BUSINESS PLANNING & TECHNOLOGY DEVELOPMENT

Site selection is a complex, time-consuming process of elimination. Outside firms specializing in this process apply a multistep approach to narrowing the list of potential locations suited to the needs of a particular company. Soliciting the help of such firms can save manufacturers time, money, and stress during this decision-making process.

Getting Started. Starting with a limited number of critical fatal-flaw elements, experienced site selection firms sift through hundreds of locations to find those that best fit the profile of the ideal location as defined in the initial phase of a company's project. Once a short list of locations has been identified, firms conduct telephone interviews with area development executives in order to gather more detailed facts about the area and to help spot problems that would preclude the establishment of the new facility at that location. An obvious example of such a problem would be the lack of a suitable site or building. Generally, incentives are not part of the analysis at this stage of the process.

The next phase of the process is to rank the short list of candidate locations based on how well they satisfy all of the defined requirements for a company's new facility. Certain firms use a decision matrix approach that factors in both cost and noncost factors in order to evaluate semifinalist locations. A series of interviews with area employers in similar industries can be scheduled to evaluate labor market, business climate, and other critical criteria. Meetings are held with area development officials, state and local training officials, school administrators, college and university research coordinators, area real estate professionals, and others to gain a complete review of what it would be like to operate a facility at that location. At this point, incentives become a topic of discussion, though they are not the final criteria for site selection.

Weighing Options. Moving forward, a decision matrix model incorporating all of the critical elements of the site location decision can be created. Such a matrix includes operating-cost models for alternative locations, operating-conditions factors, and living conditions for key knowledge and leadership executives. The decision matrix includes a weighting factor that can be applied to each of the elements in the analysis. This allows a company to conduct scenario analyses by varying the weighting applied to each element to test the veracity of the assumptions.

Based on these steps, all but two of the finalist locations are eliminated from further consideration. At this time, a manufacturer's executive team—including senior management, as well as engineering, human resources, and finance personnel—get more deeply involved in final incentives negotiations between the remaining two locations. The decision matrix model is modified based on how incentives affect the final operating cost, and conditions criteria and incentives are focused on eliminating differences between the two finalist locations.

Negotiations. At this stage, a company's real estate adviser becomes more deeply involved in negotiating the real estate terms, conditions, and costs at each of the finalist locations. Once these factors have been defined, the model can be updated to include the final costs and terms, and the remaining two locations can be ranked. Following strategic planning meetings to discuss the finalist locations, a decision can be made as to the final location.

Before a decision is announced, however, it is critical that all incentives be negotiated and committed in writing. Many incentives programs become invalid if the company announces the location decision prior to documentation, so a premature announcement could end up costing a company millions of dollars.

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