By October 25, 2013 0 Comments Read More →

Why Implement Chargeback in FM? For Better Decisions!

Post to Twitter

Chargeback Implementation in FMReal Estate costs money, and money is the bottom line for any company. Facilities Managers who recognize this fact are in a better position to raise the profile of the Facilities department and contribute to the success of the company by accurately establishing facility related costs and positioning the information for better corporate decisions.

With an effective costing system in place, Facility Managers can communicate the cost information in a meaningful way to the facilities group, user departments and other senior decision makers in the organization. By doing this, the Facility Manager plays a larger role in future decisions and ensures they will be consulted about major decisions that impact facility costs.

Costing systems are referred to by a number of different terms, including Transfer Pricing, Chargeback, Activity Based Costing, Cost Accounting and others.

Using a more generic term such as Facilities Cost Allocation (FCA) to describe the practice in Facilities Management is more appropriate, since while the mechanism and techniques to implement and manage a costing model can vary considerably, the underlying principles are the same - identify and communicate costs to drive behaviour and ensure the most effective and efficient use of real estate resources in support of the corporations core business.

It's this principle that should dictate how Facility Managers implement FCA and how it is managed, since success depends on FCA being a management tool rather than simply another accounting process.

Setting Chargeback Goals

While many Facility Managers immediately associate FCA with some form of chargeback model, actually charging users and departments for the services and space you provide is simply a tool within FCA, and should not be the driver of your FCA model.

The ultimate goal of any FCA model is the efficient and effective use of real estate resources, however when developing FCA, Facility Managers need to refine the goals to a more direct and actionable level that meets the specifics of their own situation and allows FCA to work within the existing framework of the corporation.

To do this, Facility Managers must clearly understand the issues and the implications before establishing goals. This includes current funding and budgeting processes, establishing how and where decisions that affect real estate are made and understanding the current mechanisms in place for measuring the performance of individuals and departments.

By identifying all the goals and then focusing on a few which will help gain support for the FCA initiative, it is possible to start with more straight forward and less controversial elements and work towards full implementation by building on the successes and learning from the problems and issues encountered.

The initial goals may be as simple as providing facility use options and the related costing impacts, identifying the costs of providing work-order services to various departments, establishing benchmarking information that show the differences in costs to provide space for various departments or functional areas or determining whether services are delivered efficiently.

By successfully implementing the initial goals and proving added value information for corporate decisions, it will be easier to move to a more full-fledged model that encompasses a more broad based allocation of costs.

Costing for Chargeback

Facilities Cost Allocation includes both a management and a costing component, both of which are required to effectively influence behaviour.

The costing component enables accurate and effective calculation of the costs to own and/or operate the facilities on a unit basis and establish the cost of providing specific services based on their own unit of measure, such as mail costs per employee, move costs per work station, etc.

To be useful, costing must go beyond simple budget numbers and the chart of accounts. Accounting packages and integrated facility management software can help establish the costs, although it takes some planning and forethought to ensure the results are accurate, timely and structured enough to be useful and meaningful within your organization. Only then can they be used for asset analysis, cost control and to drive behaviour both within the Facility Management department and throughout the company. Techniques for doing this are well documented and are used successfully in many other industries. The most recognized methods include Activity Based Costing and traditional Cost Accounting methods. The most basic difference is how overhead and other non-transaction costs are allocated.

Influencing Decisions

The management component of FCA provides Facility Managers with the influence they need to effectively driving behaviour. While the cost accounting component of FCA is relatively straight forward, the management component can be much more difficult, since it needs to be developed and supported in a way that ensures attention is paid to the results. It must be established well before you start developing costing models, since your costing models must support the management objectives.

While a common approach is to charge departments and other users for the space they occupy and the services they use, this can both complicate the underlying objectives and introduce behaviors that are not in the best interests of the corporation as a whole. Alternatives to charging should be carefully considered before implementing a chargeback mechanism. It may be better to begin the process from a reporting and management basis and integrate the information into the decision making process. With the right support, implementing a direct chargeback mechanism can be avoided while achieving the behavior changes at the same time.

Both the implementation and the communication of FCA must be structured to ensure better decisions and to support policy decisions such as corporate occupancy standards as well as provide support for Facilities driven initiatives that reduce costs. Facility Managers can do this by showing a direct impact on departments and to the overall corporation.

To be successful, FCA must have full support within the company and be included on the corporation's executive agenda and business plans in order to drive real estate decisions. At the same time, care must be taken to ensure that the costs are not the only factors used in decision-making, since costing information taken on its own could influence poor decisions, especially where an isolated decision does not consider the impact on the corporation as a whole.

Implementation

Effective implementation of both the costing and the management component of FCA is just as critical as the actual components themselves, since even a brilliantly designed system will fail if it is ineffectively implemented.

This is from both a business process and a communications perspective. The business processes, as mentioned earlier, must dovetail into existing processes and support or compliment the current decision making and measurement tools within the corporation. You can implement these using a building block process or all at once, depending on your corporate culture, level of support and the complexity of both the FCA system you design and the existing business processes. The building block process allows elements to be implemented in stages, giving you time to gain acceptance and prove their usefulness within the corporation before implementing the next element. Regardless of your approach, gaining visible support from the necessary decision makers is part of the business process element.

Communications is also important, both of the processes involved and of the intended goals of FCA. Your own situation will dictate how best to communicate, however the decision-makers will need detailed explanations about FCA, how it affects them and how they should use the information to their advantage. This communication may be direct if the facilities department has a strong hand in real estate decisions and policy, or it may be more delicate if individual departments have a great deal of autonomy in how they use real estate services.

Implementing and managing an FCA system is fraught with challenges and will take incremental resources to make it work. If your goals are clearly identified and well supported corporately, it will be worth the time and effort, placing Facilities Management in a more influential role within the corporation and ultimately ensuring that the real estate resources are efficiently and effectively used to support the corporation's core business and contribute to its success.

Benefits:

  • Provide support for consolidation initiatives
  • Place the accountability for miscellaneous work order costs back on the department using the service
  • Improve space utilization
  • Increase support for cost savings measures by showing how it will impact the bottom line of every department involved, and therefore the company as a whole
  • Put Facilities costs in front of the decision-makers.

Behaviors you can change:

  • Ignoring the cost of real estate when making operational decisions;
  • Not planning changes for maximum real estate savings;
  • Inefficient use of facilities services and resources;
  • Lack of coordination between departments regarding space usage;
  • Failure to fully cooperate in cost saving / environmental activities (such as energy / recycling)
  • Resisting significant Facilities driven consolidation and planning measures

 


Managing Facilities & Real Estate Now Available!
“Managing Facilities & Real Estate : 50 Strategies, approaches and Leading Practices”
Over 500 pages. Available in Soft Cover or Hard Cover version.
Order your copy today from Amazon or direct from the Author (click the book image).


If you enjoyed this post, please consider leaving a comment or subscribing to the RSS feed to have future articles delivered to your feed reader.

Post a Comment

*

Subscribe to our mailing list

* indicates required Email Address * First Name *

Subscribe to our mailing list

* indicates required Email Address * First Name *

Membership Login

×