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Facility Managers Can Add To The Bottom Line With Cost Reductions

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Facility Managers can take a leadership role in reducing costs for their organizations by examining areas that may not have received much attention before. Here are key things you can do. A key responsibility of Facility Managers has been to provide the physical environment and related services that enables your corporation to be successful at its core business.

During the current economy, the focus has to be on the lowest possible costs to boost the bottom line and counter steep cut in revenues.

With revenue down almost across the board, you can demonstrate the value of a professional FM and add a key accomplishment to your resume by closely examining areas where you can reduce costs and by taking decisive action - especially in areas that may not have been considered before or may not have received much attention during the good years. Just be sure not to cut things that shouldn't be cut or that will introduce risks and negatively impact condition.

There are several opportunities you can consider, depending on your portfolio. They all relate to money going out the door to landlords, suppliers, utility companies and others.

Some of those costs can stay out, while others should be put back in when the economy picks up, otherwise you may end up with additional long-term expenses. Immediate cost reductions are certainly the goal, but don't pass over good opportunities just because the rewards will be months out - the need to lower costs will continue for a while.

First, the physical space itself is a significant cost where you can benefit if your company's situation has reduced space requirements. Examine your leased space, the markets you are in, the termination dates and renewal options. While you may not realize significant benefits, consider it as of a cost avoidance initiative - even a sublease at net rent will relieve you of the operating cost portion of the rent. Work with your landlord to negotiate reductions in energy and cleaning costs for vacant space and ensure they are doing what they can to reduce their operating costs in the building - and get them to pass it along now, not next year during the annual CAM adjustment exercise.

Beware, however, of long term fixes that may box you in when the economy picks up and you need to be nimble to respond and beat your competition. What's important is to squeeze whatever you can out of the Facility portfolio - and be seen to be proactively addressing the situation.

For owned space, consolidate and shut down unused offices to save operating and energy costs while you carefully examine the operating expenses. Have a discussion with your service providers and get them to identify areas where they can reduce real costs, such as reducing some services or cutting back on scope. This can include stretching out periodic activities, for instance, to reduce the total annual cost.

For larger portfolios, an often overlooked item is late fees for utility payments and even inaccurate utility readings. Set up a process to ensure prompt payment and review utility readings carefully, including the price and calculations.

There may be some Facilities services you can eliminate while also being environmentally sensitive, such as eliminating bottled water, reducing the frequency of garbage pick-ups, requiring occupants to bring their recyclables to a central depot and more. Do some of this in conjunction with your service providers to implement it with little or no cost.

Look at your cost base and rationalize it to ensure you are efficiently using your suppliers and not paying more than you should. Examine your spending patterns across all your facilities and with all suppliers and service categories. While small transactions may seem trivial to deal with, they can add up and now is the time to do the analysis. You may see opportunities to consolidate vendors or provide volume to existing vendors in exchange for more favourable rates. By managing miscellaneous work orders, you may be able to group some work together and provide more lead time to contractors, resulting in lower costs.

When dealing with suppliers to explore cost reductions, you need to reduce the disincentive. Ask them to cut their profit margins or fixed overhead components and you won't get much help. Ask them to cut costs without adjusting performance standards or expectations to match those cuts and you will get blank stares.

If you ask them to identify areas where their expertise suggests savings are possible and ask for reductions in real costs rather than based on unit pricing rates (which include profit, overhead, risk, etc.), and you are more likely to get help, which will reduce costs and mitigate service impacts. Sweeten the exercise with an extension or renewal and they will be even more receptive. Providing a contract extension may result in reduced pricing, since they will avoid the cost and risk of a procurement process and may be able to eliminate some or all of the amortized costs they have built into the existing contract.

Work with your suppliers more as skilled and knowledgeable partners than an adversary and you can reap the benefits. Consider their business needs as well as your own and you can develop win-win situations that get you results and reduce costs.

In some cases, as a Facility Manager, you'll have the data and information you need to analyze space and costs and to make decisions and establish strategies or take action to reduce expenses. The likelihood is great, however, that you will have to make decisions without solid information. While you are going through this exercise, consider the type and nature of information you could have used to analyze your costs better and develop a plan to get it, either for the current crisis or to better manage your portfolio after the dust settles.

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Posted in: Management, Procurement

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