Six Sigma for Corporate Real Estate

How to measure project risk

Let's say you are in the retail outlet business -- a clothing store, a hotel, drugstore.  You build two hundred stores a year and you need to measure the risk in your business.  In other words, you can't wait until your stores are built to see how you are doing.  You can't use "on time performance" of the last few stores to predict the on time performance of the next few.

What key metric should you monitor to gauge risk or likelihood that your stores will be ready for advertising, staffing, and celebration?

I'll suggest that one useful metric would be what I call V/D index -- the "variation / duration index."  It's related to a question about "the 95% forecast range for all key milestones."  It is calculated like this:

Presume 200 projects to open new retail stores.  The projects all start on January 1 and consists of only one milestone:  Project Completion.  All projects are expected to last 180 days.

1. Ask each project manager to log, for each project, their forecast dates for completion of each critical project milestone.  E.g., "Enter the date range for which you are 95% of actual completion of this milestone."  For example, the project manager might put in that he is 95% confident that the store will be ready between June 15 and July 10.
2. Count the number of days in the range.  In this example, the number is (7/10)-(6/15) = 25 days.
3. Divide the number of days by the number of days for the project.  (25 days) / (180 days) = 13.9 V/D Index
4. This gives you a measurement of risk normalized by project duration. 

For the project above, report the 13.9 V/D Index.  This can also be easily aggregated for a portfolio of projects.

How do you make this real?  Once you start measuring it, put a reward system in place.  Reward people who hit tighter forecast ranges and punish people who complete milestones outside the range.

More concerned about budget risk than schedule risk?  This same method can be altered into a V/B Index, a "Variation / Budget Index."

Assume mobility doen't matter for productivity

Contrary to human nature, Six Sigma wants you to start with the assumption that "nothing matters."  This is not an existential philosophy but one that serves to reinforce the important principle that we must reserve our precious resources for the vital few. 

The search for the vital few is so important to Six Sigma practitioners that we are willing to go to extremes to live up to the mission.  You might say that all factors are presumed innocent (irrelevant) until proven guilty (vital).

(Now, this is overstating the issue a bit -- as any real estate broker will tell you, LOCATION is a vital x for real estate property value.)

The point is that before you make a business decision to act on a perceived cause of good (or bad) performance, make sure you prove the issue is vital.  The Six Sigma tools involved here are hypthosis tests.  The going-in assumption is that the cause doesn't matter ("null hypothesis").  You set out to prove this and if you can't, you may make the case that the cause does indeed matter.

Is employee mobility a vital x to employee productivity?  Start with the assumption it's not.  Try to prove it.  If you can't prove it doesn't matter then it probably does.  Mental gymnastics?  Perhaps...but the discipline of hypothesis testing that comes from adopting Six Sigma can help guide useful business discussions about priorities.

Getting Your Leadership Team Looking in the Same Direction

Beware the leadership team that has opposing views of the future!

Last week I was working with a client's leadership team that is beginning to use more formal process excellence methodologies -- for governing their operations, doing business improvement projects, etc.  We were going through "champion's training" and the lights really started going on when we started talking about their business transfer functions.

The concept is reminiscent of high school algebra:  Y=f(x).  In this case, Y is effective CRE management, or a good metro plan, or a strategic sustainability program.  The (x) is the critical drivers of success. 

A metro plan is an easy example -- an effective result is a function of sub-objectives such as reducing vacancy, staying on schedule, improving adjacencies, reducing cost/head, and meeting occupier satisfaction targets.  Although it's simple, the concept really focuses the leadership team on a common understanding of how success will be achieved, where to focus improvement efforts, and how to review the program.

Breaking down a new program such as a company's first view of their sustainability strategy is even a better application for getting the leaders to look in the same direction.

So keep it in mind -- when you're trying to align the team around the critical few drivers of success, create a transfer function as a brainstorm exercise and use it for managing the way forward.  Six Sigma is tailor made for achieving this.

See my podcast?

As I've mentioned, Jones Lang LaSalle has started publishing 90-second video podcasts about various corporate real estate topics.  They are in the "Something to think about" theme (as you will quickly see). 

I just published one on using landfill gas recovery as an alternative fuel.  It wasn't the smoothest delivery I've ever made, but you'll get the basic idea.

Decent Eats in Overland Park, KS

This being my first visit to the area, I feel compelled to alert readers that there were two hits and a miss in the food department:

Yia Yia's euro bistro -- a favorite among the local Sprint Nextel crowd, and for good reason.  Very good food and very good service.

Jack Stack Barbecue -- a local multi-site restaurant and, all in all, acceptable food quality.  I think the babyback ribs I cook at home are a bit better (more tender) but the sauces are decent.  Beware the waiter plying his video production services.  I recommend sitting in the bar.

Jose Pepper's mexican restaurant -- Good margaritas.

Final punchlist items?

I stayed in a hotel last night that advertises itself as a cool place to stay (by virtue of its "living room" approach to the lobby -- wine bar, soft seating and TVs to encourage socializing....But the final rennovations haven't been completed, even to the point of blueprints being left in conspicuous places in the lobby area.

But don't just blame construction for the down-tick in customer sat -- you would think that even though the breakfast buffet had to be served in a conference room until the lobby was done that they could make up for the unfinished-ness by having some sort of decent food.  The food they served was unworthy of the brand.

At the end of the day, it's up to local operations of the hotel to insist on things being done right.  And the whole team needs to deliver.