What?
"Strategic planning involves a disciplined effort to produce fundamental decisions and actions that shape and guide what an organization is, what it does, and why it does it," according to acclaimed author and planning guru John Bryson. Replacing the words "what an organization is, what it does, and why it does it" in this definition with "how an organization houses its activities" gives us a working definition of strategic real estate planning (SREP). Simply put, SREP is directly driven by, and exists only in support of, an organization's overall strategic business plan.

The plan that emerges from a SREP process can take many shapes, but we believe there are generally agreed-upon underlying methodologies that should be followed. For this article, we have chosen to use as a case study a strategic real estate planning effort the authors undertook for a large law firm (400,000 square feet). The planning involved consideration of multiple facilities in several locations regionally. It should also be noted that we have used a similar SREP framework for significantly larger corporations and institutions with national and international scope.

Accounting for variations dictated by the type of organization conducting the planning, typical deliverables of SREP include key recommendations, a narrative discussion of the process, and findings backed with detailed supporting materials. Also, as will be discussed below, what happens to the SREP document after it is complete can be as important as its issuance. The bottom-line results of a thoughtful SREP are increased efficiencies, maximum flexibility, and leverage in negotiating options.

Why?
Why use a SREP process? The simplest answer is to control occupancy costs. Almost without exception, plant, property, and equipment are the second greatest expense category faced by an organization.

Second, a company's real estate is intrinsic to the functioning of almost every aspect of a company or firm. Poorly planned real estate can negatively affect a company's ability to perform basic operations and, in some cases, it can negatively affect creativity, the flexibility to grow, and the ability to implement the core business plan.

Time is a key element as well. Activities such as land assemblage, construction, and moving take time and are disruptive. In an increasingly fast-paced world where business strategies are developed and declared successful or junked in a matter of months, constructing a building can seem like a glacial undertaking. Planning is one of the best antidotes to schedule and time constraints.

When?
Ideally, SREP will be part of an organization's larger long-range planning efforts but, in our experience, this usually is not the case. Most often SREP is created in response to:

• Need to control costs or operate more efficiently
• Growth, either internal or through mergers and acquisitions
• Large lease expiration(s)
• New leadership
• New business initiatives.

Most successful organizations are continually updating and reviewing the strategic business plan and, in turn, the SREP plan, with information regularly being exchanged between corporate and real estate.

Who?
Strategic planning is within the purview of senior management, and typically the SREP process will be authorized at the highest level of authority in a company. The head of real estate or facilities, or even sometimes the chief financial officer, will often take charge of the day-to-day effort. Assembling the internal team involves identifying those individuals within the organization who will form the Real Estate Committee as the decision-makers for the firm. For law firms such as the one in our case study, this committee can include the managing partner, two to three representative senior partners, and the firm's executive director, administrator, or director of facilities. For some corporations, the team will include the chief operating officer, the head of human resources, business division heads, and the facilities manager.

Guiding the team throughout the process are real estate service providers such as consultants, market experts, architects, engineers, attorneys, and specialty consultants who are combined for the planning process depending upon the scope and complexity of the undertaking. These are the experts who can be relied upon to understand and engage in the real estate market analysis.

While senior management ultimately controls the process, when the planning begins it often assumes the role of simple stakeholders. It is critical to the success of any SREP to collect information from all of the defined users, divisions, and entities within a company.

Getting started usually begins in earnest once senior management has formally decided to conduct SREP, designated the point person for its organization, and hired the lead consultant to advise. Early conversations by the team typically involve reviewing the SREP process itself, establishing time frames, deciding what other disciplines are needed that are not already on the team, and determining reporting protocols and meeting schedules.

One of the most important issues that should be determined at the outset is the degree to which the SREP team will be authorized to proceed in its work within the organization. Will there be access to the top decision-makers? How open are they to a vigorous investigation of the firm's business plan and its vision of the future? In a more sensitive vein, do there appear to be hidden agendas or problems that could hinder the SREP effort? The answer to these questions will vary from company to company. By way of example, some organizations have more defined business plans and some are simply more open to change.

Completing a good SREP is a demanding undertaking requiring a lot of time, effort, and thought on the part of all participants. The best results will be achieved when everyone starts out on the same page and knows what is expected of them. From the organization's perspective, the clearer the direction regarding where its business is going and what it stands for in terms of culture and vision, the more likely becomes a successful outcome.

How?
Following the establishment of ground rules and formation of the team, the basic outline of our SREP process can be distilled into the following four steps:

• Data collection
• Scenario modeling
• Evaluation process
• Presentation of findings.

Data Collection
This can be one of the more time-consuming steps in the process, depending upon the scale and nature of the organization. Like most planning exercises, however, the value of the SREP plan is directly related to the quality of the information gathered and used to reach conclusions and build from them.

The first category of information collected is existing materials, both within the organization as well as the marketplace. This long list can include such things as the company's strategic plan, existing leases, all current occupancy costs, copies of existing floor plans, tours of existing facilities, architectural/engineering surveys of existing structures, inventories of furniture/finishes/equipment, copies of current space standards, growth projections by head count and number of locations, ZIP codes for current employees, commuting patterns, travel requirements, market surveys, labor and housing studies, construction costs, and benchmarking and trend information.

Interviews are an extremely important category in the information-gathering process. In our case study, we first determined who was going to be interviewed, what information was needed from them, and how the interviews were to be conducted. We then submitted drafts of the questionnaires to management. Electronic questionnaires are a convenient way to query large numbers of people with minimum impact on their time. For our law firm project, we used a Web-based questionnaire that proved very popular, with a 95 percent return rate. Group sessions and one-on-one interviews are also commonly used, the latter almost always the method of choice for corporate executives and senior partners.

