When you get word that your capital plans weren’t approved, it’s easy to point the finger at the CFO, scoffing at his/her inability to understand facility needs. As much as you may hate to admit it, however, there may be more than misunderstanding to blame for facility under-funding.
Corporate America has between 20 and 40 percent of its net worth tied up in facility assets, according to James R. Watson, director, MACTEC Engineering & Consulting, Kennesaw, GA. It’s time for facility professionals to become a partner in the financial management of these assets. Take some advice from the experts and read the tips and techniques on the following pages; they’re sure to alleviate frustration and shed light on why approval doesn’t have to be so difficult to secure.
Be a change agent. Start with yourself.
Facility management is a discipline that has developed its own dictionary of acronyms – ADAAG, CFM, VAV, and BAS to name a few. Conversation among facility managers is littered with these terms. Unless you’re planning on inviting a translator when you talk to corporate finance executives, expect eyes to glaze over. “Usually what happens is the facility manager speaks in facility jargon,” says Phyllis Meng, building services supervisor, Los Angeles County Metropolitan Transportation Authority, and instructor for the International Facility Management Association’s (IFMA’s) Finance Competency course. “I think as a facility manager progresses in his/her career, to be able to grow and to be able to get into the boardroom, he/she is going to have to think more in financial terms than facility terms.”
Strong communication skills are almost as important as developing a solid foundation of business, accounting, and financial knowledge. “Where we talk about CFMs or square feet per employee, the financial community talks about ratio analysis, internal rates of return, and return on investment. These are terms that we are either not very conversant with or comfortable with,” explains David G. Cotts, Alexandria, VA-based consultant and co-author of The Facility Manager’s Guide to Finance & Budgeting. Familiarity with common accounting practices can increase your effectiveness when presenting proposed budgets. This knowledge, in addition to professional public speaking capabilities, can enable you to engage in sophisticated business discussions with financial executives.
Apply your expertise to the facility budget.
Budgets should be developed so they properly reflect facility management processes and take into account the effects of capital investments. While it sounds easy, the task can be quite daunting. “We need to be able to develop, execute, and evaluate budgets,” advises Cotts. “I always say, ‘Budget the way you work and then plan the way you budget.’ ”
Programmatic budgeting is just one method for the development and management of facility financial plans. However, it’s important that regardless of your program, budgets be more than a list of projects and not dictated by the statement of accounts passed down from corporate. It’s important to understand the cost of doing business and accurately pinpoint, through performance metrics, where facility budget dollars need to be allocated.
Do your homework and develop an understanding of the corporate financial structure, as well as its impact on the facility department. The CFO will appreciate a visionary plan that takes into consideration the coming year as well as the years following. “I think it’s very important for a facilities manager to have a long-term plan, to be proactive, [and] to realistically address the capital needs of an asset,” says Stephen E. Sterrett, executive vice president and chief financial officer, Simon Property Group, Indianapolis. “The last thing you want to do is get surprised with a big number,” Sterrett says. He advises facility professionals to present a five-year outlook; one that will pinpoint which systems and equipment will eventually need to be replaced.
Arm yourself with the best tools.
Investigate the capabilities of your corporate accounting system and determine how effectively it meets facility management requirements. If the system fails to supply all the functionality required to effectively generate necessary reports or manage and document facility expenses and project management, seek assistance from your company’s accounting department to either enhance the capability of the system that exists, or acquire/develop a new system.
Ed Rondeau, co-author of The Facility Manager’s Guide to Finance & Budgeting, suggests the use of a web-based or web-enabled system. “Whether through the organization’s internal Intranet platform or the organization’s Internet website through a password-protected firewall, the facility manager should be able to access all project-related information,” he says, “including the status of the project budget approval process, preliminary budgets and approved funding, purchase and change orders, invoices, payments, and project close-out information – all through the networked computer system in accordance with the FM’s corporate project budget policies and procedural requirements.”
Budget decision tools can help determine which projects are worthwhile, as well as prioritize them according to the value they will bring to the company/organization. Not only do they assist in the creation of capital development plans, they also provide essential life-cycle cost analysis functions that can prove invaluable during budget discussions.
Make a business case.
It’s not enough to propose capital spending for new equipment. In order to determine and prioritize the need for new equipment, financial executives want more in-depth information, an analysis that includes first cost, life-cycle cost, and return on investment. “From a financial standpoint, what we’re looking for when we make a substantial investment in facilities is the ability to earn a return on investment,” says Charles Atwood, senior vice president and chief financial officer, Harrah’s Entertainment Inc., Las Vegas. If new equipment will reduce energy consumption and maintenance, these quantifiable savings make a favorable business case.
