Facility Planning and Management –

Introduction
Mr. Shrinav J Merchant
 Important Role of Facilities
• Resemble “manufacturing plants” in service & product
created, delivered, consumed for profit
• Facilities define industry/brand by characteristic appearance
• Quality of facilities enhance guest satisfaction
• Safe environment for customers & associates
• Use of specialized consultants for the public and service areas
• Growth comes from addition to the number & size of facilities
• Unlike e-commerce, hospitality requires “space” (facility) to
produce & deliver service
• 3rd party operations for facilities management
• Key role in generating revenue
• Provide owners with return of investment
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 Costs Associated with Hospitality Facility
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• Types of Hospitality Facilities

Budget/Economy Midscale with F&B

Midscale w/o F&B Full-Service Hotels

Luxury Hotels &

Extended Stay Hotels
Resorts

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 Costs Associated with Hospitality Facility
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The three major costs associated with the

facilities..

[Link] of Development & Construction

2. Cost of Operations

3. Cost of Renovation & Modernization

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 Costs Associated with Hospitality Facility
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1. Cost of Hotel Development & Construction
•Land
•Building & Site Improvement
•Soft Cost
•FF&E
•Pre-opening & Working Capital

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Hotel Development Cost

Construction
Buildings, utilities, site works, recreation facilities 60-65%

FF&E
Interiors, food service equipment, expendables, B-O-T-H equipment, misc systems 15-18%

Development
Fees (architect, ID, MEP, legal, accounting, PMC, franchise, developer’s fees, 10--12%
feasibility, insurance, soil tests, surveys, etc)

Financing

Pre-opening
Salaries, training, advertising, promotion, office expenses 3-4%

Working Capital 1-2%

Reserve for Operating Shortfall 3-5% 6

 Costs Associated with Hospitality Facility
• Consider….
• Poor quality construction will have predictable high maintenance costs
and higher infusion (filling or unnecessary expense) of capital for
repairs & renovations
• Maintenance, operation & renovation of facilities is entrusted to
maintenance & engineering staff
• Weather plays a larger role in determining utility costs than occupancy
• Owner expects return on investment on capital employed to develop a
facility
• ROI to owner comes in two ways…
– Operating Profit :
– Real Estate Appreciation
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 Costs Associated with Hospitality Facility
• Weather plays a larger role in determining utility costs than occupancy:
In facility planning, this indicates that climate conditions significantly
influence the energy consumption and, consequently, the expenses
associated with running a facility. For example, heating and cooling
cost, energy management systems, renewable energy integration.
• Owner expects return on investment on capital employed to develop a
facility
• ROI to owner comes in two ways…
– Operating Profit
– Real Estate Appreciation

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• Operating profit :
Operating profit refers to the net profit generated from the day-to-day operations of the
facility. It is the difference between the revenue earned from the facility's
operations and the operating expenses incurred to run and maintain it.
Example : Operating profit includes income from sources such as leasing space,
providing services, or any other revenue-generating activities within the facility. It
subtracts operating expenses like utilities, maintenance, staffing, property taxes,
and other operational costs.
Operating profit is a crucial component of ROI because it represents the ongoing,
sustainable income that the facility generates. Positive operating profit contributes
to the financial health of the facility and provides a steady stream of income for the
owner.
Operating profit provides short-term returns and is crucial for covering operational
costs, debt service, and generating cash flow.
• Real Estate Appreciation:
Real estate appreciation refers to the increase in the value of the property over time. This increase
can result from various factors, including market demand, improvements made to the property,
economic development in the area, or other external influences.
Example: The value of real estate appreciates when the market perceives the property to be more
valuable than when it was acquired. This can lead to increased property value, allowing the
owner to potentially sell the facility at a higher price than the initial investment.
What is capital gain?
Capital gain refers to the profit realized from the sale of a capital asset, such as stocks, real estate,
or other investments. It is calculated by taking the difference between the selling price of the
asset and its original purchase price (or cost basis). If the selling price is higher than the
purchase price, the investor or seller incurs a capital gain.
Importance: Real estate appreciation is a capital gain for the owner. It represents the potential for
a significant return when the property is sold or refinanced. While operating profit provides
ongoing returns, real estate appreciation is more related to the long-term growth in the value
of the asset.
 Costs Associated with Hospitality Facility

2. The Cost of Operation

Following constructions, the ongoing costs…two

primary operating costs….

