Thursday, 3 January 2008

Service Level Agreements in Real Estate Asset Management

Performance measurement is key to a successful service philosophy:

What you measure is what you get!

We have developed a system of Service Level Agreements (SLA) with Key Performance Indicators (KPI) for Property Management and other property related services like facility management. A vital part for the system is the inclusion of performance reviews and evaluations. We always incorporate a performance based element into any management or service fee.

In order to be able to measure results these results have to be defined and just as important a measurable unit has to be associated to it to determine the fulfilment of degree of fulfilment of the desired results.

An example: You want correct and timely reporting because that is also what your bank or your shareholders expect from you. So you have to define what the content of the report has to be. This would be your very rough service level for “reporting” in your service level agreement. The next steps are the measurements for the delivery of the results (key performance indicators, KPI): There should be no errors in the report. The report for the previous month should be delivered to your e-mail or uploaded on a reporting portal at the latest by the 10th of the following month and in hard copy 2 days later.

But of course this is only half the job. Thanks to the KPIs you can measure the fulfilment: Number of errors and days of delivery after the 10th of the following month. Now you have to define the consequences of this non-compliance. This is done by attributing points to the various KPIs, say per error 10 points reduction and per day of delay another 20 points. If the amount of points reaches a certain level there will be fee-reductions. If it becomes unbearable you have measurable results as grounds for a contract termination, a very strong argument should there be a discussion or even legal action.

These service level agreements and key performance indicators are very powerful instruments for managing the performance of your property portfolio and services generally. They should not be seen and used as a means of fee reduction after signing a contract. Actually you want to pay the full fee agreed because then you know that everybody is performing as they should. The setting of the points for the KPIs requires some skill and a clear strategy of what you want to achieve. By giving certain areas like renting of sales support special weight you set the points high. This will be a strong motivator for your property manager or asset manager to perform especially well in these areas as there is a likely punishment for failure. This aligns the actions of your service providers with your goals.

Uwe Falkenberg, the author is a Berliner and active in the German property market for more than 25 years. Experienced as project manager, developer and head of the German Business for a UK based property consultancy he now owns and operates Berlin Portfolio Ltd His international background and local expertise is an ideal combination for an international investor.

He offers "Health Checks" and problem solving for non or not as good performing properties as promised at the outset. This includes "forensic" review of the information provided at the purchase and review of the performance of the property management - all in English!

For Property Search we recommend Properties in Germany.


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