Cost - Benefit

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How REFM/CRES can play a significant role?

  Whether it is an individual or a business, realizing and verifying for Cost- Benefit to the maximize outcomes improves profit. In this article let’s analyze how REFM/CRES function can help achieve this in a business context. Cost- Benefit approach considers what other benefits one can get at the same price point. Example, longer and wider scope of warranty, additional training, better quality supply and improved response & resolution time, etc. In large or medium businesses, the budget allocation for spends to this function is the second highest, after salary paid to employees.  Office Rentals, Utilities (Grid & Generated power, repairs and maintenance (R&M), annual maintenance contracts (AMCs) and outsourced manpower constitutes 85-90% overall budget allocations. Apart from this, in many organizations the expenses relating to employee transport & travel are also managed and serviced by the REFM/CRES function, and costs fully charged back to the business user. Is the ownership of spend the responsibility of REFM or business? It is a chicken and egg story. However, on ground it is mostly REFM who takes the end to end ownership and only the cost is charged back to business/project. So, as the head of REFM if one focuses on the above five major heads of expenses, any savings realized directly improves the bottom line of the organization. Adding to this, analyzing and improving the usage of Real Estate & Seats, delivers better cost benefits to the organization in the long term. Office rentals: This is generally agreed for a fixed period, and normally have a very limited scope to bring in any cost savings. However, during the negotiation stage in case you are paying fit out rentals, negotiate for rentals payment at reduced rate or nil fit out rentals after certain years of usage or post lock-in period. During renewal of lease do a market analysis and negotiate with landlord in case you happen to pay rentals at higher than the market rentals. Utilities: This is a high potential area and requires constant focus. Year on year you shall look at how to optimize the use of grid or generator power. Examples: 1. Analyze the power utilization during weekdays and weekends, peak working hours and non-peak hours. Dig deeper into details to understand the power consuming gadgets during weekends and non-peak hours & switch off such gadgets that need not be powered. This has potential to reduce energy consumption by about 5-10%. 2. Carryout life cycle analysis of equipment, identify the equipment which is consuming power more than normal, consider the capital expenses plan to replace them to save energy. 3. Re-look at the AMCs, understand the requirements/risks and renegotiate with vendors accordingly for a win-win solution. Use latest technologies like sensors, Internet of things, Artificial Intelligence etc., to achieve optimum utilization of energy. Manpower outsourcing: Prepare a detailed requirement plan, which helps you to know what exactly you are looking from service providers. Define clear key performance indicators (KPIs) and service/operation level agreements (SLAs/OLAs). Sign up long term contract with commitment from vendors to deliver high performance year on year. During transition of one agency to another ensure a well chalked out transition plan is followed. Transport & Travel: It is important to review the usage and expense patterns on a periodic basis. It should be daily, weekly and monthly. Mile stone check is a must. Do a thorough variance analysis, get answers as to why usage of certain types of vehicles is high or low, why the number of trips on daily basis is high or low. Also notify the high value user, exceptions and defaulters. All exceptions, defaulters to be notified plus, one level up, so that some kind of sanity check gets done. By informing high value users, awareness on spends is done and a self-check mechanism is put in place. Sharing comparative usage/cost analysis to business and projections, marking leadership may help cut wastages effectively. What gets measured, and reported, gets better. Analyzing the usage pattern of real estate: Periodically take stock of usage of real estate foot print and seat utilization. This helps to ensure optimum utilization of resources & accommodate the head count growth without adding more space. If your real estate is underutilized, for example, and per person SF area is not in line with the current market trend, then prepare plan to remodel the floor/s to add more seats, this way you incur additional capex cost with no increase in rentals. Normally, the payback period of improving seats by 20- 25% will be less than 1.5 years. Example: In one of projects managed by us, consolidation of three sites into one site was done with an ROI of 1.7 Years. Three sites put together had an area of 215 K SF with 1,400 occupied and 300 vacant seats with an area of 125 SF per seat. By re-designing it to 85 SF per seat a total of 1,400 seats have been created at a site which has helped us to reduce 96 K SF thus resulting in savings of ?  81 M with an investment of  ?  139 M Analyzing the usage pattern of seats:  Most organizations allocate seats on 1:1 ratio, however in reality you find only 70-80% of employees turn up to office on any given day, remaining 20-30% of seats are kept vacant without use. So, you could look at optimizing the utilization by 10% and move on to improve this to 15-20%. This is feasible with proper change management program in place. By doing this within available seats you could accommodate 10-15% additional head count growth.    Example: Typical savings computation for 10K seat facility is provided below:

Project: 10,000 Seats
Sl	Optimization			Savings (p.a)
	%	Seats	Area (SFt)	INR (Mn)	$* (Mn)
1	10%	1000	85000	71.4	1.07
2	15%	1500	127500	107.1	1.61

*$ = INR 66.73 We were really amazed with the kind of results we were able to achieve. I would urge REFM/CRES lead to allocate time for such transformation initiatives. I am sure the management of your company will appreciate it. As mentioned all these savings is directly adding to the profit of the organization. I am a strong believer of “Anything is possible if you are determined to achieve it”. Your determination will benefit you, your team and the organization. As part of your goal don’t miss to identify the cost benefit goals. In competitive environment one must keep running to stay where we are. Let’s do our bit to improve the business environment. We will be glad to guide in case, any support required in real time implementation of initiatives in REFM/CRES. Write to rrkrishnan.ram@livebest.in *REFM- Real Estate and Facilities Management/ CRES-Corporate Real Estate Services  

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