FACILITIES MANAGEMENT

OUTSOURCING
DR. NORALFISHAH SULAIMAN
D E PA R T M E N T O F R E A L E S TAT E
WHAT IS OUTSOURCING ALL ABOUT…
• Outsourcing is very much in on the Facilities Management (FM) side of the
industry, according to a newly released survey of facilities managers (FM-Link.com in
2001-an online publication for facilities and building managers).

• Outsourcing is any task, operation, job or process that could be performed by

employees within your company, but is instead contracted to a third party for a
significant period of time.
• In addition, the functions that are performed by the third party can be performed
on-site or off-site.
• The most common model of outsourcing that is in the news today refers to jobs
that are being sent over seas to countries like India or China (eg. after hours
answering services and security services).
• This is more commonly called offshoring. Examples include telephone call
centers, tech-support and computer programming.
WHY OUTSOURCING ?
• There are a number of practical reasons why
outsourcing may, in certain cases, work to the
core business advantage. These concern;
• (1) Cost
• (2) Quality
• (3) Motivation
• (4) Flexibility
• (5) Availability of skills
(1) Cost Issues
• The cost of fully-resourced in-house are usually higher than those emanating from an out-sourced
solution. The reasons for this are many and varied, but stem from two main sources :
(1) The lack of competition
(2) Over provision
• Market testing and benchmarking could reveal the status of the company performance.
• There are other issues aside from market place which can cause the in-house regime to be more
expensive:
(1) Size of operation
The most critical as an organisation need running all its own facilities will need the
resources of all the management skills
(2) In-house Pay Structure
In-house pay structure in most cases, result in wages and salaries higher
(3) Trade Union activities and
Trades Union demands (reasonable or otherwise) in respect of working practices
(workloads). In-house effort could cost two, or even three, times the external market
norm.
(4) Experience
In-house team experience gets out of date once they are removed from fertile,
competitive, cross-company contracting environment which is so essential to the
ability of any individual to retain his market-edge in knowledge and pragmatism.
(2) Quality Issues
• Well managed in-house departments frequently run up costs
of facilities way above the outsourced norm simply by over
providing quality of service.
• This is particularly common in the more affluent companies
where the cost of facilities is not seen as significant and the
excuse given for exceeding cost benchmarks is that the higher
quality is appropriate to their business needs and status.
• If outsourcing is needed, the quality and supplier’s financial
status, can easily be checked out by references.
• Out-sourcing allows calibre and right people to be given
responsibility for the organisation’s mission.
• Nevertheless, the people responsible for delivery must be
made properly aware of the quality required if under-or over
provision of quality is to be avoided in any of the delivery
structure.
(3) Motivation Issues
• The big in-house facilities teams are far better
motivated than of yore, partly due to the sense
of being part of and contributing to the
evolution of a new discipline.

• Better education in the subject area, an

elevation in its perceived importance and an
increasingly higher calibre of senior FM
managers have improved motivation
enormously across the board.

• Elsewhere, the modern facilities workforce is

motivated by prospects of reward and
advancement.
(4) Flexibility
• The well structured external contract should afford
the requisite (mandatory) level of response to
emergency change without the employer being
unduly (excessively) exposed to financial risk (e.g/ the
availability of the outsourced staff/prepare for possible actions).

• The directly employed workforce is in theory at least

able to be moved from project to project, emergency
to emergency, under the direct control of the
organisation and without risk of contractual claims
for disruption, etc. out-of-sequence working.

