the subject. The NPMA Standard Property Book is one of the very few comprehensive books available today on the subject. There are only a handful of metrics and measures and, with the exception of a few specific areas in the public sector, there are no published standards of performance. Some aspects of property management are well defined, but most are not addressed except by practitioners in the field. One exception is the financial tracking and reporting elements in support of the Security and Exchange Commission and Internal Revenue Service requirements. These are fairly clear and qualified people supported by capable financial systems exist for this purpose. However this element of property management is more a part of the second resource than the third.

What Is Included in the Third Resource?

What are the items that are recorded, controlled, managed, reported, and administered by property management professionals? Mostly they are the assets acquired by an organization to perform or support its primary mission. These include items that are purchased, fabricated, borrowed and/or leased, and which are used by the organization to achieve its strategic and operating goals. Most often these things are referred to as property.

The federal government has further classified property into two types and five major categories. The two general types are “real” and “personal.” Real property refers to real estate: land, buildings, and permanently installed improvements such as sewers, side walks, parking lots, lighting poles, etc. Personal property addresses everything else that doesn’t meet the definition of real property.

The five classes of federal personal property are 1) agency peculiar property (items designed and produced specifically for a particular agency of the government), 2) facilities (generally commercially available equipment, but may include real property), 3) material, 4) special test equipment, and 5) special tooling. (See the sidebar to the right for definitions of each of these.)

While companies doing business with the United States government are very familiar with these classifications, those outside the government contract community have little familiarity with them.

In the commercial world, the terms “property, plant, and equipment” have been established as classifications for depreciation and tax purposes. These are further divided into real estate or facilities, capital assets, and expensed and leased property. Property of a capital nature—items costing over a preset threshold and having a life expectancy greater than two years—are called “fixed assets” by the finance folks. These are the ones reported in the company’s financial statements each year. There are numerous sub-classifications including office equipment, production machinery, tooling, test equipment, computer and peripherals, software, etc. Below this level of classification there are myriad special circumstances that require additional classifications. In general, all of these are to support record and reporting requirements, and the financial treatment of these items.

Who Manages Property?

The role of property management is very much a matter of perspective, as any good property administrator will quickly confirm. Even the terms “property administration” or “property management” are not standardized. The terms property control, property management, property administration, asset management, and fixed asset accounting are all widely used. Within private industry, the property folks may (depending on the company) report to the finance, materials, contracts, facilities, or operations directorates. Again, depending on the company, they may report directly to the vice president or director level or they may be parked in an obscure corner of the organization’s hierarchical chart. Companies that realize the benefits and value of managing the third resource have property managers at the director level and in their corporate offices. Their primary mission is to coordinate the property management activities across the company’s divisions, in much the same way that a corporate human resources director or finance controller interact with the divisions now. The lion’s share of an organization’s understanding of and concern for the third resource can be determined by the placement of the property function within that organization.

Property Management Today

Most of the structure that defines the property management field has evolved from government legal, regulatory, and contractual requirements that were enacted to resolve problems before litigation. (As one might expect, they were actually enacted after litigation that did not find in the government’s favor.) Some of these cases date back to the Civil War years.

It should be noted that the term property management as used herein does not include enterprises devoted primarily to the management and administration of commercial properties such as real estate sales, hotels/motels, or apartments/condominiums. Although they clearly meet the description above, these enterprises are not currently part of the objectives of the ASTM property management committee.

Property management today has evolved from control and accountability of assets to a much more complex and technically challenging field. Many companies today are viewing themselves from their stock investors’ perspective along with the more traditional methods. The third resource has a direct impact on these calculations. Companies employing a value based management measurement process usually have senior management bonuses tied to an economic index. Inadequate attention to the third resource has a direct, decidedly negative—and often masked—double impact on this index. Excessive capital and/or ownership costs adversely impacts the index and therefore the bonuses.

To gain a competitive advantage in the new global marketplace, companies have downsized, rightsized, merged, partnered, and outsourced. They’ve implemented process and quality improvement programs to support their strategic and operating goals: total quality management, just-in-time inventory control processes, Malcolm Baldrige National Quality Awards assessment processes, lean manufacturing, theory of constraints, Kanban, six sigma process improvement schemas, value based management, and, the latest entrant into the improvement game, value based six sigma. All of these, and the many other improvement programs not mentioned here, are specifically focused on the first two resources. Until now the third resource has remained essentially unexplored.

The Few Government Standards Are Not Enough

Within the federal government, interest in the management and administration of the publicly funded property under its control is well documented.

The National Aeronautic and Space Administration, the Department of Defense, and the Department of Energy all have well-defined property management guidelines and performance criteria. As good as these performance standards are, they have limited application in the commercial world. Government agencies have the stewardship responsibilities for all of the property purchased with public funds. The Federal Acquisition Regulations and supplements that are the basis of the government’s property criteria require equal treatment for a washer valued at $0.001 and a special test set valued at $1 million. These regulatory requirements are grounded in public law and, although effective, they may not be cost efficient.

