Using Benchmarking to Budget for a New Facility

October 2015 — Capital funds seem to be more available this year and FMs are often tasked with development of an operating budget for a newly constructed facility. Benchmarking is a tool that can be used for this purpose! Most projects focus on the construction costs and other aspects of the occupancy process such as furniture, the move in, and equipment. As a project approaches completion the FM is often requested to develop the most expensive cost of any facility, namely the long-term operating expense.

Data entered into a benchmarking system can easily be used to document your utilities, maintenance, janitorial, and security costs—these usually represent about 95% of the controllable operating expenses. Using benchmarking is a really straightforward process that shows the importance of the FM position in the organization and the impact of construction decisions over the life-cycle of the building.  Without good benchmarking comparisons you may not realize that operating costs can be reduced, your level of service is too low, or which best practices may have the most impact on improving the overall performance of the operating budget.

We have used benchmarking examples to illustrate how easy the process should be. This approach will allow you to obtain the key output reports in the minimum amount of time. In the following example, we benchmarked an office facility for its maintenance component.

Comparing your maintenance cost per area may give you the wrong perspective on your performance unless the comparisons are made with a relevant peer group. For a quick analysis we can utilize a benchmarking tool from FM BENCHMARKING’s Query Edition to create a chart showing the maintenance cost per area of a good peer group.

Figure 1 presents a chart showing the maintenance cost per area for office facilities. The third quartile maintenance cost (the border between the 3rd and 4th quartiles) is $2.33 per square foot, the median maintenance cost is $2.14 per square foot, and the first quartile maintenance cost of $1.63 per square foot. When the building is turned over to facilities, what will be the maintenance costs? This isn’t a rhetorical question since the range between the 1st and 3rd quartile is $.70 per SF. On a one million SF facility that is an annual $700,000 difference and over 50 years the difference in a net present value analysis is more than $50 million.

 

Figure 1 – Maintenance Cost per Area

Figure 1 – Maintenance Cost per Area
Filters: Type of facility (Office)
Provided courtesy of FM BENCHMARKING

The case can be made to focus our efforts on implementing the key aspects that will influence the overall operating costs. Maintenance services are compared on a cost per area basis. Since for most maintenance activities the labor utilization is a major component, usually between 70 and 85 percent, we usually look at labor utilization or FTE (full time equivalents) normalized against the facility area.

To assure that our new facility reaches first quartile you could just start reducing costs by reducing staff and limiting the purchase of new parts and equipment. However, this usually isn’t too effective. Usually the quality of the services will decline and you will start receiving more complaints and eventually your costs will be excessive.

While a tool such as the Query tool described above can be helpful to give one a broad overview, it does not tell you which best practices were being employed by the buildings with lower operating costs. For that, a different FM BENCHMARKING tool may be used, which enables one to not only show their building, but see which best practices are being employed by others.

So now we can develop a sound strategy to reach 2nd quartile performance in a set period of time and then continue to consider more of the best practices until the organization is at 1st quartile performance. An important step is to evaluate which best practices other organizations in this peer group have implemented to reach the 2nd quartile. Figure 2 shows some of the best practices implemented in the sample building, what has been implemented by the peer group in the current 3rd quartile and the next better quartile (2nd). Figure 2 is only a partial list—there are about 30 best practices for maintenance overall.

Figure 2 – Maintenance Best Practices

Figure 2 – Maintenance Best Practices
Filters: Primary Use: Office
Provided courtesy of FM BENCHMARKING

Using the results from this table, the facilities group can make proven recommendations for maintenance services that would help achieve first quartile performance. Again, this is win-win for both the construction process and the FM. The owner will achieve cost savings from the maintenance improvements and improved levels of service; the contractor will improve its profitability by more effectively utilizing the benchmarking process, and there will be improved occupant satisfaction, which benefits everyone.

Of course, benchmarking is an iterative process. By using tools such as the ones described above, one can apply more filters to make the comparison-set match your building more closely. By doing this, you may find that the suggested best practices to get you down to the lower quartiles are different from those shown above. Thus, benchmarking can become both an art and a science, not just a science.

Articles are based on data from FM BENCHMARKING, the online benchmarking tool for facilities managers and CREs. Data tracked by FM BENCHMARKING includes cost data (utilities, maintenance, custodial, security), sustainability data, and best practices. For more information, go to www.fmbenchmarking.com.

FM BENCHMARKING is a collaboration between Facility Issues and FMLink.