Tag Archives: costs

Is your ‘benchmarking’ actually adding value? It should be by now!

Your current benchmarking….

If you are involved in corporate real estate (CRE) or facilities / workplace management, you are probably involved in benchmarking of space use and occupancy cost at the moment. Probably also environmental data, such as energy use and costs, and wider reporting on other sustainability measures. You may be using a specialist databank or benchmarking company. Or you may be working with other companies in an informal group.

We (at Occupiers Journal limited that is) have invested time in creating a discussion around this subject on Linkedin, called ‘OJ’ occupier benchmarking & data publishing. It is part of our ‘Open’ Group.

The discussion has taken off, with many of the leading benchmarking organisations (and key individual experts) now taking part. Roger de Boehmler, former Director-General of PISCES (now part of OSCRE, the International Open Standards Consortium for Real Estate, the only global e-commerce standards body for real estate) is now working with us as Project Director.

Therefore, as this discussion and ‘programme’ starts to take shape, I wanted to throw in some points to think about…

TIP#1 – What is a “benchmark”, and what is an “average”?

Many groups get this wrong! You may be working with one. Even specialist benchmarking providers misrepresent the difference between a “benchmark” and an average.

A “benchmark” should be exactly that – a mark on the ‘bench’ to show best practice, or best achievable. It should not be just the ‘mean’ or ‘median’ or some other average of a set of numbers. What does that tell you?? Do you aim to be ‘average’??

You should be getting told by your benchmarking provider, what their view is of ‘best practice’, and where you are against this measure. If they are also consultants (as many are) they will probably also be advising you on how to address any ‘gaps’ between where you are now and where you want to be.

TIP#2 – “What” is a start; “Why?” is more useful – quite often a question NOT asked!

Anyone can take a bunch of numbers, put them in a database, and tell you where your ‘numbers’ are against a wider group. Thats the “what”, and it doesn’t tell you much of value….

Your benchmarking group is not being useful unless it can explain “why” one company has achieved figures that appear to be better than the others.

Sadly, I have seen this situation NOT improve for almost two decades now! Why? Because every benchmarking group, or assignment, spends 90%+ of its time getting reasonable comparative data, and only whatever time is left (usually very little) on getting to the real kernel of ‘WHY?’ and ‘HOW?’…the real best practice questions that will help an organisation to actually improve.

One of the key reasons why we have started the ONE database programme. And the reason that we think it will get driven to a successful conclusion – where we can all get access to reasonably good quality data, and spend our time on analysis not on chasing data!

TIP#3 – Don’t accept the benchmarker’s phrase – “this could be because….”

That’s code for “we don’t know, but we guess that….”

Make them work harder to find the answers, not simple assumptions. Its all down to the ‘why’ and the ‘how’ questions above.

Some other serious points for you to challenge:

  1. The drivers of effectiveness (and even efficiency) for office facilities have changed….but many benchmarking groups have not kept pace. The key issue is that space is not used ‘9-5’, or by staff only, or on a ‘one person one desk’ ratio. To measure the effectiveness of office buildings today, we must take account of the Desk Share Ratio (DSR), where DSR= # of people using space / # of useable workspaces;
  2. The DSR measure necessitates understanding how many people use the space in each office, for how long, and how many useable workspaces are there, and how are they used. How does your benchmarking provider deal with this in their data analysis?
  3. We all know that it takes time, and ‘triangulation’ of several bits of data, to work out how many people actually use each building, how frequently, and for how long when they do use it (i.e., quick visit, in for a meeting, or ‘camp down’ for 10 hours?). Are you all doing this consistently?
  4. Many benchmarking groups use measures of “xyz per FTE”, to show “per capita” use of space and facilities. What is the FTE figure? Is it how many people are allocated to use the building (i.e., that is their base)? Or is it an assumption based on number of workstations? Or is it the actual average occupancy on a daily basis? This can vary by 100% or more! Here’s why: at a DSR of 1.2, you could have 6,000 people using 5,000 workstations, but the building average occupancy at say 60%, means 3,000 people use the space daily…6,000 people, 5,000 workstations, or 3,000 average users??
  5. “Cost per FTE” may be accurate in terms of the ‘numerator’ (cost), but can vary massively due to the ‘denominator’ (FTE), due to the later point.
  6. “Sq.m. per FTE” varies on the same basis….!
  7. “Sq.m. per Workstation? OK, as long as everyone is measuring space in the same way, that could be relatively accurate. But, is Sq.M per Workstation very relevant to a mobile workforce such as accountants and consultants? I’d rather have Auditors using comfortable productive space at 12 sq.m. per workstation, at a DSR of 2 or 3, than I would have then crammed into 9.5 sq.m. per workstation with no desk-sharing….size of workstation doesn’t matter, it’s what you do with it!
  8. “Cost per sq.m.” can be fairly accurate and comparable, if you work hard enough at it. But again, I would rather have a high “cost per sq.m.” office being operated over say 12 hours per day, with high levels of desk-sharing and high utilisation of meeting rooms and other spaces, than I would have a low cost building, occupied 9-5 on a DSR of <1, with poorly managed meeting and break-out spaces….