As mature as these government systems are, there has been significant increase in interest—and in some cases alarm—over the need to drastically improve them. Congress, through committees and legislation, has also expressed its concern, principally in terms of the accuracy of reports regarding government property and the accuracy of the financial reports of all property owned by the federal government. Similar regulatory changes have been enacted affecting state governments, universities, and even hospitals. A testimony to the complexity of managing the third resource can be found in the government’s seven-year struggle to obtain approval for a much needed new government property regulation.

In the private sector, legal and regulatory directives govern the field of property administration. Both IRS and SEC require that records of all capital be maintained and reported. Of course, as was discussed earlier, the stockholders also want this information to assess the status of their investment. These may be regulatory requirements, but these practices just make good business sense, too.

But, surprisingly, the concept of managing, rather than recording and reporting, assets is not addressed in these regulatory documents. In most instances resource managers at all levels are held accountable only for the first two resources. It is a rare occurrence to find a company with systems, processes, metrics, and measures of effectiveness to actually manage the third resource throughout its life cycle. Those few that have embraced the concept of managing their assets are true pioneers.

Most businesses have a significant investment in the third resource, with little in the way of management beyond the administrative and accounting duties dictated by law or regulation. Essentially, investments in assets are considered “sunk costs” to be depreciated and later to be disposed of. In most companies little is known about the life cycle costs between acquisition and final disposition as these costs are obscured in indirect cost pools. Often, management policies dealing with the second resource, money, have an adverse effect on the third resource. Typically managers at all levels are measured on how well they manage their people and budgets. Few if any are measured on how well they manage the property under their control. It is a rare occurrence when a program manager is required to manage and report on all three resources in support of specific program goals.

Still, there are selective areas of property resource management in the commercial manufacturing world that use well-developed and documented resource management systems. As a result, their importance and impact are well understood and these systems are well refined and documented. Material is one of the few classes of property that can claim a well-developed, documented, “mature” resource management system. It is measured and managed at all levels of a company, particularly companies that are in manufacturing or related businesses. The material management process begins during the proposal phase and extends throughout the business life cycle of the product. However, the knowledge gained from these matured systems has not been extended to all of the property.

Given these limitations, the formation of ASTM Committee E53 on Property Management Systems demonstrates the advantages of “out of the box thinking.” This endeavor takes a major step toward launching property administration into the mainstream of resource management.

Virtually every organization and function that requires property resources to cost effectively reach their goals or remain competitive in the global marketplace will reap enormous benefits from participating with the E53 committee in the development of standards, practices, and systems for the successful management of the third resource. Certainly all will benefit from the products being developed by this newest entrant into the standards world. //

Copyright 2000, ASTM

John O’Shaughnessy is the manager of Property Administration for ITT Aerospace/ Communications division of ITT Defense, Fort Wayne, Ind. He is a certified professional property manager and consulting fellow in the National Property Management Association. O’Shaughnessy is the membership secretary for ASTM Committee E53 on Property Management.

For additional information regarding Committee E53, please contact Pat Picariello (610/832-9720). Individuals interested in joining E53 may complete an application.

ASTM Main Committee E53 on Property Management Systems is developing the following draft standards:

• Standard Practice for Assessing Loss, Damage, or Destruction of Property

• Standard Practice for Physical Inventory of Durable, Moveable Property

• Standard Practice for Organization and Maintenance of Serial Numbers

• Standard Terminology for Property and Asset Management

Five Classes of Personal Property (… as defined by the U.S. Government)

“Agency-peculiar property” means government-owned personal property that is peculiar to the mission of one agency (e.g., military or space property). It excludes government material, special test equipment, special tooling, and facilities.

“Facilities” means property used for production, maintenance, research, development, or testing. It includes plant equipment and real property. It does not include material, special test equipment, special tooling, or agency-peculiar property.

“Material” means property that may be incorporated into or attached to a deliverable end item or that may be consumed or expended in performing a contract. It includes assemblies, components, parts, raw and processed materials, and small tools and supplies that may be consumed in normal use in performing a contract.

“Special test equipment” means either single or multipurpose integrated test units engineered, designed, fabricated, or modified to accomplish special purpose testing in performing a contract. It consists of items or assemblies of equipment including standard or general purpose items or components that are interconnected and interdependent so as to become a new functional entity for special testing purposes. It does not include material, special tooling, facilities (except foundations and similar improvements necessary for installing special test equipment), and plant equipment items used for general plant testing purposes.

“Special tooling” means jigs, dies, fixtures, molds, patterns, taps, gauges, other equipment and manufacturing aids, all components of these items, and replacement of these items, which are of such a specialized nature that without substantial modification or alteration their use is limited to the development or production of particular supplies or parts thereof or to the performance of particular services. It does not include material, special test equipment, facilities (except foundations and similar improvements necessary for installing special tooling), general or special machine tools, or similar capital items.1

1 These definitions have been excerpted from the Federal Acquisition Regulations (FAR) part 45.