For most businesses, the five greatest expenses are: staff, physical location, capital equipment, development costs, and Cost of Goods Sold (aka: Inventory).
In short, after a business’ staffing, the next largest cost is Facilities. What we have seen so far are the most drastic cuts in staffing since the Great Depression. Cuts to Facilities budgets cannot be far behind, if they have not already occurred. Staffing nationally, depending on industry, is probably down 10 to 20 percent. Similar cuts will be needed in Facilities, right after the prioritized purchases needed to re-open the workplace. In part, because of those expenditures.
Having been through hard times and downturns many times in my career, as we are experiencing now, I have seen facilities budgets face significant reductions a number of times before.
Over the next few posts I will discuss some of the lessons learned and strategies to reduce now while planning for recovery.
Before getting into specific areas of savings, let’s talk about strategy first. There are a lot of ways that we can reduce our facilities budget, but some of them have a more drastic impact on our ability to recover than others. Resilience and adaptability are qualities we need to consider seriously as we plan to reduce costs.
The concern I would like you to think about is how easily can reductions you make over the next few months be reversed, once our economy and society begin to recover? This is an area where many organizations have made poor judgments in past down turns. The changes they made set a path that took many years to recover from.
As an example, think about what a 15 percent cut in your overall budget means. If you are like most of us, you have only seen a budget increase each year of around 3 percent total, most of which was to account for inflation. (Exception of course if your organization was experiencing significant market growth.) How long will it take your budget to recover from a straight “across the board” cut of 15 percent? 5 years? 10 years? Never?
My point is that you need to think strategically here, and not just about your department, but about the entire organization!
Why do you think Facilities is allowed to be such a large cost center for the entire organization?
Because it provides the platform for success for the entire company!
Thus, from a strategic point of view, we need to make decisions now on facilities cost reductions that will not hamper the growth and re-emergence of our company in the near future.
What does that look like? Well, for starters, it means we don’t simply cut every budget line by the same 10-15%. Some of those line items will hurt us more in the recovery phase of the next few years than others. Some of those line items have a more profound effect on additional budget line items than others (and may actually drive up overall costs in the long run).
So in the next few posts let’s look at some specific areas:
- If staff levels in my building are reduced due to additional “social distancing” space requirements does that reduce my air change requirements (and energy needs) for the building HVAC?
- If staff levels in my building are reduced due to additional “social distancing” space requirements does that reduce my lighting requirements (and energy needs) for the building?
- What decisions should I make about capital renewal projects for the next year, two years, three years?
- If our company will adopt significant long term changes about telecommuting, do we still need to keep all of our physical space inventory? How do we decide which to let go?
- If we need to significantly increase cleaning frequency and thoroughness in our facilities, do we use the same equipment/staff combination? Or is a new approach more cost-effective?
A couple of more key strategic points to consider that we will talk more about later.
First, Energy efficiency and sustainability are NOT off the table. Of course, near term we will be most concerned with “keeping the doors open” so we will be looking for projects with really short payback periods (one to two years max). However, when it is time to replace/renew equipment, energy efficiency will be a critical consideration. Also, if you are considering reducing your property portfolio, one of the key considerations should be the energy use intensity (EUI) of your various properties.
Training is another area where the first impulse may be to cut your budget drastically, or eliminate it all together. I would caution you strongly to avoid this trap. It is a very small line item in most budgets with a very big impact!
Training will have a significant effect on your company’s ability to recover.
Think about who will be leaving your team over the next year or two and what they are taking with them as regards your “knowledge pool”. If you are like a lot of us, a high portion of your most skilled employees are close to retirement age. Any “early retirement” program will significantly impact this group. How are you going to rapidly up-skill your remaining workforce without this internal talent?
What about new employees? While they may have a fair amount of general knowledge about some areas of facilities management, how will you rapidly get them up to speed on applying that knowledge to real world situations?
What about advancing existing staff into leadership positions? How will you teach and support them at this new, and highly demanding, level in your organization?
Your training budget is critical to success in these important areas. The “return on investment” can be a 1000:1 if it avoids even one crucial mistake!
We here at FM College (www.fm-college.com) are ready to support these critical training needs through instructor-led training for you individually, or your entire team! We offer courses in a variety of formats to meet your needs (in-person, blended, and online). We can also provide coursework at your site; as well as custom and bespoke training.
Please get in touch with us to discuss the specific needs of your team! Call us today or email us (contact info below).Learn About Our Courses