There’s more….we haven’t even got into “service levels versus cost” for each FM service line….! But that will do for now…

I hope this provides some useful material with which to challenge your 2012 benchmarking.

And suffice to say, if you want to do ‘proper’ benchmarking, and want to take these points and others into account, feel free to drop me a line at the email address below. Perhaps we should set up a special purpose company….”The Really Useful Benchmarking Company”, if Andrew Lloyd-Webber has no objections!

Contact me to talk about benchmarking anytime – it IS useful, if it is done properly: paul.carder@occupiersjournal.com

skype: paul.carder.uk

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Impacts of Lease Accounting changes on occupiers & CRE teams

Richard Drake, former Property Finance Director for Barclays,  discusses the likely impacts of Lease Accounting changes on occupiers and CRE teams.  He can be contacted via LinkedIn or direct: richdrake@yahoo.co.uk

Lease Accounting changes

Although the new Lease Accounting changes are taking a long time to develop, they are still coming and will affect anyone dealing with Corporate Real Estate (CRE).  This is a great opportunity for CRE teams to engage, proactively, with their businesses, to add value to business planning.

What are the main accounting impacts?

  • The value of leasehold commitments will go on Balance Sheet with a matching “right of use” asset.
  • It is likely that rental payments will be split between interest and capital repayments, resulting in an increased P&L cost at the beginning of leases.

What are the likely impacts for Corporate Real Estate?

  • Pressure from Finance and Treasury to reduce the length of leases
  • Freeholds become more attractive
  • Incentive to reduce cost of fit-outs to reduce depreciation over shorter leases
  • Real need to understand and document business occupation requirements

What are the timescales?

  • A revised Exposure Draft will be published in Q2 2012
  • A new Standard to be published late 2012/early 2013
  • To apply from 2015/6 but comparatives required from 2014

What do you need to do?

  • Make sure you know your real estate portfolio
  • Engage with your business, finance department and treasury
  • Watch out for the new Exposure Draft and respond to it (the IASB welcome comments)
  • Don’t panic!

Want to know more?

Drop Richard an email:  richdrake@yahoo.co.uk

Also:

The IASB have their own site for the Leasing Project: www.ifrs.org/Current+Projects/IASB+Projects/Leases/Leases.htm

Jones Lang LaSalle have produced a dedicated site that is also helpful: www.leaseaccountingchanges.com

What’s the costa this workplace? $2/hour+free coffee? $2/cup+free seat?

This ‘review’ site lists 20 coffee shops that people have bothered to comment about: Compare Coffee Shops.  That suggests to me that there are dozens more across our towns and cities…so what? Have you sat in one recently? Yes, sure you have…but why? Quite possibly you bought a coffee to make yourself feel less guilty about “camping” in Costa, Starbucks or wherever, with your laptop and phone out on the table…working! Did you actually want a coffee? Maybe, but equally likely you just came out of someone’s office where you already had one or two cups…

The question is, what are you paying for here? $2 for a desk for an hour, with a free coffee? Or $2 for a coffee, and a free seat? I know that I have paid both ways…if you’re a ‘glass half full’ person, you’ll think its a cheap coffee for $1 and you pay $1/hour for the “desk”. Thats not bad value, is it?

So how long before coffee companies just admit this is going on, and set up “business class”…? A “frequent drinker” card (no, OK, doesn’t sound like ‘frequent flyer’), which lets you turn left at the end of the coffee bar in to the business area, instead of right into the ‘normal’ cafe? With a chip+pin, to charge the account back to your company account. And you get larger seats, space to plug in your laptop, perhaps waitress service, etc..? Its gonna happen isn’t it…you heard it here first (unless its already happening – in which case you didn’t…!)

So for the corporate occupier, this is another facilities management operating cost, is it not? Another cost of employee mobility, along with the phone and laptop.

But its far lower cost than most corporate workstations. Especially where these are used by mobile employees in a desk-share arrangement, often at a desk-share ratio (DSR) of 2 or 3+. If a workstation in the office costs $10,000 per annum, thats say $40/day…thats too much coffee for the average person!!

Watch this space my friends….you will have a low cost flexible workplace on every High Street, properly set up for business users, very soon…that won’t Costa too much….