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ll - Estate and Facilities Cost Reduction

Estate and Facilities Cost Reduction

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Market conditions have pushed cost control to the top of most meeting agendas. How do we survive in tough economic times without reducing the level of service or quality? The best way to do this is by reducing the costs associated with delivering the facilities or services related thereto.

By moving from old habit to industry best practice, any organisation can improve value for money and still reduce their facilities costs by up to 15–20%. In the property management industry, cost reduction depends on addressing both demand for continuous upgrades and the ongoing routine maintenance of existing infrastructure. Properly targeted cost cutting can also support the achievement of sustainability through reducing the effect on levy requirements from shareholders.

Substantial savings can be gained by carefully managing expectation

Cost reduction can be riddled with legal and operational difficulty, often owing to past operational and contractual commitments or actions. This lays the foundation for some pitfalls that any management team or board with an aim on cost reduction must be aware of. We can often be lured into short-term solutions or savings – ‘quick gains’ – without fully understanding the potential impact on the level of support provided to the associated facilities or services. Conversely, fear of change can lead you down a path where the fear of change in key service providers, operating procedures or policies can leave you entrenched in outdated practices and escalating costs. Experience shows that although some costs can be reduced in the short term, achieving significant, sustainable savings is complicated and needs careful planning.

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Manage expectations and future maintenance costs

Substantial savings can be gained by carefully managing expectation and demand for upgrades. This can be done by educating shareholders on the ongoing costs associated with these so-called upgrades and improvements.

Scrutinise the status quo

The operating model must be scrutinised to ensure that there is no duplication of functions delegated to service providers, management staff or stock stores. Often several service providers have functions entrenched in retainers that are duplicated on other SLA agreements. Management of service providers or maintenance teams must be streamlined to ensure that the managers are not only ‘reporters’ of maintenance but actively push for best practices, fair costs and well-managed preventative measures.

Outsource vs. in-house

As part of any cost reduction exercise, the opportunity should also be taken to achieve the appropriate balance between internal service delivery and outsourced delivery by external services partners. Supply markets have developed significantly over the past years, and a much wider range of outsourcing options is now available from increasingly capable suppliers with competitive costs.

Leasing, financing or transferring costs

The financing of improvements and facilities is also worth reviewing. With a strong balance sheet, you can unlock capital from certain portfolios. There are various options enabling you to do this, ranging from structured sale and leasebacks, through to transactions where a single service provider will take ownership of the moveable and fixed assets and provide fully serviced space or service in return for a monthly or quarterly fee. In some examples, an area of a facility can be leased, with all maintenance included, to a service provider such as a restaurateur or retailer for possible income by means of a fixed rental or percentage of turnover.

Economy of scale

Once an organisation is clear about what real estate and facilities services it requires or envisages, the associated services can be built into the operational model with better sensitivity to the ongoing facilities costs. Often this has been neglected at the outset, or not managed continuously, and a proper scrutiny is the only thing standing in the way of real savings on an ongoing basis. It is not unusual to find many smaller contracts for commodity services such as cleaning or maintenance as well as non-commodity areas like professional services. Consolidation of such contracts with fewer suppliers and retendering will normally result in savings.

In summary, an investigation into the key cost centres and their deliverables is required. To reduce facilities costs it is imperative to understand the cost drivers of the relevant industry or facilities. Savings are achievable; they can, however, only be achieved by taking the steps to second guess your management structures, operating models and policies. Objectivity is required when revisiting structures often implemented by oneself or one’s predecessors in order to protect the integrity of a company while prudently evaluating each line item in one’s operating budget.

Avoiding short-term savings and emotional decisions is difficult, and I would advise a process that incorporates external professionals.

François Schoeman – CEO Pecanwood Golf and Country Estate

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