A “secret ingredient” to make benchmarking more effective

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Benchmarking has become even more important to reducing costs and improving service. Keith McClanahan and Peter S. Kimmel explain why and offer a “secret” ingredient to make benchmarking work—best practices.

These are tough economic times and it seems that nearly everyone is under pressure to cut costs and control expenses. One approach is to just cut costs and reduce programs, but this doesn’t bring much value to the organisation and can be very damaging to employee retention. Over the long term one’s facilities will deteriorate and workforce productivity will suffer.

Another, more effective approach is to benchmark key operating metrics and make critical decisions that will allow your organisation to reduce costs without reducing the services that impact productivity.

The first step

Benchmarking is the search for industry best practices that lead to superior performance. Another way to look at benchmarking is to break it down into three major components:

• A comparison of key metrics — For some participants the annual report is the major focus of the benchmarking effort. Benchmarking for some is like a scorecard so they can show where they stand and how they are doing.
• A type of professional development — By understanding your own metrics and those of other companies, you will become more knowledgeable about the details of your own processes.
• An Advanced Learning Process — From the insight you gain from other “best performing” organisation’s processes, you will be able to apply those techniques to your organisation.

Does benchmarking save money? For nearly all participants, the savings are achieved when they benchmark and implement best practices.

Warning! Many people doing benchmarking focus only on the costs—seeing how much they are spending compared to those who manage other buildings. There are two cautions to those who over-emphasise that approach:

1. The other buildings may not be comparable in all critical areas. Be sure there is an “apples-to-apples” comparison.

2. Even when applying proper comparables, cost data will only tell one how well or poorly your building is doing. It won’t tell you why—until one incorporates best practices into the analysis.

Space Benchmarks

The most effective area to start benchmarking is to focus on space needs. Each company’s results will vary, but the majority of benchmarking participants in our database report that benchmarking saves money by showing where to make changes in their space requirements and what changes to make.

By breaking down how the space is being used, one will see where space savings may be obtained. On average, benchmarking participants in the FM Benchmarking database reduced their space requirements by six percent the first year and continued to reduce their overall space requirements by a cumulative 11 percent by the third year. What does that mean to the bottom line? Well, if you are a typical FM Benchmarking organisation, your average space is about 400,000 sqf and your average total operating and fixed costs are about US$14 per sqf per year. Our average benchmarked savings is therefore about:

• US$336,000 in the first year
• US$504,000 in the second year
• US$616,000 in the third year

How does reducing space impact service levels and employee productivity? Organisations report that the reductions have not impacted the service levels in their organisations in a negative way. In fact, most reported that they sensed productivity, if anything, has improved by improving proximities between key people. Example: A financial services organisation evaluated its benchmarked metrics and reduced its headquarters space requirements from 385,000 sqf to 312,000 sqf. It was in an owned facility with total operating and fixed costs of US$14.80 per sqf. The company was able to consolidate space and sublease the 73,000 sqf that was vacated, which provided annual savings of more than US$1 mil.

Space Benchmarking The chart below is an example of how one company compared its gross area utilisation rate to those of selected others in the FM Benchmarking database.

Comparison of gross area utilisation rates for buildings aged 21-50 years The horizontal red line represents the median of all buildings in the subset of buildings in this report (Age = 21-50 years). Each vertical line represents a different building. The building being benchmarked is shown in yellow, and is in the first of four quartiles of performance, as denoted by the four colours (buildings toward the left are the best-performing). Chart provided courtesy of fmbenchmarking.com.

Savings in utilisation rate by companies who benchmark their space utilisation Savings start off at six percent after the first year, and grow to 11% by the third year. Chart provided courtesy of fmbenchmarking.com.

The Value Of Filters

Filters can be very valuable, to ensure that one is comparing like buildings. However, many people doing benchmarking mistakenly believe that if one doesn’t have a “perfect” filter set, there is no value in the benchmarking. Sometimes, it is not possible to have enough buildings that are just like “yours”, so one has to make trade-offs—this is perfectly acceptable. For example, when comparing utility consumption, it is important to find buildings that are in one’s climate zone, but not necessarily the same country.

Benchmarking operating costs

Operating costs are broken down into a number of components such as utilities, maintenance, custodial, security, grounds, parking etc. Note that utilities represent the largest component of these controllable costs. The next highest operating cost component for most organisations is maintenance. Maintenance expenses accounted for an average of 26 percent of operating costs of organisations in our database.

By benchmarking and knowing what others are doing, a facilities manager can produce more effective results than without this information. For example, in order to get a handle on how to improve its utility cost performance, the company must examine which best practices are employed in other organisations. This type of analysis is valuable to enable FMs to improve their performance, and also begins to make a justification to present to senior management/finance.

The following example demonstrates how relating cost data to best practices data can yield a reduction in maintenance costs. First, compare the cost data for a facility to those of others (see the Figure on Annual Maintenance Costs). Then see which maintenance best practices are being followed by those performing similarly to you (see the table below, and notice that most of the others in your quartile have implemented best practices that you have not). Then see what it will take to get your building to perform even better (see the last column in the table). By applying this type of analysis to benchmark your costs and best practices, you will learn not only how your building compares to others, but what can be done to improve its performance.

Cost reductions

Through proper benchmarking, one should readily reduce operating costs. By applying similar techniques as shown above to areas such as security and custodial activities, one can reduce costs there as well. By examining sustainability best practices and how close one’s building is to achieving some type green certification, one will reduce a building’s carbon footprint.

At the end of the day, here is what a successful benchmarking company will achieve:

• Know what changes to make, and be able to justify them. One will see and validate that the change is working.
• Build confidence and self esteem for the proposed changes. Leverage off the experience of others.
• Overcome defensive tendencies to leave the organisation unchanged.

In many organisations, there is a tremendous resistance to change. Knowing what others have done and how it is affecting their costs can help reduce your tendency to resist making changes.

Allocation of annual operating costs Chart provided courtesy of fmbenchmarking.com.

Allocation of annual maintenance costs for buildings in cool-humid climates The benchmarked organisation is shown in yellow with a maintenance cost per occupant of about £1.28 (GBP). Chart provided courtesy of fmbenchmarking.com.

Keith McClanahan, PE, RPA, is Principal of FM BENCHMARKING (an online benchmarking tool). He is also a facilities consultant and Principal of Facility Issues. Peter S. Kimmel, AIA, IFMA Fellow, is a Principal of FM BENCHMARKING, and publisher of FMLink, the online magazine for facilities managers.