With respect to postponed capital and deferred maintenance, it’s imperative that the long- and short-term consequences be quantified. If monies are not allocated to necessary parking lot repairs, what are the financial consequences (shortened life of the parking lot, liability and safety risks, etc.)? When these consequences are highlighted in a financial analysis, what first appeared to be an easily deferrable expense garners further consideration.
Making a business case involves pinpointing specific benefit(s) and returns that are measurable and highlighting the positive impact that facility investments can have on the company’s profitability. According to Meng, “Stockholders are looking for companies that are profitable and where they can realize some dividends. It is up to the facility professional to ensure that the fixed assets in their responsibility are working at peak efficiency at all times.”
Assume the role of a partner in the business.
When strategic planning meetings occur, representation from the facility management department is essential. It’s important that you become a partner in the business, helping to make educated discussions about the facility or portfolio of real estate. The facilities and their management can be a corporate advantage, when given the opportunity.
If necessary, work to change the lines of reporting in your com—pany. Decentralized management can create a breakdown in portfolio-wide information sharing and even result in facility under-funding. When facility professionals request spending for maintenance and repairs to the business leader or profit center manager of their location, it is likely that funding will be denied. “These are really profit centers and they are often directed to defer expense to increase current profit numbers,” explains Watson.
When facility budgets are managed corporately instead of at the building level, the long-term effects of deferred maintenance are more easily recognized. Furthermore, in corporations with large portfolios, the creation of benchmarking information results. “In a portfolio our size with 240-ish properties in the United States, we can establish some relevant operating histories (i.e. how long should a parking lot last in a snowbelt city before it needs to be repaired),” explains Sterrett.
Promote the value of FM.
Facility management professionals provide value to the company/organization every day, but it’s rare that their contributions are even noted, let alone celebrated. Because of this, many company executives have a poor impression of facility managers. “There was a study done about what business executives thought about their facility managers. There were three conclusions that came out of that. Facility managers are less sophisticated in financial management than most of their colleagues at the equivalent management level. Secondly, upper management does not view facility managers as contributors to the corporate bottom line, or even [believe them to be] particularly conscious of the bottom line. Then, perhaps the most damning of them all, facility managers were often unaware of how they were viewed,” shares Cotts. It’s important that these negative perceptions be changed in order for facility professionals to be respected.
No one is going to tout your successes with as much passion as you. When innovative strategies save company dollars, when retrofitted lighting systems reduce worker error and improve productivity, or when performance goals are met and exceeded, spread the word. Facility management practices, particularly when they help the business prosper, can be shared through company newsletters, e-mail, via company announcements, and posted on message boards. “Regularly communicate your performance to both your boss and to your customers. If you don’t blow your own horn, guess what? Nobody else is going to do it for you. And don’t use ‘FM speak;’ talk to them in their language,” Cotts advises. When the organization recognizes the value of facility management, financial executives will be quick to involve facilities professionals in strategic planning and serious budget discussions.
Put yourself in the CFO’s shoes.
If you didn’t get the “go ahead” on all the capital expenditures you proposed, try to put the decision in context. “Do a paradigm shift and put yourself in the CFO’s shoes and think in financial terms, not facility terms,” advises Meng.
Financial executives examining facility expenses across a diverse portfolio of properties are making difficult decisions about the level of need with each request. “A facilities manager has to be cognizant of the fact that capital is not necessarily endless in supply, and so there are rationing decisions that need to be made. The very fact that you feel like you have a need at your property that doesn’t ultimately get fulfilled through the planning process, doesn’t necessarily mean that your need goes away or that your need isn’t a valid need; it just means that there may have been higher priorities,” says Sterrett.
When the dollars seem scarce and it seems like the facilities department is coming under unreasonable scrutiny, remember how the facilities and their operation affect business. “We’re not a profit center. We’re a cost center,” reminds Cotts. “Because of that, it’s very, very important that facility managers understand [that] if you’re in this job, someone is going to be looking over your shoulder all the time saying, ‘Get the cost down. Get the cost down. Get the cost down.’ ”
Placing sole responsibility on the CFO and corporate financial executives for facility under-funding may reflect an inability of facilities professionals to recognize their deficiencies. There is no one party responsible. Corporate executives must recognize the value of effective facilities management, and facilities managers must respect, understand, and implement the business process. If you’re faced with perpetual frustration, the best thing to do is work toward change – changing yourself, the impression of the facility management department, and the way in which the budgeting process is approached. There’s no better time to start then now.
Jana J. Madsen (email@example.com) is managing editor at Buildings magazine.