Translating Empty Space Into Dollars

Nov. 4, 2002
Today’s challenging economy has forced businesses to examine expenses closer than ever before, as they seek every opportunity to reduce operational costs and improve market share. The trouble is, most senior management teams running these businesses often neglect one of the biggest opportunities for savings: their workplace. Indeed, most companies have no clear understanding of how much it costs to operate the workplace day-to-day, how to reduce capital expenses, and the tremendous savings they can realize. They mistakenly believe that their workplace costs include nothing more than the actual fees incurred to buy or lease their building, when nothing could be further from the truth.When companies take the time to closely examine their balance sheets, they’ll soon realize that the workplace is the second biggest expense after payroll and benefits, costing an average of $14,340 per employee per year, according to the International Facility Management Association (IFMA), Houston. And when they examine what goes into those costs, they’ll realize it isn’t just the building. In fact, workplace costs include all of the fixed and recurring expenses that come after they’ve moved into the building structure—monthly lease payments; furniture, fixtures and equipment; maintenance costs; and utility expenses. Looking at all North American offices, yearly workplace costs total more than $1.1 trillion.There are a number of factors that can impact the workplace and that offer opportunities to realize savings; the economy is one of them. More specifically, when economic forces cause companies to eliminate workers, there is an immediate impact on space needs and how much it costs to meet those needs. Layoffs are a constant reality. The U.S. Department of Labor reports an average of 3.3 million layoffs annually, many of them coming by the hundreds or thousands at a time. There were over 2,040 mass layoff actions in July alone, impacting almost 250,000 workers. Through August 2002, the unemployment rate stands at 5.8 percent.Layoffs can be an option to many companies in tough economic times because it offers immediate savings on their largest expense – payroll and benefits. But those that have a full understanding of their workplace expenses have much better options. Some companies have averted layoffs altogether by creatively utilizing their workplace and realizing substantial savings in other parts of their business. For companies who don’t have a handle on their workplace costs, however, layoffs can drastically drive up workplace costs, since they have no simple way to identify, consolidate, and eliminate unused space, resulting in fewer workers occupying the exact same office space. They also can’t recoup any expenses from the electricity they’ll no longer use, the computers they no longer need, and the desks no longer occupied.True CostsCalculating the true cost of underutilized office space isn’t easy. Most companies that attempt to identify this figure will need to examine every potential workplace cost in all parts of the business, then factor in the fair market value for their building if it’s owned ,and lease payments if it’s not. Once divided by total headcount, they’ll have a general idea of the tremendous expenses they’re incurring. But most companies don’t even attempt the calculation, because finding all of the data required is close to impossible. For most large companies, workplace costs are spread across multiple departments with limited information sharing and communication among them, and there is no simple way to create a centralized view. In fact, the traditional large company operates in a number of inter-related silos, including:Facility Management – This group focuses on managing all of the company’s core facilities and inventory, often from an equipment and maintenance standpoint; for large companies, this can mean tens of millions of square feet. They also focus on finding spaces for new employees, reassigning spaces to employees who might move from one location to another; and tracking occupancy. For most companies, this equates to an unbelievable amount of activity. In fact, the average churn rate for companies stands at 44 percent. This includes not only hirings and firings, but also moves within a company.Real Estate – Managing a company’s leases falls within the scope of the real estate group. Not only does this group identify the most appropriate office locations and execute agreements on those locations, it also tracks leases due to expire so that companies can extend these agreements at the best possible cost. Most large companies have multiple leases due to expire in any given year, and missing one can be expensive both practically and financially.Security – Today, more than ever, keeping buildings secure is a critical reality. This group must ensure that buildings meet federal and state safety regulations, including things like ensuring there is proper safety equipment in place, that fire and egress requirements are in order, and that evacuation plans are established and clearly communicated to all workers. It also includes taking steps necessary to ensure only authorized individuals can access any given space. On average, companies spend 25 cents per rentable square foot to for life-safety; they spend another 95 cents per square foot for security.Information Technology – The IT group must keep track of massive amounts of technology resources. At a bare minimum, most companies supply each employee with a phone and computer. Others give their employees much more – things like laptops and cell phones, for instance. The IT group is charged with tracking that equipment once assigned to employees, maintaining it, and ensuring that it is recouped when an employee leaves the company. Again, with average churn rate at 44 percent, this is easier said than done.Human Resources – This group is the keeper of a majority of employee data, including