• Where it is inflexible is where companies need to cut back temporarily on

expenditure on facilities provision.
• In times of reduced demand, the contractor can usually re-deploy spare operatives
on other sites, where he is probably operating slightly below projected resources
quotas to optimise efficiency.
(5) Availability of Skills
• The multiplicity of skills needed in facilities management cannot
all be reasonable brought in-house, so some out-sourcing is
virtually inevitable.
• However, it could be a problem if the organisation has smaller
facilities requirements, in which case full-time appointments of
specialists such as space planners, QS, Health & Safety experts,
engineers etc is not viable (not practical).
• Btw, in the large organisations, where it may be financially
feasible to employ expensive qualified professionals, the cost
incurred may be lower than the comparable consultants’ fees
but this benefit may be off set by:
(1) Difficulty of efficiently matching resources to tasks
(2) Lack of cross-fertilisation of idea (due to cross-diciplined)
• Sometimes Under-resourcing appears: Problem where the task outgrows the
resource, in which case outsourced assistance is usually needed to complement
either number, or skills or both.
EVIDENCE OF OUTSOURCING IMPLEMENTATION… Figure 1

• According to a survey conducted online on the FMLink Web

site: 202 subscribers responded.
• Within two years, 36 percent of respondents said "that they likely would
be outsourcing at least one additional function that they are not
outsourcing at present“
• Why Outsource? "The two most important reasons stated for
outsourcing were 'cost savings' and 'the need for special skills, services or
tools/equipment’..”
• What's Spent on Outsourcing? "The average percentage of the annual
FM operating budget spent on outsourcing is 38 percent," the survey
found. That marked a 6 percent increase from the level recorded two
years ago.
• What's Outsourced? Cited by 72 percent of respondents, the
aforementioned "custodial and housekeeping" function is No. 1 here.
Ranked next as most frequently outsourced FM functions are "design and
architecture," cited by 65 percent of respondents, and "landscape
management," cited by 63 percent. (See Figure 1)
Figure 2
• Where Are Outsourcing's Greatest Savings? The greatest number of
survey respondents reported cost savings in the three most frequently
outsourced services. The order of the top three changes slightly,
however, from the cost savings perspective: "Custodial and
housekeeping" again ranks No. 1, cited by 52 percent of respondents.
"Landscape management," however, ranks No. 2 for cost savings,
cited by 34 percent of respondents. "Design and architecture" was the
No. 3 area for reported cost savings, cited by 27 percent of
respondents.

• What Outsourced Functions Are Most Likely to Be Brought Back In-

House? "Cost" and "service quality" were "the two largest reasons by
far" for bringing those functions back in, the survey report noted.

• Survey respondents not only ranked the function as the most

frequently outsourced FM activity. They also ranked custodial and
housekeeping as the outsourced function that produced the highest
savings, as well as the outsourced function least likely to be brought
back in-house.

Mission-Critical FM ="facilities that must

be fully operational at all times."
 OUTSOURCING PROS
• Focus upon core business:Investment of management attention upon core
business can detract from back office tasks or infrastructure management
• Cost and efficiency savings: the purchasing power of an outsourcer should provide
cost benefits and efficiencies through their specialisation in FM infrastructure
• Staffing flexibility: an outsourced contract can provide flexibility in applying the
right level and skill mix of resource quickly and at less cost
• Reduced overheads: spreading the overheads of an internal operation over several
accounts can enable the supplier to provide this management service at lower costs
• Continuity and risk management: outsourcing should aid continuity while reducing
risk that a substandard level of operation would bring
• Developing internal staff: bringing in new skills from outside can develop your own
staff
 OUTSOURCING CONS
• Loss of management control: client and provider business objectives are different
and this can lead to different management control objectives
• Hidden costs: there are costs incurred in procurement and selection of outsourcing
suppliers and in the mobilisation of the contracts
• Threat to security and confidentiality: make sure your data is protected and the
contract has a penalty clause if an incident occurs. Issues such as intellectual
property rights need protection
• Being tied to financial strength of another company: Providers operate in
different marketplaces to your core business. Your services are in their hands and
this risk needs to be carefully evaluated
• Bad publicity:Outsourcing can lead to ill will and poor morale in the rest of your
organisation
• Different cultural approaches:Businesses inevitably have different approaches so
partnerships can be difficult
 COMMON OUTSOURCED AREAS
Although many areas and functions are outsourced, here are some of the
frequently outsourced areas:

• Information Technology Functions

• Network and Telecommunications
• Human Resources and Insurance Administration
• Accounting
• Marketing
• Security
THANK YOU