Posts Tagged ‘infrastructure’
|The Added Value of Professional Facilities Management
Wednesday, April 14th, 2010
By Jim Ricker
In my last blog entry, I wrote about the critical role a Facilities Management (FM) team plays in the daily life of a corporation. Today, I am delving into the financial value a professionally managed facilities group brings to a company or institution.
The financial contributions of an FM organization are numerous:
- Protecting the revenue stream by eliminating business interruptions due to
infrastructure failure;
- Managing a substantial operating expense budget; and,
- Planning for and managing capital expenditures.
Business Interruption
When a manufacturing line goes down or a research project is interrupted or lost due to building-systems failures, the financial losses can be staggering. A professional FM group insures against these losses by implementing preventive maintenance programs that include regular inspections and servicing, in accordance with manufacturers’ specifications and industry standards.
Operating Expenses
The FM function manages a significant portion of what is often the second largest corporate expense: real estate. While other corporate real estate departments are usually responsible for rents, escalation charges, real estate taxes, and insurance, the FM group manages the remaining costs of occupancy—including utilities, repairs and maintenance, custodial, grounds, guard services, administration, and the like. These costs can reach $10/SF. In a million SF portfolio, for example, one dollar of operating expense savings results in a total savings of $1 million. Stated in other terms, a typical corporation would have to increase sales by $10 to $20 million to generate the same bottom line impact as the $1/SF expense reduction.
Capital Planning
A professionally managed FM group will develop and update a rolling comprehensive capital plan that often looks ahead five years. The financial benefits of this kind of planning are substantial. It forces the FM team to review its assets annually and adjust the five year plan where needed. The planning process identifies future capital replacements, enabling the corporations’ money managers to plan ahead for these capital expenditures and to fund them in the most beneficial manner.
Whether you need assistance in capital planning, overseeing your operating expenses, avoiding business interruptions, or all of the above, a professionally managed FM group will have a positive effect on your bottom line. Do you outsource your FM services? What added value does it bring to your business?
Tags: business interruption, capital planning, infrastructure, operating expense, opex
Posted in Facilities Management | Comments Off
Real Estate as an “Infraservice”
Wednesday, March 3rd, 2010
By Vik Bangia
In the area of corporate real estate outsourcing, smart service provider firms understand that the purpose behind their engagement is more than just doing what they’ve been told. To understand exactly what comprises a good outsourcing plan depends on the specific needs and challenges of the client’s organization, and that’s often difficult to discern. In most cases, it follows naturally with the size of the company. To get to that level of understanding, real estate has to be considered an infraservice by both the client and the service provider. I define “infraservice” as a service that is key to the entire corporate infrastructure from Human Resources to IT, Operations, and Finance.
As a general rule, smaller organizations from mom-and-pop sized companies to burgeoning start-ups (nano-caps) to micro-cap firms are burdened with resource scarcity, limited cash flow, and survival issues. The outsourcing solutions to smaller firms are best delivered through the use of just-in-time and variable resources, financial portfolio optimization services, and a view towards freeing the company to focus on its core business. These firms can be from less than $50 million to $300 million in market capitalization.
Conversely, medium sized companies, such as those in the Russell 3000, are typically burdened by limited access to capital, recruiting and retention challenges, an overwhelmed infrastructure, unpredictable processes (due in part to their inherent entrepreneurial spirit), and the fact that real estate is not a core competency that has been built in to the organization. These firms benefit from highly consultative partnership models that deliver tactical services along with financial management skills and business controls. Small and Mid Cap companies are defined as firms with market capitalization ranging from $300M to $2 billion and $2billion to $10 billion respectively.
Big companies, such as those in the Fortune 1000, (also defined as those with market caps above $10 billion and extending to the hundreds of billions) have entirely different issues. They are challenged by multiple business lines with varying levels of profitability (if they are profitable at all), underperforming assets, bureaucracies, long-term liabilities, and lack of speed or mobility. In addition to a strong consultative skill set, the service provider has to be willing to step into the fray of organizational politics and competing business unit agendas. The challenge here is that most service providers working for Fortune 1000 companies are relegated to a commodity role because the bigger the organization gets in complexity, the more the purchasing or procurement department exerts its authority on decision making. This lends itself to service models that are based on price and not performance.
Even more challenging for big corporations working in this mode is that there are fewer and fewer alternatives available to engage only one service provider. And service providers working in this mode cannot see real estate as an infraservice while they are engaged as a commodity. A dilemma indeed, but one that bodes well for those firms that are nimble and can provide resources beyond those that think only transactionally.
No matter the size of the company, the real estate service provider’s role is to think like an infraservice provider and input the corporate requirements for HR, Operations, Finance, and IT into the strategic decision for the company.
Question yourself. As a corporate real estate manager, does your real estate service provider team approach their role as an infraservice? Have they understood your unique needs based upon the size of your organization? Are they trying to go beyond the tactical day-to-day service delivery and get into all aspects of your business? Do you consider them the “go to” team for questions ranging from leasing to organizational design to M&A due diligence? Do they approach their role as a business consultant as well as a real estate expert? If the answer to any of these questions is no, consider the fact that your real estate service provider may have already put themselves in a commodity role. If so, you’re not getting good value for your money (but you probably already knew that). Take this as an opportunity to bring in experts who can show you how rethinking the service provider relationship can enhance your relevance to your company’s senior management.
Tags: infraservice, infrastructure, real estate outsourcing
Posted in National Accounts | Comments Off
