Cost Center to Profit Center

01/02/2015 | By Janelle Penny

Resolve to raise FM’s profile in 2015

Tired of begging for your FM budget or tackling capital improvements with a handful of pennies?

It’s time to reposition the FM department as contributing to your company’s bottom line rather than draining away resources.

This year, show your senior executives what you know – buildings that are properly managed add to an organization’s success and prosperity.

1) Start Smart at Square One
Changing the perception of the facilities department requires you to first change the way the department perceives itself. Too often, facilities professionals are sucked into the mindset of FM as a cost center, which implies that the department’s job is to consistently do more with less and learn to stretch each dollar further and further. Proposing investment in an innovative idea is almost unheard of because the goal is merely to squeeze as much value as possible out of limited resources.

In truth, the facilities department is more of a not-for-profit organization or “value center,” says Kathy Roper, IFMA Fellow and associate professor and chair of facility management at Georgia Institute of Technology’s School of Building Construction. Rather than providing a direct return on investment, FMs contribute to other departments’ profits by delivering healthy, comfortable settings where occupants can do their best work.

“We’re never going to show a financial profit as an internal organization, so it’s important to focus on value creation,” explains Roper. “Think of the facilities department as a tool providing value that can increase productivity rather than just a cost. Translating that into a dollar value doesn’t come easily, and softer numbers like reduced absenteeism and increased satisfaction are harder to quantify, but they’re helpful.”

Concentrating on creating value like an independent company or nonprofit organization transforms the conversation, Roper adds. Instead of just doing your best with a limited budget, you’re instead determining how to use your limited resources to increase your organization’s revenues and creating new metrics to measure how facilities support the bottom line. Cost reduction is still important, but it’s no longer the one goal superseding innovative approaches that could pay off in the long term.

4 Key Questions to Set 2015 Priorities

1)    What’s in my portfolio?
Believe it or not, some FMs don’t have a handle on how many buildings or square feet are in their portfolio, never mind the equipment inside them.

“We’ve worked with a lot of clients who, after we conduct an assessment, will say ‘Did you get this building?’ And our answer is ‘No, it’s an empty lot’ or ‘You have 1 million more square feet than you thought you had,’” says David Isaacson, director of product marketing for VFA, an Accruant Company. “You need to know the condition of your buildings, as well as the condition of all of the equipment. If you don’t have that basic information, you don’t have a starting point.”

2)    What is the condition of my buildings and their equipment?
The Facility Condition Index, an industry standard measure of building condition usually developed by a consultant, assigns
numerical ratings to each building in your portfolio to help make decisions.

Each building’s FCI number is determined by dividing capital needs by building replacement value and delivers much-needed visibility into the health of your portfolio.

3)    How much money do I need to address deficiencies?
The FCI calculation also provides this number as part of determining each building’s rating.

4)    Where should I spend money first?
To draw this number out of your portfolio’s FCI ratings, determine what the ratings mean to your organization and what your target FCI number is for each building type, Isaacson says. The higher the percentage, the more work the building requires.

“I may be perfectly happy with a parking garage having an FCI several points higher than my hospital, because as long as there are no life safety issues, the parking garage is probably fine. Maybe there are some oil stains on the ground driving its rating up to around 25 to 30%,” explains Isaacson. “If my hospital has a rating of 25 to 30%, it’s falling down around me. A lot of hospitals want to be in the 5% range.”

“FMs need to be seen as more strategic to the business,” explains David Isaacson, director of product marketing for VFA, an Accruant Company, a facilities capital planning and asset management firm. “You’re not the guy who gets called to change a light bulb or to do cleanup on Aisle 6. You’re competing for dollars the same way every other business unit in the organization is, and if you’re only seen as the fix-it guys, you won’t have much standing. Reach out to the owners of your business and understand the organization. Align what you’re doing with the business objectives. That gets you moving toward being seen as important to the bottom line, not just a cost center.”

2) Lay the Groundwork for Collaboration
Bringing the facilities department in line with the business’s overall mission starts with a complete understanding of the company’s goals, core philosophy, and challenges. The point is to demonstrate how buildings and other physical assets serve the greater good. Try answering these questions as a jumping-off point, then moving on to organization-specific concerns.

1) Who is your customer? Because facilities management provides services internally, your customers include other departments or the tenants in your building in addition to any visitors interacting with your organization.

“At manufacturing facilities, for instance, having the facility operate properly is critical for the organization to produce product,” says Isaacson. “One drug manufacturer had issues with product quality a few years ago, and it turned out that they were caused by problems with the facility. It cost them a lot of money to fix. Since then, they’ve realized that understanding their buildings and keeping them in the right condition is critical to producing the right product.”

2) What is your service? You’re providing more than a comfortable place to work – buildings are tools that help meet the needs of the business, which include encouraging occupant productivity, comfort, and health. Determining exactly who your customers are and what they need can help you prioritize your most important services and target your spend accordingly.

“When you understand your customers’ needs, you can successfully use capital planning to enable teams and business units to reduce risk and costs, as well as provide facilities that are less expensive to operate,” explains Isaacson. “We once had a customer who didn’t understand the condition of the building very well. Its electrical subsystems were fairly old, but they were spending money to upgrade the bathrooms because they didn’t have their priorities right. That alignment is important.”

3) What are the organization’s long-term plans, and how might that affect its facilities needs? Knowing where your organization is headed in the next decade or so can help you predict its future needs. Government agencies, universities, and hospitals may own their buildings for 50 years or more, while corporations might lease a facility for as little as 5-10 years, Isaacson explains. College research facilities might need substantial renovation every few years as technology improves and the type of research conducted in the facility changes.

“One company put a very expensive roof on a building because it was reaching the end of its life. The FMs just did this without talking to anybody, then found out the company was going to leave that building in a year,” says Isaacson. “They threw away half a million dollars.”

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