Enterprise and Parametric Modeling: Decision Support for Strategic Planning of Corporate Real Estate

By Shapiro, Charles A. | Real Estate Issues, Spring 2004 | Go to article overview

Enterprise and Parametric Modeling: Decision Support for Strategic Planning of Corporate Real Estate


Shapiro, Charles A., Real Estate Issues


WHAT WOULD HAPPEN IF A CORPORATE REAL ESTATE department could investigate the impact of regional location, facility ownership and workplace utilization using a single analytical tool?

What would happen if a Corporate Real Estate department could predict the capital budget of a manufacturing company based just on the concept of a new product slated for production 3-4 years from now?

Who would listen to their findings? The Director of Corporate Real Estate? The CFO? The Heads of Manufacturing or R & D? The CEO?

These questions are among those being contemplated as a new generation of computerized models are being developed for the purpose of strategic planning of corporate real estate. The benefits of such models extend far beyond real estate analysis. In fact, the utility of such models may provide a new central role for corporate real estate departments and, as a by-product, yet another justification for centralized control of real estate in large multi-divisional corporations.

As analysts have become more skilled in the use of relational database and spreadsheet programs, and as computer capacity and speed constraints have diminished, new approaches to real estate analysis are being adopted to provide timely support for an ever wider spectrum of corporate executives. In contrast to traditional applications of financial modeling in corporate real estate, these emerging approaches purposely emphasize business needs (or the demand side) of corporate real estate, not just the financial feasibility of alternative supply-side solutions. Rather than simply assuming corporate demand as a given, these models attempt to derive facility demand as a function of primary business strategies.

Two such approaches are Enterprise-wide Modeling and Parametric Modeling, both of which can be very effective in supporting real estate decisions in the context of broader business strategies, thus giving the corporate real estate executive a seat at some very important conference tables. However, there are practical and conceptual challenges in applying these approaches to corporate real estate. Both approaches are particularly "data hungry," requiring the marshalling of significant amounts of data from diverse sources within a corporation; and both require a focus and deftness with business details typically outside the real estate analysts' comfort zone.

CORPORATE ENTERPRISE-WIDE MODELING

Enterprise-wide Models, by definition, address aspects of businesses far broader than corporate real estate. Such models are defined not only by the breadth of their scope, but by the degree to which they reside within the information systems of a corporation. For purposes of discussion, these can be divided into two types:

1) Embedded, having direct real-time linkage to corporate data systems; and

2) Linked, less ambitious models using only occasional updates from corporate data systems.

The Embedded form of Enterprise modeling has the built-in validity of using the same corporate data used in the corporation's core business and in other administrative support functions. The Linked form has the benefit of enabling rapid analysis of "what-if" scenarios. While Enterprise-wide in scope, these separated models can be more compact, not actually manipulating the large volumes of detailed information of an embedded system. It has often been observed that these smaller models are the most effective decision-support tools, with a clarity that is appealing to the highest levels of corporate decision-makers.

In their most embedded form, Enterprise models harness huge amounts of corporate data (including payroll, accounting and purchasing data) directly from corporate databases, enabling real-time monitoring of performance. These systems link this compendium of business data to current real estate information, typically using personnel records as the primary linkage. …

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