I’m an industrial engineer (as I may have mentioned a few times). My favorite concept from the Georgia Tech program was knapsack problems. Given a limited amount of space (like a building) how do you best fill it for maximum value. The simplest solution to most Knapsack problems is called the Greedy Algorithm. For each possibly item you could add to your knapsack you calculate the value per cost. Then you simply fill in the bag with your highest value per cost items until the bag is full. Pretty straightforward.
The concept of value per cost is a difficult one for many people. In real estate an example would be revenue per square foot. Law firms do his extremely well – they track the top line performance of each of their attorneys at each facility. Value doesn’t have to mean revenue though. For manufacturing real estate portfolios an example would be units produced per square foot.
Standard real estate portfolios measure things that typically don’t tie to a value driver. Square feet per seat, cost per square foot, people per seat, vacancy rate – none of these are tied to business value. For understanding the value proposition there are a couple of options: revenue (obviously), units produced or processed, employee productivity, or future revenue/innovation. There are many more, but these should give you a sense of what to look for.
If real estate wants to be at the strategic business table, this is the way that we need to think. A focus on business value is step 1. Measuring impact against that value is step 2.