When most people think of engineering, they think of building things – machines, buildings, bridges, factories, roads, dams, etc. In fact, the Wikipedia article for engineering starts off saying just as much. Industrial and Systems engineering is the oft forgotten field of engineering that the “real engineers” call imaginary.
Systems engineering is all about optimizing and improving complex systems over time. Systems typically take the form of independent areas that all overlap, interconnect, or share a relationship of interactions of any sort. Corporate real estate portfolios are the definition of a large, complicated system that changes and evolves over time:
- Business strategy leads to hiring leads to space needs in a market and changes monthly
- Lease terms lead to decisions around space lead to predicting future business strategy on a predictable basis
- Workplace design includes technology which changes at a fast rate which requires refreshing regularly
- Employee work patterns and preferences adapt and change over time leading to evolving space usage patterns
- Annual financial targets for the company leads to real estate investment constraints leads to real estate decisions within those constraints
- Inflationary pressures impact all aspects of real estate costs which impacts global budget which impacts corporate profits
- Market conditions and demographics change which leads to business desire to relocate which leads to new real estate strategy
This is not an exhaustive list of the relationships that must be managed to optimize a real estate portfolio but it is indicative. There are a lot of moving components and some will carry more or less influence any given year or on any particular decision. It’s great to look forward to lease dates and aggregate the list of potential projects by year but the reality is that most years, this won’t even come close to reflecting the actual list of projects that will be delivered.
Systems engineering approaches start with the assumption that there are no perfect solution. When you design a workplace, there is no way to 1) determine the “right” number of desks, 2) determine the “right” number of conference rooms, 3) translate desks and conference rooms into an accurate space requirement, 4) identify the “right” price point the space should be at, 5) build to the “right” standard. Each of these items 1-5 are highly subjective and prone to a degree of guessing or best endeavors. There is no “right” answer for what an office should be but that does not mean we should give up and just throw darts to get an answer.
To understand the right solution for any given project, the place you should start is by understanding where the portfolio is at today, understanding where the business wants it to be in the future (typically a financial measure more than an operational one), and the constraints on real estate to achieve this migration (cost, resources, lease timings, etc.). From there, all of the potential projects should be evaluated by how they perform at moving the portfolio in the desired direction. Projects with a high positive impact get prioritized while those that don’t get pushed back. There will always be some projects that must be done for any number of reasons as well so prioritization is also not black and white.
With this list of priorities, the goal should be to develop a portfolio of projects that move the group in the right direction. This project list should be presented as a holistic program instead of tackling projects independently. Any given project only has value in comparison to the others which means that evaluating and approving projects on a case-by-case basis will always lead to suboptimal outcomes for the function as a whole.
Once the portfolio of projects is approved, it will still continue to change and adapt over time as conditions change. The business requirement from last month disappears this month making the need for a project unnecessary. The market conditions for a priority project suddenly shift and make it no longer financially beneficial leading to a different project rising up the list. But once the overall list is created, it shifts to an execution mode of delivering each project trying to beat the approved targets to hopefully leave budget to achieve additional projects that did not make the first cut.
This effort should rinse and repeat on whatever frequency the overall constraints are refreshed (typically around fiscal years).
On top of this, the real estate team should stay actively involved in understanding the pulse and nature of the businesses looking out for condition changes that may impact the fundamentals of the plan. Mergers and acquisitions, divestitures, business changing account wins/losses should all be watched for as they could make an entire plan out of date on their own.
Everything is about balance across the function. Balancing the inputs, outputs and operations is not easy. Thinking through the systems and interactions is the best way to approach it.