By Richard Kadzis
From the October 2014 issue of Today’s Facility Manager
Companies that own and occupy at least part of their corporate real estate portfolio have an inherent advantage. They can choose to treat their facilities as value creators instead of cost centers. Results include increased employee retention, continuous innovation, faster speed to market, expanded market share, stronger competitive advantage, and higher profits—among other outcomes.
While more companies are beginning to view their facilities as strategic assets to enable employee engagement and productivity (not so much, as before, for disposition or monetizing), many facility management (FM) executives are still striving to secure a seat at the C-Suite table.
A recent study by the Centre for Economic and Business Research for the British Council for Offices reported 40% of 250 senior executives surveyed admitting they do not look at the role of facilities and workspaces when productivity issues arose. What’s more, well over half (57%) said facilities issues were not regularly discussed in the boardroom. Even worse, close to three-fourths (73%) said cost remains the most important factor in assessing facility performance.
“Isn’t it time for a structurally new strategy; not simply by reducing operating costs, but by proving the relationship between facilities and the productivity of those they house?” This question, posed recently in the Leesman Review of global workplace strategies, also represents a critical dividing line for FM executives seeking to transform the FM function from order taker to trusted advisor. But how can the gap be bridged?
The Rocky Mountain Institute’s (RMI) new Deep Retrofit Valuation (DRV) Guide provides a clear pathway for FM executives to inform senior management reliably on the impact that facility performance has on enterprise effectiveness, accounting for a wide range of benefits. It’s all about effective data management and the roll-up of reliable information to support key decisions at the top of the enterprise.
“RMI’s recent deep retrofit value report frames and illustrates how to calculate these benefits—both the more obvious and observable and the less obvious that require more detailed research,” explains RMI senior fellow Robert Hutchinson. “The fact is that these value levers are things most companies not only do not think of often enough; many do not think of them at all,” he says.
While RMI is known primarily as a non-profit, expert advocate of energy conservation and efficiency, it has taken a precedent setting step by designing a framework for accurately forecasting the return on investment (ROI) not only for energy management, but for many other related, critical aspects of workplace transformations in general.
Converging Value Elements
There are nine “value elements” in the guide illustrating the wide-ranging nature of retrofits, which companies must often opt for in lieu of building more costly, new facilities. Considering how there are 200 billion square feet of existing commercial, industrial, and other types of business space in the world, the stakes are pretty high.
- Retrofit development costs. These are critical because they represent the initial capital investment against which future cost savings and other benefits are measured.
- Non-energy property operating costs. These include maintenance, water, insurance, and occupant churn rate.
- Retrofit risk mitigation. Future operating costs can be compounded by other risks like new products and systems, interoperability problems, new contracts and design processes, and complex financing requirements.
- Health costs. Reduced absenteeism and other positive outcomes contribute to productivity and satisfaction, which creates value through employee cost reductions.
- Employee engagement. Better work environments lead to higher engagement as well as cost savings.
- Marketing costs. Deep retrofits can provide the content many companies seek to shape their branding stories, strengthening reputations and the value of buildings.
- Sales. Retrofitted buildings often represent a company’s commitment to sustainability that consumers, businesses, governments, and other types of customers look for today.
- Property-derived revenues. Added revenue in the form of subleasing or selling retrofitted spaces is another advantage.
- Enterprise risk management. Risk is reduced when enterprise performance is measured along the lines of individual occupant health, productivity, and satisfaction as well as space flexibility.
“We don’t expect everybody to focus on all nine,” advises Mike Bendewald, an RMI senior associate. “Each is developed to help users identify areas of focus applicable to their scenarios.” A whole building retrofit can save upwards of 50% of energy costs when companies account for the full picture, according to Bendewald. In New York City, the Empire State Building’s recent retrofit provides an ideal example of a multi-tenant setting, which in this case is surpassing the projected 38% reduction in energy consumption.
There is a growing body of case studies relating to single tenant and owner-occupied facilities, too. “Though perceived to be intangible, firms like Google that are studying these matters intensively and firms the world over that have fully understood the role of “place” in employee health, wellness, comfort, satisfaction, and company culture have long known that investments here can pay off substantially,” adds RMI’s Hutchinson.
“RMI’s report presents tools to use to better describe, make the case for, and, in many cases, quantify what these benefits might be worth. Without this ability, many services/employee-intensive businesses may soon lose competitive advantage,” he cautions.
With insight on deep retrofit valuation from the RMI guide, FM executives can take the guesswork out of retrofit proposals, avoiding anecdotal evidence in favor of quantifiable cost factors and metrics that convey ROI on those cost investments. It will put the emphasis on effective data management and the roll-up of reliable information to support key decisions at the top of the enterprise.
Other companies where FM executives are gaining a seat at the table using approaches similar to those in the RMI guide include AT&T. A recent area of focus for AT&T’s energy management program has been on what John Schinter, assistant vice president of energy and smart buildings, calls the “intelligent integration of multiple benefits into a single expenditure.”
When AT&T thinks about the value of LED lighting and controls, for example, it considers the multiple benefits the investment could provide. The decision-making process emphasizes that LEDs and controls do not just result in reduced energy costs but also lower maintenance costs, generate information about space use, and lead to greater workplace comfort and productivity. (For more on AT&T’s energy strategies, read this story.)
These and other benefits are part of the daily discussion in finance departments everywhere, as Hutchinson also notes. “Sadly, the opportunity that provides them—making significant upgrades to buildings, including deep and insightful changes to energy efficiency—is seldom part of those exchanges.” That is why RMI strongly recommends linking deep energy retrofits and energy planning to the benefits of excellent building space. As Hutchinson concludes, “It’s all about becoming an enterprise leader and giving your FM team a great platform to work with the C-Suite.”