Glenn Corney, Director of IPD Occupiers, considers how an analytical view can reduce occupiers’ costs and at the same time develop long-term value. 

Glens conclusions will be presented in detail at the IPD Occupiers Property in Business Conference on 29th June in London.

Working smarter
In the very challenging operating conditions organisations now face, there is great pressure to make rapid and immediate cost reductions – but the danger with short-term fixes is that they are just that. The skills and techniques used are confined to a glass-case which reads “break in case of emergency” and no improvement is made in ongoing approaches.

Analysis from IPD’s Occupiers’ databank clearly indicates many pockets of opportunity for both short-term cost savings, but more importantly improved working practices going forward. Organisations and their real estate teams hold a vast amount of powerful information, but at present this tends to be fragmented and under-utilised. Leveraging this information to create value for the organisation will require a change of approach.

The immediate challenge: reducing costs
“Any fool can cut costs” - quite right. The start of 2009 has seen budgets reviewed and cut to the bone. This has meant putting on hold maintenance, change and improvement programs and re-tendering service contracts. All of these will deliver short-term cost reductions, but are they sustainable and do they support the longer-term strategy?

In times of great pressure, an organisation will often not take the time to exploit the information resources available to develop knowledge and drive change. Instead we rely on previous experience, with cost reduction driven from the ledger.

In considering the costs of space, it is important to look at the assumptions behind what are deemed to be “fixed” costs - rent, rates, service charges and  depreciation - and variable costs - operating, business support and management costs.  We need to challenge the “fixed-ness” of the former portion of the cost base.  Where do we have lease end/break options available? Have rateable values and service charges been challenged?  And where shorter lease commitments are in place, landlords may be willing to reduce occupier costs in the short-term in exchange for greater income security in the medium-term.

In attempting to reduce “variable costs” organisations are likely to consider reprocurement or rationalisation.  But reprocurement typically involves significant additional cost, risk, and loss of knowledge and relationships. IPD’s Value for Money Service which provides facilities management service analysis has identified that the most frequent complaint levelled at supply partners is a lack of communication and responsiveness, and the greatest potential for reduction in facilities costs is in re-aligning services to business need.  IPD’s data indicates no long term difference in the running costs of organisations which change suppliers regularly from those which have a stable supplier-base.

The first port of call should be an internal and external analysis of the relative economy of sites. Both direct and indirect costs should be considered together, as these are often managed by separate teams. Internal analysis will look to challenge internal variation in outcomes, whilst external benchmarking can help identify whether the overall level of spend is in line with the marketplace. Figure 1 looks at the typical level of variation in costs, ordered by the magnitude of variation.  Clearly some of these services offer greater potential than others.

Improving space efficiency
Although reduction in variable costs can offer immediate financial gains, space reduction will have the greatest impact on ongoing cost efficiency. Having reviewed ongoing business requirements for space, mapped to lease commitments, we should now have a clear picture of supply and medium-term demand. The missing piece of information is current space and occupancy data. In order to reduce our space per person (and hence costs) we need to identify space redundancy. There are many potential sources as is evident from the performance indicators contained in the IPD Space Code.

Most obvious are the vacant areas of buildings, which we analyse in terms of vacant space as a proportion of net internal area.  But there may also be issues with inefficient space planning or oversized desks (high workstation area per workstation), the overprovision of support areas (meeting rooms per number of occupants), underutilisation of capacity (workstations per FTE occupant ratio), and overall building inefficiency (usable area to net internal area ratio).

Better information on current and future space demand will enable organisations to be more flexible and reduce the costs of surplus space. Figure 2 shows one indication of significant scope for improvement, with 40% of buildings currently having at least 10% more workstations than occupants. This kind of information is not easy to collect and maintain, but does perhaps explain why the adoption of new ways of working has not been widespread in large organisations, despite the growth in working flexibility. It may also help explain why investment in flexible working tools like mobile phones and laptops has not made a significant impact on space per person ratios.

Glenn's conclusions will be presented in detail at the IPD Occupiers Property in Business Conference on 29th June in London. 

Book Now at www.ipd.com/occupiers_conference2009