all data related to payroll and benefits. This department also takes the reins in the hiring and firing process, which has a huge impact on a company’s workplace needs, since each new employee requires space and resources. On the flip side, when employees are eliminated through attrition, firings, or layoffs, space and resources can be recouped – but if that data is not communicated to the appropriate parts of the business, the benefits won’t be realized.Finance – The finance group focuses on all accounts payable and receivable transactions, and keeps all of the company’s financial records, including balance sheets. Theoretically, they should have a sound understanding of all workplace costs, since they pay the bills. In truth, there is no easy way for them to identify workplace costs, or make recommendations for driving those costs down, since there is so much information spread so far across the organization.Coming Together To manage workplace costs, companies must tie these silos together, but that’s not often happening today. And while some companies are making an effort, they simply don’t have the tools they need to be successful. It’s estimated that just 10 to 15 percent of companies have implemented a space tracking solution that’s directly tied to employee churn, but only a small portion of these companies are seeing the benefits. That’s because they are using first-generation drawing-based technologies. They are extremely complex and difficult to implement, can’t integrate data from the multiple silos, and can’t keep up with the changes that occur within an organization on what sometimes seems like a minute-by-minute basis.A good majority of companies today haven’t even attempted such solutions. Most track workplace data the old-fashioned way – with floorplans and Excel spread sheets. But this option, too, has its drawbacks, since those tracking the data aren’t always informed when there’s an employee departure or a change in the physical layout of a building. To build an accurate view of their facilities, they’ll often take site visits to each location to determine which spaces within a building are occupied, and by whom. This is a labor-intensive process that can take months and cost thousands, considering the manpower and travel involved. What truly cripples the process are the constant day-to-day workplace changes that are occurring as organizations are trying to build an accurate workplace picture, since companies can execute on hundreds of moves within a few months time, causing workplace information to become outdated before their analysis is even completed.In order to obtain an accurate view of workplace costs, companies today must consider a new approach – Workplace Resource Management – in which data is pulled from each of the silos and consolidated into a central, Web-based repository for immediate access and decision-making. This creates a collaboration platform from which companies can obtain both horizontal and vertical views of workplace costs across the entire organization. More importantly, this view is 100-percent accurate since that data is accessed and updated in real-time. The real-time nature of the technology allows all of the silos within an organization to immediately record and share their complete workplace data—when an employee is hired, fired, moves to a new location, or is assigned office resources; when a new lease is signed and when it’s up for renegotiation; when there are changes to a building layout, and how that affects space needs.Again consider a company that experiences a massive layoff. Using traditional means to manage their workplace, it would take an organization in this position months to determine workplace savings. They’d need to go from facility to facility and from silo to silo to uncover opportunities for savings. Again, it would take months and the results of the research wouldn’t be entirely accurate. Workplace Resource Management technology provides an immediate assessment of the overall impact of change. With the click of a mouse, companies can find out:From facilities – what space, assets, and inventory are newly available and where they’re located.From real estate – which spaces can be consolidated and which leases eliminated.From IT – which resources can be eliminated, including cell phone contracts.From security – how changing space requirements impact security needs and costs.From HR – the impact on payroll, benefits, and space requirements.From finance – the overall cost benefit to the organization.By analyzing data from each of the silos, organizations can easily construct what-if scenarios and make informed and accurate business decisions that impact the course of the company moving forward. As noted, they might find that they can hold off on layoffs temporarily – allowing them to reap all the benefits of a stable and motivated workforce. But should layoffs be a necessity, companies can easily benefit by determining how much space is available and where. They can then consolidate the space and sublease unused buildings or shut them down completely. The latter option – more likely in today’s economy – results in huge savings, since companies no longer have to pay for any of the services to keep the building operational, nor do they need any of the equipment and inventory within the building.Workplace Resource Management isn’t simply about facilities, nor about real estate, HR, or finance. It’s a new approach that takes into account all of those things combined, and allows companies to easily retrieve and use the data to make strategic and informed business decisions. Companies that are embracing this approach can rest assured that they are making the right business decisions at the right time, operating at optimum efficiency, and saving as much as possible on workplace management costs.By Matthew Meyer is founder and chief strategy officer at Centerstone Software (, Westwood, MA.

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