by John Vivadelli, CEO
If management is impossible without measurement, then facility management is an oxymoron. Facilities cannot be managed without knowing actual occupancy continuously, consistently, and systematically every day, in every work setting throughout the entire portfolio.
Occupancy costs makes up 8% to 10% of a company's Profit & Loss and 20% to 30% of its Balance Sheet. FASB 13 changes will only increase the impact of real estate on the Balance Sheet. Finances are not truly managed when management has no auditable measurement system (remember Sarbanes Oxley?) to determine the actual use of their second largest expense.
Financial analysts take notice; does this pass your test for senior management's responsibility to allocate resources to maximize shareholder value?
Real Estate executives routinely propose to their Board of Directors new expenditures for more office space while their office space lays vacant fifty to seventy percent of the time. For any other asset – refinery, warehouse, equipment, etc. - a proposal to increase infrastructure costs with utilization rates of 30% to 50% would result in separation for cause. It is waste, fraud, and abuse to the extreme.
An organization can dramatically improve its allocation of capital and release tens or hundreds of millions of dollars tied up in its brick and mortar operations by changing the current thinking about facility management. Current practice involves primarily maintaining accurate inventory and allocating costs out to departments for charge backs. Inventory includes tracking the amount of space, its location, leases, condition assessment, cleanliness, and many other "hard asset" parameters.
Cost Allocation is concerned with the distribution of space for use by business units and if necessary, the internal accounting for how real estate operating expenses are charged back to that business unit. But Inventory and Allocation management is not enough. We need a deeper understanding of the way an organization's real estate portfolio is actually used, the way it is actually occupied on a day to day basis.
Sadly, the way most consultants recommend this be done is through "occupancy surveys". No matter how automated this process is, iPads for bed checks, sensors deployed on chairs or under desks, video cameras in ceilings to watch people, a glaring weakness prevails. No one believes the legitimacy of the data because only a small subset of the portfolio (hundreds of desks) is measured over a relatively short period of time (weeks).
Instead of surveys, best practices demand an Operationalized Data set to feed its measurement platform. The systems and processes used to measure actual use of real estate must mirror the rigor devoted to an organization's other financial reporting metrics.
For example, a publicly traded company depends on operationalized data. Summary of quarterly financials require that every sale, invoice, credit memo, expense, etc. be originated, processed and maintained in an integrated system. The system processes each entry in an automated way against other entries to ensure a continuous, consistent and accurate data set. The data has to be accurate because each data element is checked against other entries at the point of entry.
AgilQuest manages and measures the occupancy of the office infrastructure asset much like accounting systems treat financial assets and requires operationalized data to be effective.
Our processes and systems exhibit the following characteristics:
- Systematic: Source data flows though automated integrations, as opposed to manual data dumps. Most often, AgilQuest integrates with systems that are already implemented, thereby leveraging past investments (examples include security, telephony, network, financial, human resource, and building systems).
- Consistent: Source data is produced with the same methods, technologies, and processes over time as opposed to one of data collections that may be done using different teams, methods, tools and processes. This provides an audit trail for data, a key to Sarbanes-Oxley compliance.
- Continuous: Source data is produced continuously over time and recorded in the periodicity necessary to address the business questions (hourly, daily, etc.)
- Legitimate: Continuous, Consistent and Systematically produced data is intrinsically legitimate.
- Enterprise Scope: Systems integrations should be selected to provide broad portfolio wide coverage.
Let's all work together to raise the management of real estate and facilities to its rightful place as an integral component of any organization's financial metrics. The way we get there is through the implementation of the processes and tools necessary to produce consistent, continuous and systematic measurement data about the actual use of real estate.