•POM (Property Operation & Maintenance)

•Utility Cost…
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Cost of Operation :
•The cost of operation in facility management encompasses various expenses associated with running and
maintaining a facility. These costs can vary depending on the type and size of the facility, its location, and the
services provided. Here are some common components of operational costs in facility management:
•Utilities: Expenses related to electricity, water, gas, and other essential services.
•Maintenance and Repairs: Costs associated with regular upkeep, preventive
maintenance, and any necessary repairs to the building and its systems (HVAC, plumbing,
electrical, etc.).
•Cleaning Services: Costs for janitorial services and supplies to maintain cleanliness and
hygiene.
•Security: Expenses related to security personnel, surveillance systems, access control,
and other security measures.
•Property Management Fees: If the facility is managed by a third-party property
management company, there may be fees associated with their services.
 What is POM (Property Operation & Maintenance) :
This term encompasses the day-to-day activities and tasks involved in running
and maintaining a property or facility. POM plays a crucial role in ensuring
that a facility operates smoothly, efficiently, and in compliance with safety
and regulatory standards.
Routine Maintenance: Regular inspections and upkeep of the facility to
prevent wear and tear, ensuring that all systems and equipment are in good
working condition.
Security Management: Implementing and managing security measures to
protect the property and its occupants, which may include surveillance
systems, access control, and security personnel.
Space Management: Efficiently organizing and managing the use of space
within the facility to meet the needs of occupants and maximize functionality.
2. Maintenance:
•Preventive Maintenance: Scheduled maintenance tasks aimed at preventing
equipment breakdowns and addressing potential issues before they become
major problems.
•Corrective Maintenance: Addressing and fixing issues that arise
unexpectedly or as a result of equipment failure to restore normal operations.
•Repairs and Upgrades: Conducting repairs and implementing upgrades to
keep the facility in good condition and up to date with technological
advancements.
3. Utilities Management:
•Energy Efficiency: Implementing measures to enhance energy efficiency,
reduce utility costs, and minimize the environmental impact of the facility.
• Water Management: Monitoring and managing water usage, addressing leaks,
and implementing water conservation practices.
• Waste Management: Establishing proper waste disposal practices and recycling
programs to minimize environmental impact.
4. Compliance (agreement) and Safety:
• Regulatory Compliance: Ensuring that the facility complies with local, state, and
federal regulations governing safety, accessibility, and environmental standards.
• Safety Procedures: Implementing and enforcing safety protocols to protect the
well-being of occupants and comply with occupational health and safety standards.
5. Budgeting and Cost Control:
• Financial Planning: Developing and managing budgets for property operations and
maintenance activities.
• Cost Control: Implementing strategies to control costs while maintaining the necessary level
of service and facility functionality.
 1.2 Costs Associated with Hospitality Facility

2. The Cost of Operation

Factors to consider…
•Manager & Chief Engineer can significantly control costs
•Energy costs are influenced by occupancy
•Weather plays a larger role in determining energy costs
•High occupancy increases need for maintenance
•Maintenance is performed during low occupancy
•Business Mix – Banquet business increases energy costs
•Energy Management Programs
•Energy costs are impacted by type of building

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What is capital expenditure ?
•Capital expenditure (CapEx) in the context of facility management refers to
the funds spent on acquiring, upgrading, or maintaining physical assets and
infrastructure within a facility.
•These expenditures are typically of a significant nature and involve long-
term investments that are expected to provide benefits over an extended
period. Capital expenditures play a crucial role in ensuring the functionality,
safety, and efficiency of a facility.
[Link] Construction or Renovation
[Link] Purchase and Upgrades
[Link] Development
[Link] Investments
[Link] and Fixtures
 Cost of Renovations & Modernization
Capital Expenditure (CapEX)

•Replacement, Wear and Tear, Obsolescence

•Regulatory Requirements, e.g. ADA (American with disabilities
Act), life safety
•Safety & Security
•Franchise Product Demands/Replacement schedules
•Changing Technology
•Market Demand for Product Change
•Replacement of Building Component & Heavy Equipment

