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.”

3) Build Buy-In
After you’ve changed the way the facilities department conducts business, it’s time to reach across the aisle to your organization’s decision-makers. Start building a bridge by bringing stakeholders together to review the current state of affairs and your proposals for necessary updates.

“Translate the technical data into financial data as often as possible, or at least provide some sort of value assessment,” suggests Roper. “That way, the C-suite understands that you’re not just spending money to keep a chiller running, but that the chiller running provides a comfortable environment, which provides worker satisfaction, which provides greater productivity. Connect the dots for them.”

Tailor this data (and the metrics by which you measure it) to your specific organization. For example, if higher-ups are pushing for more sustainable practices, tie your facility measures to the company’s environmental goals and measure their potential impact against any green parameters your organization uses, such as relevant certification requirements from a green building designation program. This helps demonstrate that you understand what’s important to your organization while also providing an easy, mutually agreeable way to set facility priorities and measure progress that aligns with organizational goals.

“At some point, you need to find an executive champion who will say ‘We’re going to affect these changes and use our facilities as a lever to push this change,’” says Robert Lambe, managing partner at RAL Location Strategies and strategic facility planning expert. “It could be the CEO or the CFO, for example, because facilities are a substantial capital asset for most organizations and many times they’re not managed like they would be if they were an investment fund or another financial asset.”

Strategic Facility Planning 101

Does your organization have a strategic facility planning (SFP) document? SFPs are two- to five-year facilities plans that cover an entire portfolio and are used to set goals for each building based on the organization’s business objectives. Tailored to each individual business, the plans also use the goals set for individual facilities to determine short-term needs and funding for capital projects. IFMA recommends this four-step approach to developing one for your organization.


Develop a thorough understanding of your organization’s mission, vision, values, and goals. According to IFMA, many organizations use scorecards that measure financial performance, customer knowledge, internal business processes, and learning and growth.


Explore the range of the organization’s possible futures using techniques such as: SWOT analysis: Standing for Strengths, Weaknesses, Opportunities, and Threats, SWOT analysis examines business objectives and internal and external factors that impact the objective. Strategic creative analysis: Also referred to as SCAN, this strategy takes SWOT analysis a step further to add strategic planning, implementation, and evaluation. Systematic layout planning: This tool leads participants through a series of data categories, such as present operations, activity relationships, and square footage requirements, until the group has generated a block layout that can be used in planning.

Scenario planning: Bring together decision-makers to discuss possible responses to external forces that could impact your organization in the future.


Use the analysis gained in the last step to develop flexible plans to meet your organization’s long-term needs. Resolve to review the SFP with stakeholders annually and update it in the interim as needed.


Implement the SFP, starting with the most urgent, high-priority items. Gather feedback as you take action and incorporate it into the next project (and ultimately, the next plan) to ensure ongoing improvement.

4) Take a Seat at the Table

Kickstart your conversation with executives by painting a comprehensive picture of the state of your portfolio. The Facility Condition Index (FCI) is a useful way to illustrate the condition of each building with easy-to-understand numerical ratings – a consultant can determine this for you by adding together the catch-up costs for needed maintenance, repair, and replacement in each facility and dividing that number by the facility’s current replacement value.

In addition to each facility’s physical state, Isaacson recommends demonstrating how each facility supports the organization’s mission and the cost of any initiatives necessary to better fulfill that directive.

“It’s not just ‘here’s the condition of the building,’ it’s ‘here’s the kind of revenue we drive.’ Is this building important to revenue and doing what we need to do as an organization?” Isaacson asks. “When facilities personnel are trying to figure out their priorities, they need all of the stakeholders at the table with them. Then they can start to build consensus.”

One VFA client, a Canadian navy base, built that consensus by bringing every key member together in the same room to go through the base’s portfolio in exhausting detail. The intensive workshop helped the group drill down to determine what was truly important.

“Their mission was to get ships out to sea, so the next step was to determine what buildings support that,” explains Isaacson. “The admiral’s quarters don’t support that mission, but the commissary does because it feeds the sailors. From there, they moved on to what capital investments to make this year and the year after in order to meet the mission of the organization – for example, it turned out that the roof was more important because if you don’t have a roof, the electrical system isn’t protected. All of a sudden, the facilities guys become critical. This strategy is imperative in terms of getting an organization into alignment.”

Once this agreement is achieved, the group can develop other internal metrics to help prioritize future facilities improvements. Executives like “repeatable, defensible, visible” data to make informed decisions, Isaacson explains. This includes providing numbers about the consequences of ignoring high-priority items.

“There are some systems that can just be replaced when they fail, but others have consequences,” Isaacson says. “If I have a hospital and the electricity goes out, that could literally present a life-or-death situation. If a bank’s trading floor goes down because I didn’t take care of the HVAC, it costs millions of dollars every minute. Having knowledge of what’s going on with your buildings, what their risks are, and what investments are needed to address those risks are so important. Facilities professionals can play a huge role in managing risk for an organization.”

5) Plan for the Next Few Years
Don’t rest on your laurels after 2015 ends. It’s up to you to keep the ball rolling by maintaining your links to stakeholders and staying on top of your portfolio’s condition and relevance to the mission. Benchmarking – whether with the Facility Condition Index or other metrics – helps demonstrate the impact of your improvements and keeps stakeholders in the loop regarding current building conditions and improvement priorities.

“You’ve got to keep your database up to date when you’ve completed work or are planning a new initiative. Data doesn’t age very gracefully,” says Isaacson. “In three years, if you’re still trying to do your capital plan from older data, you don’t know what has changed or what should be taken off the list. It may be that your funding priorities need to change. Have a plan for ongoing data maintenance.”

Make sure you’re also updating occupants who aren’t present for planning meetings with stakeholders. You’ve done so much work to bring your whole organization into consensus – don’t keep that a secret.

“A lot of times we tend to think no news is good news, so we hunker down and get our jobs done, but we don’t take the time to advertise how well we’re doing or market the FM services that have added value to the organization,” says Roper. “Provide some sort of communication, whether it’s posters in the lobby or postings on an internal website, to demonstrate all of the savings we’ve made or the things we’ve done to make the office a better place. These things need to be publicized.”

Janelle Penny is senior editor of BUILDINGS.

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