Using benchmarking to develop an operating budget

We receive requests all the time regarding operating costs. Many times the request originates from an architect designing a new project; the client has approved the design and needs to know what the annual operating costs will be. Other times the owner has accepted the building and needs to develop a budget. Most projects focus on the construction costs and other aspects of the occupancy process such as furniture, the move in, and equipment. But no matter which way the request is received, benchmarking can be used to help establish a budget.

The data entered in a benchmarking system by other organizations can easily be used to help you develop an operating budget for utilities, maintenance, janitorial, security costs and other expenses. For the building life, operating costs often represent more than 90% of the life-cycle costs. Construction costs often represent less than 10% of the life-cycle costs but receive most of the attention. Using benchmarking is an easy way to show 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 provide several examples below to illustrate how easy the process should be; this approach will allow you obtain the key output reports in the minimum amount of time. In the following example we benchmarked utilities performance based on the filters of building type, size, age, and climate zone. These are all critical factors when comparing utility costs and using the information to set up an operating budget.

The process is really straightforward:

  1. First look at benchmarked utility costs using the appropriate filters.
  2. Then consider the overall quality and energy saving options that have been included in your new facility by comparing them with the benchmarked best practices.
  3. Based on the best practices, decide which quartile most closely matches the new facility.
  4. Multiply the constructed gross area times the benchmarked values to determine an annual operating budget.

Figure 1 shows the utility cost performance compared with a group of facilities that most closely matches our own. This allows you to see at a glance how our facility compares with other office buildings that are in a hot and humid climate zone, that are four years old or younger, and greater in size than 600,000 gross square feet. The overall performance ranges from about $1.50 to $5.00 per gross square foot.

Figure 1 —Utility Cost per Area. Filters: Type of facility: office, greater than 600,000 GSF, less than 4 years old, climate type: hot and humid). Provided courtesy of FM BENCHMARKING.

Let’s look at the best practices we have implemented and see what others have implemented so we can determine the probable range in which our building is likely to perform. Figure 2 is a partial listing of the best practices implemented by those participants in the third quartile. This is a good place to start our comparisons. There are actually more than 40 best practices in the full table provided in FM BENCHMARKING, which we are using for this exercise.

Figure 2 —Utility cost based Best Practices. Filters: Type of facility: office, greater than 600,000 GSF, less than 4 years old, climate type: hot and humid). Provided courtesy of FM BENCHMARKING.

Conclusions. After looking at just the first few best practices, we should probably conclude a budget should be developed based on the median performance, or about $2.75 per gross square foot for utilities. This would be a prudent place to start and could always be adjusted the following year based on the building’s performance.

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.