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 Cost of Renovations & Modernization

Capital Expenditure (CapEX)

•CapEx can range from 0% to 30% in a given year

•Lack of maintenance leads to high CapEx
•Type of construction quality impacts CapEx
•Facilities Managers assist owners to plan CapEx

CapEx paid thru…

•FF&E Reserve -3% - 5% of revenue
•Owner funding 19
 Impact of Facility Design on Facility Management
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Facility Component & Layout…
•Good facility design improves top-line performance
•Good design helps improve bottom line by reduced staffing costs,
energy costs and POM costs
•Poor facility design will increase functional & physical
obsolescence, thereby reducing value of facility
•One reason for under-performing facilities could be poor facility
design
•Facility layout affects maintenance needs and costs

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 Impact of Facility Design on Facility
Management
Components and Layout
•Our primary focus is managing and not designing facilities…
•Facility components dictate maintenance needs
– Recreational facilities
– Kitchens
– F&B Outlets
– Convention Space
– Conference Space
– Landscape
•Layout effects maintenance needs
– High rise building more complex due to window cleaning, elevators
– Low rise spread-out buildings create need for transportation, travel time
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 Impact of Facility Design on Facility Management
Material Quality & Type of Construction
•Defective or inappropriate materials affect not only maintenance
needs, but also, renovation needs, operating costs as energy and
insurance costs…
– Example…poor quality roof will leak damaging walls, etc.
– Example…poor exterior finish leads to mold, mildew, deterioration of walls

•Substandard design & construction affects cost of facility

– Example...wood frame structure higher insurance cost
– Example…plaster wall higher cost to repair than drywall
– Example…if drop ceiling in rooms & corridors easier to retrofit sprinkler systems
– Example…facility with poor exterior insulated walls, roofs windows will have
higher than average utility costs

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 Impact of Facility Design on Facility Management
Equipment
Durability & Lifetime

•Durability refers to the ability of equipment to withstand wear,

pressure, or damage over time.
•Lifetime refers to the expected or actual duration for which
equipment remains operational.
•Facilities need durable equipment with a reasonably long lifetime to
ensure reliability and minimize the frequency of replacements.

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 Impact of Facility Design on Facility Management
Equipment
•Durability & Lifetime

– Throwaway mindset…e.g. light bulbs

– Residential usage…not durable for commercial use
– Commercial-duty equipment for facilities
– Equipment lifetime helps in planning equipment
replacement and capital requirement
– Good maintenance program can extend equipment lifetime
and against frequent equipment failures

–
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Equipment…continued
•Reparability
– Property staff can repair some equipment or outsourced depending on
equipment & nature of repair
– Equipment near the end of life cycle may not be worth repairing
– Sometimes, repairs reduces efficiency of the equipment
– Reparability is depended on availability of parts
– Parts for imported equipment could be problematic with longer lead times
– Check availability of parts before signing purchase order
– Safety should never be jeopardized when repairing equipment. OSHA

•Accessibility…easy access is required for maintenance

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1.3 Impact of Facility Design on Facility
Management
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Equipment…continued
•Efficiency
– When selecting equipment be aware of the life cycle of
equipment
– Repair should never jeopardize safety-Safety First
– Operating cost of equipment
• E.g., Water heater for laundry: op cost 2 to 4 times
purchase price per year
– Equipment with higher initial cost may provide real payback
– Understanding efficiency of equipment will help wise
purchase decisions
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Equipment…continued
•Systems
– Older buildings need steam boilers that need experts to
maintain
– Local codes must be adhered to..e.g.., in NYC need on-site
licensed steam boiler operator
– Larger hotels provide central, individually controlled HVAC that
is higher to maintain with cooling towers, pumps, etc. as
compared to through-the-wall Vtec systems
– Computerized systems to control various equipment
– Addition of cable, TV, computers, entertainment systems, etc
have increased in facilities
– Building Design systems-The Oversizing Problem
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• Consider…
• Selection & installation of equipment will impact maintenance
• Large equipment life 10 to 20 years. Major replacement required
• Equipment life can be prolonged with good maintenance care
programs
• Choosing higher priced, quality, efficient equipment will provide
payback than cheaper version
• Equipment can be repaired by in-house staff, outsourced or on annual
maintenance contract
• Safety and security should be maintained when repairing equipment,
e.g., OSHA in the US (Occupational Safety and Health Administration)
• Accessibility is important for repairing equipment

