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

Dec. 20, 2012
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.

PageBreakFacilities Professionals Eye Code Changes
New national and local requirements may affect your building

If a proposed renovation or a new regulation has you worried about the cost of compliance, you’re not alone.

As in the 2012 forecast, respondents to the 2013 outlook survey name new regulations and code compliance issues as two of the items likely to have the greatest impact on their FM practices. This year, a new question asked readers to expand on which codes and regulations will affect their organizations most in 2013.

The top answers are the newly revised ADA regulations, NFPA 70E (a workplace electrical safety standard), and local building and energy codes, or as one respondent puts it, “too many to list.” If you’re wondering how to deal with the vast number of changes this past year, take a cue from these FM experts as they walk you through two examples of how to navigate your path to compliance.

Planning to Revamp Space?
A mandatory update to bring an existing building up to code is only triggered by a major renovation or build-out (where the addition to the property must comply, but the existing space doesn’t have to). However, if the building hasn’t been renovated in more than a few years, the required updates can be costly.

For Lauren Moss, a facilities manager in global corporate services for CBRE, a renovation of two fully-occupied floors at her primary site will create space for additional employees by adding another floor and changing all of the 6-by 8-foot workstations to 6- by 6-foot versions.

However, due to an NFPA revision in how occupancy is counted, these changes must comply with fire and safety codes that have been updated since the last major renovation. Available seating in conference rooms now counts toward occupancy, complicating the switch to smaller workstations.

“You can get all these people on the floor plate, but then you’ll have to add another fire exit and more restrooms,” Moss explains. “The only place to put another fire exit is the side of the building, and that’s not going to happen.”

A Look at Local Regulations
Important but less widely publicized local initiatives can have a large impact on your business. Survey respondents are well familiar with this phenomenon, naming two far-reaching measures that will likely affect their organizations in 2013.

For example, Title 24 of California’s Building Energy Efficiency Standards will require existing buildings undergoing an alteration or addition, as well as new structures, to comply with a host of regulations by Jan. 1, 2013. These include:

  • Solar-ready roof: Buildings must keep rooftop space available for future PV or solar thermal installations.
  • Lighting controls: Sensor-based lighting controls for fixtures near windows are required to accommodate daylighting.
  • Efficient process equipment: This step targets refrigeration equipment for supermarkets, data centers, and commercial kitchens.

Benchmarking is also gaining prominence among the physical updates that some municipalities require for buildings. Take New York City – Local Law 84, the non-residential building benchmarking requirement in its Greener, Greater Buildings Plan, yielded its first large-scale analysis this summer.

The report, which covers the 2011 energy benchmarking results for 2,065 large commercial and municipal properties covering over 530 million square feet, was the first of its kind in the nation. Results in future years will allow the city and prospective tenants to compare performance trends.

The plan also includes components mandating the use of the most current energy code for any renovation or alteration; an energy audit and retrocommissioning every 10 years; and a lighting upgrade to meet code and provide submeters for large commercial tenants, with this last requirement due by 2025.

PageBreakStrategies for the Longer Term
Stay ahead of energy costs with a collaborative strategy

Many of the 2013 concerns that respondents identified have the potential to influence their organizations years into the future – energy and utility costs won’t just fade away at the end of the year.

Prioritize your improvements, both physical and occupational, to address short-term problems while paving the way for long-term improvement.

Deal with Pressing Problems First
The majority of survey respondents describe their organizations as not changing how much maintenance is deferred each year – 55% said there would be no change over 2012’s plans. However, fewer FMs this year – 10%, compared to 15% in 2012 – said their organizations would defer less maintenance in the coming year, a worrying statistic.

“Deferred maintenance items are typically high energy users. Building maintenance staff will postpone things like cleaning coils or changing filters in air conditioning systems,” explains Vicki Hollon, a member of the innovation and quality assurance team for property management at Transwestern, a third-party building management firm. “This decreases the efficiency of the units so they consume more energy. Go back and look at the areas you might have overlooked in the past – a reduction in consumption saves money on utilities.”

This is especially important with rising utility rates on the horizon, says Craig Pesek, director of integrated facilities management for Jones Lang LaSalle.

“It’s a given that energy prices will rise over time, but it’s hard to say how rapidly and how much,” Pesek notes. “Prices can hold steady for years and then increase sharply. Renewable energy mandates are increasing, and while the price of solar and wind power has come down, it still carries a premium cost. Regardless of rising prices, it’s always possible to find new ways to better manage your utility spend.”

Plan Smarter
After you address the building and equipment needs, start looking at how you can improve your department management in the next few years. You’ve probably implemented a few energy conservation measures to lower your energy costs and boost your green credibility. Now is the time to look back at conservation projects that didn’t make the cut the first time and determine whether any are good enough for a second round of building improvements.

What are the primary factors affecting your organization's FM budget for 2013?

General economic conditions 81%
Effects of energy efficiency initiatives 31%
Staffing reduction in the organization 24%
Increase in business 20%
Decline in business 17%
Less space per employee 13%
Staffing expansion in the organization 13%
More space per employee 6%

If you’ve already picked all of the low-hanging fruit, consider building updates that could save a considerable amount of money and have a payback shorter than two years. Depending on the project, you may be able to obtain utility rebates and financial incentives from local government entities to defray the equipment cost.

“You see a lot of chiller changeouts, which in many cases are appropriate, particularly for the age of many buildings,” Hollon adds. “Maybe the chiller has reached the end of its useful life, so it’s necessary to replace it with more energy-efficient equipment.”

Align Your Goals with Organizational Plans
Long-term success is within reach if you and your organization see eye to eye on priorities, goals, and strategic planning – and a phone call or meeting is all it takes to start the ball rolling.

Communication is extremely important, emphasizes Lauren Moss, a facilities manager in global corporate services for CBRE.

Don’t just fire off an email – request a meeting to discuss the facilities crew’s role in meeting corporate strategic objectives.

Present your ideas assertively and listen to management’s concerns with an empathetic ear.

“Make sure you’re clear on what their goals are and how you can help the organization achieve them,” Moss says. “Say it’s something really small, like shipping costs. That’s something we can control – for instance, not every shipment needs to go out overnight. Ask them what they would like and help come up with guidelines for them.”

This conversation may turn up surprising opportunities to cut costs and schedule repairs and upkeep, Moss adds. She recommends viewing facilities management as a true business within a business.

“Always work to have that contractor mindset where you’re bringing new ideas and cost savings to the table,” Moss says. “Present them with the needs of their buildings. Give them one-, three-, and five-year plans so they can effectively budget. When you lead the way, that benefit stretches across the board.”

Janelle Penny [email protected] is associate editor of BUILDINGS.

About the Author

Janelle Penny | Editor-in-Chief at BUILDINGS

Janelle Penny has more than a decade of experience in journalism, with a special emphasis on covering facilities management. She aims to deliver practical, actionable content for facilities professionals.

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