Scenario Modeling
At the outset of this stage, all of the information previously gathered through data collection, interviews, and benchmarking is incorporated into a Master Space Program -- a detailed, comprehensive space program documenting current and projected headcount and identifying the rentable square footage required at regular intervals of time throughout the term of the organization's lease. It is extremely important that the results of this effort be presented to management for review and approval. Essentially this is the core of the organization's criteria upon which all alternatives will be judged. Often, when management reviews the summary there is some surprise or even dismay. Idiosyncrasies of various department heads ranging from unbridled optimism to empire building are often uncovered at this juncture, and it is here that management must weigh in. Among the most important criteria that management must set are the ground rules for key assumptions concerning head counts, growth rates, and timing.

Benchmarking and trend information can be very helpful at this point. In our case study, we reviewed and evaluated approaches adopted by similar firms that had recently renovated or relocated. We researched the effect of new technologies and explored innovative space planning and design approaches to lower costs by maximizing the flexibility and efficiency of the workspaces. Tours of other firms and interviews with leaders of other firms were also conducted to round out our trend and benchmarking information. To confirm and validate growth projections, we look at a firm's growth historically to compute the average rate of growth. This rate is also compared to our benchmark metrics from comparable firms.

Using all of this input, the team now has the basic elements to start building alternative scenarios that can meet the company's space requirements. The list of scenarios, or options, will vary greatly depending upon the number of variables. At the outset these options are generic; that is, they are not site- or building-specific. Although they reflect market conditions such as general availability and cost of space, they consist of the number of sites, their general size, and their geographic locations. Also, it is important to consider the entire universe of options at this time and to be more inclusive than not. If asked at a later date by management whether a certain scenario was considered, it is helpful to be able to describe the options that were identified and the reasons behind the choices made.

Our goal in the scenario process is to outline all viable alternatives for meeting the organization's business needs. Generally these can include phased in-place renovation, expansion within an existing leased facility, expansion outside an existing facility, relocation to a new built-to-suit building, relocation to an existing building that will be renovated according to the needs of the organization, or relocation to multiple separate locations.

Evaluation Process
With all of the options catalogued, the process of winnowing down to a shorter list can begin. To do this, it is necessary to refer to the criteria that were established as a result of the data collection and interviews. These criteria are grouped under two headings: quantitative and qualitative. The first category refers essentially to items such as financial impacts, head count, floor plate size, and cost of labor and housing. The latter deals with more subjective measures such as location, surrounding environment, and the image a space will convey to staff and clients. It is not unusual to be able to quickly jettison the bulk of the alternatives at this time using the approved yardsticks.

The next step is the beginning of an important iterative process that can go on for several rounds. The shorter list of scenarios selected above is now further researched and fleshed out to eventually get to a short list of options. Space plans or "test-fits" are prepared for each building under consideration to test their suitability to accommodate the projected space needs of the organization as documented in the Master Space Program. Some buildings will yield more efficient layouts than others depending on differences in the configuration of the building's floor plate, column spacing, size of the floors, number of floors required to meet program requirements, or extent of windowed perimeter.

Conceptual construction cost estimates are prepared based on these preliminary plans reflecting differences in the age and existing conditions of the buildings under study. More detailed financial information is developed. In some cases, proposals from owners are solicited, and projections are run that truly give management an "apples to apples" comparison on cash, net present value, and after-tax bases. These projections will be based on such things as rental rates, costs of construction, head count densities, and credit issues. Specific questions or potential problems are investigated such as proximity to direct competitors, labor availability, and difficulty of commuting. In the case of our law firm case study, architectural, mechanical, electrical, and structural evaluations of the existing building choices were then conducted to determine the current condition and longevity of base building systems, as well as estimations of their capacity to meet the needs of the organization over the term of a new lease.

Presentation of Findings
Ultimately the team will arrive at a short list of three to five preferred options. Though there may be a favored solution, in most cases it makes sense to have multiple options to preserve a competitive negotiating position and in recognition of the fact that things can and often do change. A draft of the findings and the team's recommendation should be forwarded for review by management.

Often top management authorizes one or more presentations of the SREP plan to various boards, committees, or subgroups. Finally, feedback from these presentations is collected and any subsequent changes or further work is completed. At this time, typically, the final document is created and the client begins implementing the selected strategy.

Getting It Right
The July 2003 issue of The Economist includes an article titled "Who Gets Eaten and Who Eats?" in which the authors ask, "Is recent history making companies timorous in their strategic planning?" An impressive coterie of academics and management consultants weigh in on this discussion with their various theories. Most of the discussion centers around the wisdom of whether an organization should select the status quo as the departure point from which to begin its strategic planning processes or embrace completely the concepts of creative destruction and plunge ahead on that basis. An important message that can be taken from this article is that none of the experts questioned the validity of engaging in the basic exercise of strategic planning. None suggested jettisoning strategic planning because it takes too long or because the world is changing too fast. The authors state that, with regard to strategic planning, "The rewards for getting it right can be huge. But the punishment for getting it wrong can be death."

While the arguments for the benefits of engaging in SREP might be toned down a bit from this apocalyptic observation, the overall point still stands: Planning to meet an organization's real estate requirements is a vital component of a company's overall strategic business plan -- and key to a company's ultimate survival and success.