Focusing On Facility Finances

Managing budgets while investing to improve buildings can be a balancing act.

By Roneshia Thomas
From the August 2023 Issue

 

When it comes to finances, facility managers must be at the top of their game. Being financially responsible for a project from beginning to end requires not only skill but education and training. This training does not necessarily need to come from a college or require a degree; there are training programs available to provide facility managers with the tools they need to make informed financial decisions.

Without training or any financial literacy, facility managers could over- or under-budget a project. This could lead to detrimental outcomes—projects may not be finished, or shortcuts may have to be taken.

Facility Finances
(Credit: Adobe Stock / Master1305)

According to Jim Hughes, Director of Content from OpenCashAdvance and a loan specialist for 15 years, employees that know the ins and outs of finance can make a big difference in an organization’s financial health and overall success.

Being able to budget efficiently and effectively impacts a business’s bottom line. If necessary a company will hire outside financial advisors, which can come out of the project budget. Hiring a financial advisor can ensure there is no money mismanagement, no cash flow problems, and vendors are paid. These are skills that can be instrumental when keeping a project on budget. FMs are familiar with the need to get things done in stages, but how to finance each stage can be another task on its own. Facility managers who know how to manage finances can take over this aspect of the project and save business owners the hassle of finding, and paying for, an advisor. As well as allowing more money for the project.

Importance Of Financial Literacy In Business

Financial literacy by definition means the understanding of financial terminology, statements and concepts, and knowing how to use this information to make a financial impact. When FMs have financial literacy, they are able to impact their project in many ways, including their own well-being.

No project is the same and there will always be something that comes up unexpectedly. This is why it is important that FMs have the financial knowledge to advocate for the budget they need.

If FMs can understand their company’s financial statements, they can track specific items and give a broader perspective on how well the project is staying on budget. Knowing how to track items that can affect the bottom line, allows you to look at specific problems and find a way to fix them without stripping down the whole system.

No project is the same and there will always be something that comes up unexpectedly. This is why it is important that FMs have the financial knowledge to advocate for the budget they need. For example, if FMs know there is specific software needed for the project they could calculate the anticipated return on investment.

Financial literacy is not only useful to FMs when they are advocating for their budget, but also when they are building their budget. Having financial knowledge can be an excellent tool in the facility manager’s toolbox. FMs need the means to negotiate prices, salaries, and other aspects of the project. Without the proper negotiation skills, FMs could end up over-budgeting or mismanaging funds. Being financially efficient can make it easier to identify ways to be more cost-effective.

According to Hughes, FMs that lack financial education can struggle not only in their position but also when it comes to working with the financial management teams when discussing debts that may arise. Carrying debt can result in increased stress levels, which can ultimately hinder a FM’s ability to perform effectively.

Basic Skills

There are six basic finance skills that FMs should know, according to Harvard Business School:

  1. Adopt the Finance Mindset. In order to adopt this mindset you must have an understanding of what finance entails, and how it can differ from accounting. Having a finance mindset can help FMs conceptualize a team’s skill set and potential assets. Despite both finance and accounting being important, the forward-thinking finance mindset can help FMs lead a team efficiently.
  2. Familiarize Yourself with Common Financial Terms. Knowing financial terms and their meaning can help FMs better negotiate financial benefits. There are common financial terms, such as assets and liabilities, that are important to know, because understanding a company’s assets and liabilities is key to managing a project.
  3. Read a Balance Sheet. When it comes to finance, spreadsheets are a common tool used to keep track of project budgets. Knowing how to read a spreadsheet is even more important when managing a project. Typically the balance sheet shows an organization’s assets, liabilities, and owners’ equity.
  4. Read an Income Statement. This document outlines your business’ income and expenses over a set period of time, and can sometimes be called a profit and loss (P&L) statement. The information on this sheet can be important to FMs because it shows what stages of a project were profitable at what time and predicts how profitable the project can be.
  5. Manage a Budget. One of the most important skills for FMs is budgeting. As a facility manager, understanding how a company’s budget translates to goals and communicating everyone’s role in reaching those goals is paramount.
  6. Analyze Variance. It’s one thing to be able to recognize variance in a financial statement, but the most important skill is learning how to analyze the cause of that variance.

Cost-Effective Trends

FMs need to stay up-to-date on the latest trends and consider cost-effective materials available when making budgets. Due to the state of the economy, many supply chains have been disputed and costs have gone up.

Since the pandemic, the workplace has shifted from completely remote to a more hybrid model. And these shifts are still happening as the economy changes, some companies are requiring all employees to be on-site.

Knowing the type of environment an FM is required to run will affect the materials and type of workspace required for that facility. This can affect cost. Considering what will be the most cost-effective method is an area where FM’s financial knowledge comes into play.

Hughes points out that an emerging trend is the use of technology. Using technology not only makes gaining financial knowledge easier but also gamifies learning experiences. The evolving nature of personal finance and the need for flexible, engaging learning experiences that cater to different learners has been instrumental in passing on financial education.

According to a Fact.MR market study, captive hydrogen generation systems are becoming more and more popular due to energy efficiency and decreased carbon emissions of the system type. If FMs can save money with energy consumption, that not only works in the favor of the plant but also the bottom line of budgets.

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Another trend noticed to cut down on cost is the use of different technology available to FMs when budgeting a project. There is project management software that uses different analytics and business intelligence algorithms to make recommendations for better management of work orders, workflows, assets, and, as just mentioned, service providers.

JLL research suggests that companies who use Internet of Things (IoT) technologies have better communication with FMs and a stronger understanding of how to use data to make the most cost-effective decisions. FMs can use IoT to keep up with real-time data, in order to fix problems that could become costly or stop a project altogether.

Due to higher inflation and supply chain challenges, there is no getting away from the difficulty of finding materials at a reasonable cost. In order to avoid any further disruption, some FMs have been preordering and warehousing new equipment to be prepared for future replacements, according to JLL. However, to do this efficiently, the FM must have financial knowledge about how to delegate project funds.

With the current state of the world, having financial literacy is not only a tool to help make FMs successful in business but also in this ever-changing economy. With the combined knowledge of the market as well as how to handle finances, FMs can run projects on budgets, help reach energy goals, and help the bottom line.

RESOURCES

Thomas is a freelance writer who covers facility management topics. Previously, she served as the Assistant Editor for Facility Executive.

Do you have a comment? Share your thoughts in the Comments section below, or send an e-mail to the Editor at jen@groupc.com.


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