Understanding Site Selection
Prospects
interested in site selection
have a variety of different information needs.
Some know exactly what they are looking for, while others are not quite
sure. A few are very analytic, using
structured and methodical processes. An equal number are disjointed and
disorganized, using virtually no process whatsoever. All prospects, however, have one thing in common. All use a process of elimination until the
final site (or sites) selected satisfies the needs of the project. It can be a complex process
(comprehensive) – or it can be quite
simplistic.
Because
the level of expertise varies significantly among prospects, their respective
information needs are just as diverse.
The sophisticated prospects use information extensively and expect
detailed and accurate data to support the decision-making process. The less sophisticated prospects usually
focus on a few key factors and then request limited information. Regardless of
the level of sophistication they all require information – either limited or
extensive. Information is a
prerequisite to being a candidate site, and the needs for each prospect are
entirely different.
To
combine these two considerations - site selection is a process of elimination
based on the evaluation of information.
The execution of this concept is straight- forward. A series of screens are performed until only
a few sites remain. The best site is
then selected based on a comparative analysis using both qualitative and quantitative data. A key consideration to remember is that the
lack of information is just as likely to eliminate a site from further
consideration as any factor, regardless of how adequate the site actually
is.
The
key to being selected is to be considered a candidate in the first place. If a site does not have the necessary
qualities to be considered, it will not be – plain and simple. If there is not enough information with
which to base a decision upon, this is tantamount to not being qualified. The logic should be apparent: provide data
to your clients to stay in the game.
A
Framework for Decision Making
The
decision making process is typically a logical and structured process. The ultimate location should be the place
that will provide the maximum return to the company with the minimum amount of
risk to justify the investment decision.
For some companies this is an extremely thorough and exhaustive
undertaking; for others it is brief and to the point. By and large, however, all companies follow a similar pattern of
analysis that varies by degree of investigation – but little in procedural
steps. For the sake of understanding of
the process, a typical site selection exercise is broken down into multiple
stages:
The
process is not proprietary, nor should it be considered the only method to
perform site selection. Instead, it is
a representation of the manner with which most site selection exercises are
conducted - either formally or informally.
The
initial stage is termed the planning phase where the company looks at long-term
capital investment requirements,
along with business development trends, to determine if expansion, relocation
or an entirely new facility is justified.
At project conception,
the program starts with a considerable amount of deliberation to determine
whether a new facility is even feasible
and then proceeds with a series of evaluations to determine the best place to
go. Sometimes, the best course is
contraction of operations, which could present expansion opportunities at
another location. Ideally, this is the
phase where most economic development or real estate professionals want to be
involved, in order to fully understand what is driving the project and
hopefully to influence its outcome. For
some companies this takes place over the course of several years and for others
only a matter of months.
After
the planning phase, a full alignment
of company objectives and a regional
analysis are performed to determine areas of interest and, after
further investigation, to identify candidate communities. Typically this is done through the issuance
of an RFP accompanied by a screening
process, which eliminates deficient candidates as opposed to searching for
suitable ones. As a process of
elimination, site selection involves evaluating information according to a set
of standards. These standards are search criteria based on the needs of the project
and are used as screens to eliminate sites.
This is an exclusion process as opposed to an inclusion one.
Ideally,
the first screen consists of those factors that the site must absolutely
possess in order to work. Of course,
this varies from project to project, but generally it involves specific site
requirements, infrastructure issues,
geographic considerations and regulatory issues. These criteria are clearly defined so that there is no mistake
whether the site meets a specific project requirement or not. The candidate sites are screened against
these project criteria and are either eliminated or retained for further
evaluation. The following graphic
illustrates this concept:
Note: This
is only an illustration. The number of candidate communities
and screens are only representative examples.
Each project differs significantly.
The number of screens both communities and screens could be large or
small.
Once
the sites meet these initial criteria
and are retained, additional sets of criteria are applied. These criteria, however, are different. While they are considered very important,
they exist in varying degrees from one location to the next in either quality
or quantity. In this regard they are
considered discriminating
factors. Examples of these
could be low operating costs, labor force quality, educational achievement,
quality of life, business climate, transportation access and many more. Again, every project is different so that
the factors for one project may be entirely different for another. In addition,
the relative importance of each criteria compared to the other varies significantly. For one project, low operating costs may be
the most important consideration, but for another project it may be of no
importance compared to transportation access and reliability.
There
are several methods that companies and consultants use to evaluate these
discriminating factors. Some use a
weighted scoring system; others use a grading system. Each of these methodologies assigns weights to individual
discriminating factors and then scores the factor according to a graduated
numeric scale. The final score for a
particular factor at a particular location is the weight of the factor
multiplied by the individual score assigned to the factor at that location as
compared to the other locations. Once
the scoring has been completed, the total weighted score for all of the factors
at each location is summed to arrive at a ranking of sites. The following example illustrates this
method:
The
previous illustration shows both the numerical calculation of a weighted
scoring approach as well as a graphic representation. Once again, the importance of providing sufficient information to
the prospect cannot be emphasized enough.
