Dhurba Chhetri

Facility Management Industry-Identification and addressing the Key Risk Areas

FM Industry overview and context

The Facility Management (FM) industry is borne out as the means of providing maintenance support, user management and project management. It has grown dramatically over the past two decades, owing to the major urbanization and industrialization.

Facility management (FM) is a professional management discipline focused on the efficient and effective delivery of support services to the organization that it serves. They are responsible for making sure that the systems of the built environment or facility, work harmoniously. Moreover, the facilities management service providers offer their services by contracting with the building management. The contract includes the workforce, equipment, and other services.

Of late, the COVID-19 pandemic has caused economic chaos, which has impacted all industries and the FM industry is no different. Contrary to this trend, increasing awareness of cleanliness, maintenance, and security is expected to drive this market in the future.

As depicted in the table below, the Indian facility management market reached a value of USD 150 billion in 2019. The industry is expected to grow at a rapid pace in the period 2020-2025, growing at a CAGR of 20% to reach a value of around USD 406 billion by 2025.

Growth and Forecast

Risk Management Techniques & Approaches for Facility Management Industry

The entire purpose of a Risk Management Plan in Facility Management is to reduce the probability of accidents or failure events and to minimize the consequences of accidents or malfunction events. No one can assure that the equipment will not fail, or that humans will not make mistakes, or that accidents will not take place. However, we can make use of a process that when these events do occur, the result is negligible or will have minimum impact on the business of the organisation.

Organisations need to constantly review their Risk Management methodology so that organisations can recognize risks, gather & document information, plan, and setup a risk management strategy to evaluate existing as well as newer areas of risks.

Given below are the steps in identifying the risks associated with this industry:

A) Risk Identification

The purpose of risk identification is the early and continuous identification of those events, the occurrence of which, will have adverse impact on the project’s ability to achieve performance or capability outcome goals. The first step in risk analysis is to identify the existing and possible threats that the Company might face. These can come from many different sources. For instance, they could be: –

  • Human – Illness, death, injury, or other loss of a key individual.
  • Operational – Disruption to supplies and operations, loss of access to essential assets, or failures in distribution.
  • Reputational – Los of customer or employee confidence, or damage to market reputation.
  • Project – Going over budget, taking too long on key tasks, or experiencing issues with product or service quality.
  • Resource Breakdown – The sudden unanticipated breakdown of a resource. A steam pipe bursts in a public access corridor.
  • Natural – Weather, natural disasters, or disease.

b) Document (Risk Assessment collection & Planning form)

Identify, assess, control and monitor risks with the use of a risk management plan template. We can prepare the template according to the industry needs.

A good safety recordkeeping system is needed to help organizations keep track of hazards, risks, control measures, and corrective actions. Beyond complying with regulatory authorities, a good risk assessment system can help identify hazard trends and proactively improves workplace safety.

c) Planning Process

Now that some of the Risk Assessment Collection & Planning Forms have been completed, the planning process can take place. Of course, in some cases the plan will be very straight forward and obvious.

Risk planning is a necessary component within the overall project management process. It has some benefits to a performing organization. For example, if effective risk planning procedures are applied, the following benefits will ensue: –

  • Saving of both financial and non-financial resources.
  • Increasing the efficiency and stability of activities and operations.
  • Reducing legal liability
  • Protecting property and people involved in the project from harm and injury.
  • Protecting and strengthening the reputation of your organization and employees.

d) Implementation

Implementing a risk management plan is a complex process. It is important to understand exactly what is involved and what that means in terms of a timeline. If an implementation is too quick, something may be missed; if the implementation takes too long, something may be lost.

One of the most common problems that we find in business generally is the issue of implementation of plans into the normal operational workflow of an organisation.

However, no matter what methods and tools we choose to implement risk management plan, there are three fundamental activities that define success of the overall implementation process these are:

  • Resource Acquisition – Before you can start implementing your risk management plan you need to be certain that correct quantity of required resources is available and ready for use.
  • Resource Flow – It is important to manage the flow of resources. The key idea behind this is to ensure that the resources are available at appropriate levels in needed placed at required time. Hence the flow of resources should be managed in the terms of quantity, location, and time.
  • Resource coordination – When the resources are acquired and allocated in a proper way now you need to coordinate the use of resources through-out the implementation process. The coordination requires you to develop detail operational plans and conduct day to day oversight of the operations.

Key Risks associated with Facility Management Industry

a)  Operational risks:

a. Weak control over stock management of uniform.

b. Variance in attendance records shared with billing team vis-a-vis HR team, leading to excess payment of wages.

c. Variance in Billing vs Approved Cost sheet.

d. Variance noted between attendance maintained at site vis-à-vis attendance as per salary sheet.

e. Poor maintenance of company assets

f. Branch entered into agreement with vendor without routing through commercial department, leading to non-compliance to Company policy.

b) Financial risks:

a. Wage/Salary paid to the ghost employee.

b. Security deposit paid for labour license booked as expense in books of accounts may lead to non-recovery of security deposit post expiry of license.

c. Short payment made by the client not adjusted from the books not any recovery being made from liable person.

d. Unadjusted vendor advances lying in books since long.

e. Staff Paid Days are more than Billed Days.

f. Capital Revenue not reported correctly in MIS (Clubbed under regular revenue).

c) Statutory non-compliances:

a. Non-compliance of Minimum Wages Act 1948 (concerning Indian labour law that sets the minimum wages that must be paid to skilled and unskilled labours).

b. Eligible Input tax credit (ITC) not claimed.

c. Labor license not available for the sites having strength more than 20 employees – Mandatory to obtain license under labor law if any site have more than 20 workers. Also, no tracker is maintained by compliance to monitor labor license requirement.

d. Delay or non-submission of PF/ESI/PT, leading to levy of penalty.

Conclusion

In conclusion, this industry, though one of the fastest growing sectors in India, needs a thorough risk management process and a periodic review of the same to ensure no key risk remains unaddressed.

At the same time, the government authorities also have to increase its focus on this industry, may be bring about regulations to make this more mainstream and give it its due importance.

(Author is associated with ‘International Business Advisors, Delhi’ as  Deputy Manager.)

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