2013: Are Facility Management Budgets on the Brink of Recovery?

12/28/2012 | By Janelle Penny

It's time to manage your 2013 FM budget. What’s on your agenda for this year?

National statistics say the economy is mounting a slow recovery – but is facility management seeing any of it?

From budgeting to master planning, FM funding is on the cusp of improvement, according to the 556 BUILDINGS subscribers who responded to our third annual industry outlook survey. Their answers indicate that the needle is slowly moving in the right direction, though budgeting, code compliance, and energy concerns still loom large.

However, there’s still work to be done. You can run your business more efficiently in 2013, and these FMs and management experts will show you how.


Better Budgeting for Ongoing Savings
New strategies to deal with funding changes

BUILDINGS’ 2013 survey revealed a significant difference between capital and maintenance budget predictions. Respondents’ 2013 maintenance budgets somewhat resembled 2012, but notably, 4% fewer respondents predicted a decrease in maintenance funding.

Like last year, most FMs predicting an increase said their maintenance budgets would grow by 5-10%. By comparison, a surprising 24% of those predicting a decrease said they expected a 10% cut (the same as last year).

A considerable number of respondents attributed these changes to costs for labor, utilities, or supplies, as well as the sluggish economy or an increase in space and/or occupancy. Others noted staffing levels and equipment replacement as budget-busting costs.

Maintenance cuts in particular can be difficult to justify, especially in buildings that aren’t owner-occupied, but a baseline level of maintenance is necessary to keep tenants happy.

“There’s a certain amount you have to spend every year just to maintain the asset,” says Vicki Hollon, a member of the innovation and quality assurance team representing property management at Transwestern, a fully integrated real estate services firm. “Things like repairs for normal wear and tear, inspections, or routine services are standard expenses that are hard to reduce. There’s only so much you can take out and still run the building effectively.”

The responses to capital budget adjustment told a different story. Responses predicting 2013’s capital budget to mirror 2012’s dropped by a full 5%, splitting fairly evenly between predictions of increases and decreases. The strong similarity between FMs expecting more capital funding (24%) vs. those expecting less (26%) indicate a slower recovery than maintenance budgets.

Nearly one in five of the FMs preparing for a capital funding increase expect their budgets to grow by 10%, while those awaiting a decrease most strongly predicted a 10% cut, followed by 25% and, alarmingly, 50%.

Organizations seem wary of depending too much on the economy returning to normal, focusing instead on implementing only the best capital projects. This level of scrutiny is common nationwide, says Joe Markling, chair of BOMA International and managing director of accounts for CBRE, the world’s largest commercial real estate firm.

“If something needs to be done, the money will be found to do it. However, there aren’t discretionary or optional funds for things that would be nice to do but aren’t necessary,” explains Markling, who manages a portfolio covering 60 million square feet across the U.S.

What’s Behind the Numbers?
Paradoxically, survey respondents indicate funding earmarked for sustainability initiatives will increase despite the significant percentage predicting less funding for FM.

Lauren Moss, a facilities manager in global corporate services for CBRE, has noticed trending toward sustainability beyond the green sense. Owners of the 17 buildings in her portfolio are embracing sustainable building management and business practices to lengthen each building’s service life.

How to Implement Investment-Based Budgeting

Ready to negotiate a fairer budget? Consultant Dean Meyer, founder of the organizational design-focused firm NDMA and inventor of the FullCost budgeting software, offers this eight-step plan.

  1. Compile your catalog. Identify the products and services that each group within the FM department will provide to your organization.

  2. Forecast demand. Predict your sales of each item for each business unit, the organization as a whole, and internal groups within FM. Include new capital equipment and some “speculative” sales (projects) that you’d like your customers to fund.

  3. Forecast costs. List the direct costs on each sales row, with indirect vendor costs listed separately. Don’t forget to factor in labor costs too.

  4. Develop the cost model. Assign each indirect cost to the right products and services.

  5. Structure internal sales. Agree on what each group within FM buys from other groups, then assign those costs to the appropriate products and services.

  6. Factor in teamwork. Identify times when groups within FM work together on teams and add up the total costs from all groups for that project.

  7. Negotiate with other departments. Present your budget to other business units in your organization to get their support, then submit it to Finance.

  8. Determine rates. Divide the total costs of products and services by the volumes you forecasted.
“The last two years, I would have said the economy was the number one factor directing the environment in the business market and in facilities,” Moss explains. “I believe sustainability is starting to override that.”

The march toward sustainability may also be a result of rising energy costs, adds Hollon. BUILDINGS readers backed that up, with nearly two-thirds of respondents expecting an increase in energy/utility prices in 2013. Though this number is actually a drop from past years (72% predicted energy cost spikes in 2012, vs. 77% in 2011), it’s certainly notable that almost two out of every three responding FMs are gearing up for yet another year of higher utility costs.

A Smarter Budget for Long-Term Success
Ever find yourself coming up short at the end of your funding cycle? Unfortunately, this phenomenon is fairly common. With traditional budget processes, your organization grants you a fixed amount of funding at the beginning of the year and expects that to cover unlimited services.

Problems quickly arise with this model – perhaps a major piece of equipment breaks down and must be replaced, forcing you to set aside planned maintenance to pay for the new purchase.

Another department makes a request that requires a significant number of person-hours for your team to implement. This strategy leaves FM vulnerable to the usual accusations of not delivering enough or costing the company too much money.

You can’t meet unrealistic expectations – and you don’t have to. Consider implementing investment-based budgeting, which treats the in-house facilities department like a separate business within a business. This simple concept is the key to better budgeting, according to Dean Meyer, a consultant and the founder of the organizational design-focused firm NDMA.

By becoming a vendor selling products and services, your “customers” – each department and the organization as a whole – decide what they can afford to buy from you based on organizational priorities and needs. The result is a more realistic budget.

“Picture your budget as a spreadsheet where the columns represent general ledger expense codes like compensation, travel, training, and vendor services. The rows represent the services you’re planning to deliver in the year ahead, such as office space and rentals,” Meyer explains. “Investment-based budgeting means totaling the rows rather than the columns and proposing a budget for what services you want to ‘sell’ the rest of the enterprise. This way, you’ll ensure that their expectations match your resources. If they want more than your budget covers, fine, but they’ll have to pay for it.”

For example, a proposal for a capital investment, such as a renewable energy project, becomes a product you must sell to your organization as a whole.

“If they give you money up front, they will save money on utilities in the future,” Meyer explains. “So on one of the rows of deliverables, you’d propose that whole project – not just the capital needed, but all of the time you need to put into it and the help of other departments. Get a total project cost and put that in your budget.”

By governing FM as a business within a business, your “customers” – which include other departments, the organization as a whole, and other segments within the FM department – must purchase services from you. However, you don’t actually have to charge them a fee for each service. They have a claim on part of your budget that they can “spend” on their needs, like a checkbook of sorts, and they must stay within their means.

If they want extra services your budget can’t cover, they’ll have to find the money elsewhere – such as supplemental funding from the organization or money redirected from another department that hasn’t used its whole budget allocation.



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