In the absence of data, a site will automatically score low or may be
eliminated without ever reaching the comparative assessment stage.
Most
economic development professionals overlook the importance of site suitability. Suitability encompasses not just the
technical aspects of sufficient infrastructure but also acquisition and development cost, aesthetic considerations,
availability, permitting, land use compatibility, schedule considerations and
other factors important to both the decision makers and the project. All of these considerations should be
addressed to the extent that each particular aspect of the site is known. In the legal profession, this investigation
is called the discovery phase. This notion and the application of its
principles in site selection are almost exact parallels. The purpose of virtually every aspect of the
site selection process is to find reasons why the site is will not work and the
circumstances surrounding each and every characteristic. The logic of this should seem evident. Sites that pass this intense scrutiny will
minimize project risk and support the probability that the project will be a
success.
A
comparative assessment
may include demographic data,
operating costs, employment data and a host of
other information that can be quantified in order to assess the merits of one
location compared to another. Other
factors, however, are difficult to quantify and can only be qualified through
an ordinal ranking mechanism to distinguish one location from another. For instance, business climate (according
to a particular prospect) may be comprised of factors such as the total number
of strikes over the last 5 years, ease of permitting, labor turnover, total tax burden and other numeric
values – all of which when combined provide either a low, medium or high
qualitative grade. For the most part,
even the qualitative assessments are based on numbers. Gathering this data usually requires a
combination of a community visit
along with an evaluation of information received and gathered through
investigation and due diligence.
The
assessment is merely a means of identifying the relative advantages and
disadvantages of one location compared to another. A location, which has one outstanding advantage, could still be
eliminated due to numerous small disadvantages that, when viewed in their
entirety, make the site unworkable. In
contrast, a site could have one huge disadvantage; however, the sum total of
all the advantages could outweigh it, making the site a feasible location.
Comparative
assessments are customized based on unique project requirements. No two are exactly alike. Each project establishes certain criteria
that are important to the long-term success of the project and uses these to
measure the relative merits of each candidate location. The ability of each candidate to meet these
criteria is measured against both a standard (or benchmark) and each other so that a
series of different comparative
analyses may be performed.
Typical analyses include labor, transportation, recurring and non-recurring
cost, economic, technical suitability, site suitability and many more.
Once
the community has been visited, the information verified, comparative analyses
performed and a high level of confidence has been established that the relative
merits of each community and site are understood with a reasonable degree of
certainty, a risk assessment
is usually performed. The risk
assessment is similar to a fatal flaw
analysis. This analysis assures that
regardless of how well a site may score in the comparative assessment, it will
not be considered if there is a potential of an obscure event that could
jeopardize the success of a project.
Typically,
the Phase II portion of the site selection does not include incentive negotiations as a site
selection determinant because the site and community must stand on its own
merit.
Those
involved in economic development often wonder why consultants and/or prospects
continue to ask the same questions over and over about data they have received. The reason is that a substantial capital
investment is dependent upon a decision-making process that is
based upon fact. The risk assessment
questions every aspect of the finalist site and/or community to make sure that
a fatal flaw
does not appear sometime in the future to threaten the success of the
project. The assessment identifies
the major risk (or threat) associated with each site. Next, the probability that the threat will occur is investigated with some
type of quantitative assessment assigned to the event. Finally, the impact and consequences of the event, if they occur, are
determined. Based upon this analysis, a
site may be eliminated regardless of how well it scores in the comparative
analysis relative to the others.
The
finalist
communities are selected based on an exhaustive evaluation of
factors that compare one site against another as well as a standard and remain
only if they are no hidden flaws that could threaten the long-term success of
the project. The finalist communities
in most case number no more than two or three; however, this number varies by
project and could be higher.
PHASE III
There
are two types of incentives: 1) financial incentives
that can be quantified in economic terms, and 2) inherent incentives that are difficult to place a dollar amount to, but
are perceived to have intrinsic value.
Incentives rarely enter into the site
selection equation early in the decision-making process. The success or failure of the project will
depend on the suitability of the site and the location for legitimate business
reasons. They are rarely considered,
except for information purposes, at the outset, but those that are non-discretionary
should be made available for review as soon as possible.
Incentives
will, however, play an important role once the finalist communities have been
selected. If the process has been
performed correctly, the finalist locations
will all meet (or exceed) the necessary project requirements. They will all work from an operational and economic standpoint
and, as such, are only different to the extent that there are significant
advantages or disadvantages associated with each. Usually, there are differences, but these differences are only
marginal at this point. Incentives
can, and do, tip the scale in favor of one location over another at times.
Incentives
will be reviewed and quantified, at which point discretionary incentives
are usually introduced, although these incentives can be offered at any time
during the site selection.
Typically,
there are additional investigations performed such as additional soil borings, new Phase I environmental
investigations, title search,
and others evaluations that are preliminary activities to groundbreaking. Each project is different and will depend on
the site
readiness.
Selection
of the final location and site may occur in a confidential manner or may be
accompanied by a public announcement.
In either event, the selection of the final location takes into account
every factor that has been presented.