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 Management Responsibilities
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• Primary Goal
– To make profit supplying goods & service to customers at a price that exceeds costs
– Managing a facility well contributes to profit
• Responsibilities include…
– The control of maintenance & energy costs
– Protection of owner’s investment-asset management
– Creation of a working environment that results in the efficient operation of all department
– Operate the maintenance function so that it contributes to overall customer satisfaction
– Continued attention to safety concerns of guests and associates
– Meet contractual responsibility in franchise & management contracts
– Legal and regulatory compliance

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 Management Contracts & Franchise Agreements
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Management Contracts
– A requirement that operator fund FF&E reserves is a common provision
in management contracts
– Operator generally needs Owner approval to spend from FF&E reserves
– Disagreements between owner & operator occur whether to classify an
expense as POM or capital or reserve. Classifying as POM reduces
management fee for the operator
– Contract may specify guidelines for determining an expense as POM,
reserve or CapEx
– Contract services are also covered in management contracts
– Management contract will contain provisions for assigning
responsibility to operator for performing repairs, replacements &
improvements in a timely manner

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• FF&E Reserves Funding Requirement: FF&E stands for Furniture, Fixtures, and
Equipment. Many management contracts include a provision requiring the
operator (or management company) to fund reserves for FF&E. This ensures that
there is money set aside for future replacement or repair of furniture, fixtures,
and equipment within the facility. It helps maintain the quality and functionality
of the property over time.
• Owner Approval for Spending from FF&E Reserves: Typically, the operator
needs approval from the property owner before accessing or spending funds
from the FF&E reserves. This ensures transparency and oversight regarding the
use of reserved funds and allows the owner to have control over major
expenditures related to the property's assets.
• Disagreements over Expense Classification: There can be disagreements
between the owner and the operator regarding the classification of expenses as
Operating Expenses (OPEX), Capital Expenditures (CAPEX), or reserves. These
classifications can have financial implications, as expenses classified as operating
expenses may reduce the management fee payable to the operator. Clear
guidelines and criteria for expense classification may be specified in the
management contract to mitigate disputes.
• Guidelines for Expense Classification: Management contracts may include
specific guidelines or criteria for determining whether an expense should be
classified as an Operating Expense (OPEX), a reserve, or a Capital Expenditure
(CAPEX). These guidelines help ensure consistency and fairness in expense
classification and provide clarity for both parties involved.
• Contract Services: Management contracts typically outline the services to be
provided by the operator or management company. This may include property
maintenance, facility operations, tenant management, leasing services,
financial management, and other related services. The contract specifies the
scope of work and the responsibilities of the operator in managing the
property on behalf of the owner.
• Responsibility for Repairs, Replacements, and Improvements: Management
contracts assign responsibility to the operator for performing repairs,
replacements, and improvements to the property in a timely manner. This
ensures that the property is well-maintained and that necessary repairs or
upgrades are completed promptly to preserve its value and functionality.
 Responsibilities of Facilities Department
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• Systems & Building Design • Budgeting & Cost Control
• Systems & Building Commissioning • Security & Safety
• Building & Systems Operations • Contractual & Regulatory
• Building Maintenance Compliance
• FF&E Maintenance & Repair • Parts Inventory & Control
• Equipment Selection & Installation • Renovation, Addition & Restoration
• Contracts Management • Special Projects
• Utilities Management • Staff Training
• Waste Management • Emergency Planning & Response
• Corporate Reporting

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 Facilities Manager in Lodging Operations
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• Title…Chief Engineer; Director of Engineering; Maintenance Chief
• Will Not Oversee Housekeeping Activities
• Need to Have Technical Background
• Organization Chart of a Facility Department
• Ratio of Facilities Personnel to Rooms
– Staffing varies due to age of property; services offered; types of
systems; commitment to in-house or contract services; etc
– Staffing levels is as per the size and spread of the property.
– Luxury and first-class properties with large room count; function
space; extensive gardens, etc have significantly more staff

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