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Facility Management and the Bottom Line

Corporate real estate owners and real estate investors have traditionally viewed Facility Management (FM) as an expense. For the organization to be profitable, expenses should be minimized; hence the pressure on Facility Managers to keep costs down. Although few would argue that preventive maintenance probably reduces costs over the life cycle of a property, there is little empirical evidence to support this. Therefore, it is difficult to value the benefit. One still sees a similar debate among healthcare providers, although prevention has proven to be more cost-effective than acute care.

Life Cycle Analysis Is More Attractive to Institutions

In addition, building investors with shortened time horizons may have little incentive to invest in something that has a payoff over 20 or more years. Not surprisingly, institutional property owners – government, education, health-care – have taken the lead in investing in maintenance to improve the bottom line. Where ownership may span 50 years or more, taking care of physical assets clearly pays.

Institutions (colleges and universities in particular) have also innovated beyond merely preventive maintenance. In some cases, they are investing in the facility to improve the chances for the success of their fundamental mission – to educate. Are there lessons to be learned for other types of property owners?

There Are Multiple Paths to Improved Performance

The standard path for a Facility Manager to affect the bottom line is to invest in strategies that reduce costs now. Energy savings is one of the more direct and obvious approaches in today’s high energy cost environment. In fact, the cost of energy warrants a closer look at strategies that may have been ruled out previously. Not only is modern equipment more efficient, modern control strategies seek to take advantage of greater precision and responsiveness to internal and external conditions.

Another trend among owners of corporate real estate is to maximize flexibility in the use of space. Companies are routinely assessing their space requirements and coming up with creative plans for re-use when excess space is identified. The speed with which that space can be reassigned is largely a function of the infrastructure within it. Modern systems for cabling, duct work, and partition walls may add some cost, but if the corporation does not have to pay for space it is not using, or not using efficiently, this cost pays for itself.

Today, however, there is increasing discussion about the ability of the Facility Manager not only to reduce operating costs but to actually improve performance. In other words, the Facility Manager may be able to affect not just the expense side of the equation, but the income side as well.

One such measure is productivity. Much has been written about the office environment. Factors such as satisfaction, turnover, and absenteeism can be measured and correlated to

productivity. It is not too difficult to address the work space. Is the space configured for interaction, privacy, comfort, etc.? What about the overall environment? Is air quality measured regularly? Are lighting levels adequate? Is daylighting considered?

Another area often overlooked that has a dramatic effect on employee satisfaction is balancing the HVAC system. The system may be balanced when the building is commissioned. Over time, that system may no longer function as it was intended, or (more likely) usage patterns have changed. System balancing is a complicated task that can add greatly to productivity and can identify places where efficiency can be improved.

In addition to improving productivity, the Facility Manager can affect revenues in several other ways. Some of these are related to property type.

For example, a key factor in determining revenue in shopping centers could well be access and the condition of the parking area. We have seen numerous examples of shopping centers and malls where it was difficult to enter and where the parking area was difficult to navigate. The condition of the paving will also affect shoppers’ willingness to brave that environment and may shape their opinion of the shopping center’s quality. We know of no formal study that has quantified this effect, but while managers may focus on seal coating and striping, the real barometers, lease rates and store sales, may be dramatically affected by factors that are rarely measured. It is easy to extrapolate from parking areas to lighting, noise, and air quality. Facility Managers on the cutting edge are bringing these matters to management’s attention. Similarly, management may engage the Facility Manager to see what measures are available to enhance the shopping experience.

For multifamily properties, some of the same characteristics apply. Landscaping may also be considered, and certainly the responsiveness of the Facility Manager may contribute to tenant retention and satisfaction. And extracting a lesson from the consulting business, a satisfied client is more likely to pay you on time than someone who is dissatisfied.

Your Engineer Can Add Value Too

Finally, it is surprising to us how many projects are undertaken without engaging the services of a design professional. Management will develop a project or have need of a repair. Too often, the first step is to solicit bids from contractors. Why pay for an engineering consultant when the contractor can create the plan himself – for free? The problems with this approach, sadly, include:

  • Contractors may approach projects based solely on their experience which may be limited.
  • Contractors may have a vested interest in either increasing the scope, or worse yet, saving the big bill (and profit) for change orders,.
  • It may be next to impossible to compare bids because no one was bidding based on the same scope.

The bottom line, as always, is that with pressure to minimize expenses, value is often overlooked in the design, development, and management functions. In today’s competitive environment, these are opportunities lost. For assistance evaluating or improving your existing buildings, please contact Criterium Engineers.

Volume 17, Number 2

July 2006

Copyright © 2006

The Engineering Advisor is intended to enhance your knowledge of technical issues relating to buildings.  For additional information on any subject, please feel free to call us.  Our commitment is to provide you with timely, accurate information.