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Vacancy Costs

04 January 2011

Industry research by Gartner shows that many companies underuse office space by 50 percent or more, costing global businesses £millions every year, as Steve Thorley explains.

AS THE RECESSION CONTINUES to cast its shadow, pressure to reduce costs and improve financial performance, together with increasing regulation and compliance requirements, has placed a new emphasis on the strategic importance of property management.
And there are real opportunities to make savings; industry research by Gartner has shown that as much as half of an organisation’s real estate portfolio is surplus to requirements.
Sun Microsystems’ Vice President of Real Estate was recently quoted as saying “A 4 percent reduction in facilities costs is equivalent to a 25 percent increase in sales.”
However, the problem for facilities managers is that they often don’t have the information they need to ensure full utilisation of office space or to identify the cost of under-utilised space to their organisation. Take a typical scenario based on a company that is reporting a 10 percent vacancy level, which equates to approximately £22.6m. If we assume this data is only 50 percent accurate, that would equate to £34m, whereas if it were 90 percent accurate, the actual cost would be closer to £25m. The difference is staggering. Yet, without accurate data, companies are just not in a position to know how much their property portfolio is costing.
For global and geographically dispersed organisations, the problem is even more acute.
Local personnel need access to facility and project information, but at the same time, the global real estate management team needs to access accurate data about the entire portfolio in order to deliver effective management information. By adopting a rigorous approach to data integrity, corporate real estate professionals will begin to find the answers to the challenges outlined above – and many more.
Proactive
Data integrity is what gives FMs the assurance that the information they see is totally trustworthy and can therefore empower them to make proactive rather than reactive decisions about their real estate portfolio. Put simply in business terms, data integrity is the assurance that data is consistent, certified and can be reconciled across the enterprise to offer real value for money.
A recent benchmark study by The Aberdeen Group interviewed corporate real estate, facilities management, finance and procurement executives from over 250 diverse enterprises. It found that best-in-class enterprises were distinguished by two key measures:
● Percentage of Real Estate Facilities under management
● Visibility into both spend and process
These best-in-class organisations are achieving some impressive results:
● 5 percent reduction in total occupancy cost
● 3.3 percent reduction in maintenance costs per square foot
● 2.6 percent reduction in the cost of capital improvements
● 56 percent reduction in the amount of time to close facility work orders.
In spite of its proven effectiveness, less than half of all organisations currently have an enterprisewide, centralised real estate function in place.
Silos
In the past few years, many organisations have implemented some form of integrated workspace management system. However, sadly, too many FMs have also already discovered the limitations of these sytems. In the vast majority of cases the information required for effective FM still sits in disconnected silos within the enterprise.
By adopting global industry best practice and taking a centralised, consistent and planned approach to data integrity, organisations can give FM decision makers the information they need to drive the business forward and achieve bottom line returns.
Up-to-date information on the people, processes and the physical assets of the organisation is essential to best-in-class data integrity projects. This information should ideally reside in a central web-based repository, where decision makers can have access to up-to-date information whenever it is required. Many bluechip companies have achieved this type of data integrity by following four simple steps that provide a practical approach towards achieving trustworthy data that will increase FMs’ strategic value to the organisation:
1. Review: A comprehensive review of the current situation is the foundation for any data integrity project. In order to get anywhere, you need to know where you are starting from! Your needs analysis should cover the following checklist:
● Your corporate goals
● An evaluation of your current business processes and workflow, the systems you are using to manage information and how effective (or not) these procedures have been
● Identification of any likely short-term business change that will have an immediate impact on real estate operations such as consolidation or staff reduction
The information below will help you evaluate your software and systems:
● Ensure your software gives you the information you need?
Who are the key stakeholders and what are their information management priorities?
2. Identify: your precise requirements. Start by reviewing the FM assets at hand and identifying the goals of data integrity across the entire global facilities portfolio, including the amount of buildings that have to be managed, the capacity within the portfolio and current occupancy levels. It is also important to consider what additional data sources within your organisation you can tap into. For example your ERP system, the IT department and even the post room; HR & security are also likely to have a system that will contain plenty of data on your workforce. Likewise, the IT group will have data you can use to determine precisely where your workforce is located.
3. Establish well-defined processes and putting key service level agreements in place to ensure data accuracy and frequency is maintained. In order for this step to be successful, FMs have to establish corporate standards for classification of space and business rules. They also need to decide how often information will be updated, what this data will be and who will be responsible for these actions.
4. Measure:Measurement needs to be in place at each stage of the four-step process to ensure  return on investment and best-in-class implementation of key performance indicators.
The implementation of the four-step process gives FMs the ability to extend information to departments and users on an as-needed basis to ensure transparency of key business processes. This ability is vital in maintaining and measuring consistent processes by enforcing workflow rules and creating tangible audit trails, while also allowing for better business decisions.
As the world's economy slowly moves out of recession, it is key that FMs consider the bigger picture and commit to a global standard of best-in-class industry standards in facilities management.
FMs are facing a series of challenges and face increasing pressure to adhere to organisational and financial goals. To achieve these goals a dramatic change is needed within the way people work and the business processes that feed into data integrity with regards to facilities management. The changes sought in data integrity are only achievable through innovation and implementation of standards of practice across the global facilities management department.
Global savings
The Changing Workplace has recently worked with a global financial services organisation that manages a corporate real estate portfolio of around 8million sq ft in over 200 buildings accommodating a global workforce of 40,000. Three years ago, this company introduced a best-in-class approach to data integrity within its FM division, to drive improved space efficiencies and cost effectiveness. At that point, the organisation only had access to accurate detail for 40 per cent  of its buildings worldwide. As a result it couldn’t really be sure where their workforce was located with any degree of confidence. There were also inconsistencies in the reporting of data and standard definitions across the global business, making it difficult to obtain accurate data in order to manage the property portfolio. The FM function was reactive rather than proactive and the organisation was, as a result, commercially vulnerable in a very volatile economic environment.
Today the picture is very different. The company’s web-based, enterprise-wide real estate system contains accurate, up-to-date and trustworthy data about the entire property portfolio, as well as data feeds from HR, Finance and BCM systems and the enterprise-wide phone book.  The data is reliably maintained by people throughout the business – with monthly validation checkpoints - and is achieving operational savings and efficiencies in key areas. The organisation has managed to make space efficiency improvements of around 10 percent, and Capex savings of 10-15 percent on a spend of over £200m per year. Effective occupancy management, workplace principles, performance-based specifications and supply chain efficiency now underpin the organisation’s procurement process.
Steve Thorley is a founder of The Changing Workplace. a specialist real estate management company, helps its global client bas to manage and improve their centralised real estate functions though innovative technology, expert consultancy and managed services. For more information visit http://www.thechangingworkplace.com 


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