Workplace Strategies to Cost Containment

The Challenge | The Culprits | Solutions | The NELSON Differentiator

Real estate assets are the second largest expense next to Human Resources.

The Challenge
Cost containment is no new subject when it comes to running a business, and with the state of todays economic environment, it is a subject that continues to shape corporate real estate decisions. Challenges emerge as we are called to respond to ever changing business needs, and the impact those needs have on physical space. While recommending appropriate workplace solutions, we consider viewpoints of all of those who have a vested interest in directional changes within an organization, and the impact those changes have on people and place. We are continuously called upon to work within the parameters of the physical space, as well as the parameters of the bottom line. So, how can we contain costs while recommending workplace solutions that wont jeopardize the strategic goals of an organization? This paper takes a look at the culprits that drive up costs, and provides insight into how we can strike the balance between cost containment and meeting the ever changing needs of the workplace.

The Culprits
Churn
Churn is the process of moving employees - as individuals or as small or large groups. Organizations are dynamic, and as a result, people and equipment move on a regular basis. Whether it is a corporate restructure, or a new project that requires cross pollination of ideas across work groups, churn is necessary to meet the changing demands of an organization. In dynamic organizations, moves can be the vehicle used to open up the lines of communication between work groups, improve workflow and increase productivity. There are typically 3 types of moves: 1. box move (moving a person with telecom), 2. furniture move (requires furniture re-configuration) Authors: Gina Payne, LEED AP, ID+C Initiatives Planner Erica Stricker Account DirectorSr. Planning Manager 3. construction moves (requires some type of construction to accomplish)

Moves by Type and Percentage

Source: IFMA Research Report #34, 2010

Box moves account for the most common type of move experienced by a corporate real estate portfolio. Although there are benefits associated with executing a move, with it comes cost. According to the IFMA 2010 benchmarking study, the average churn rate across all industries is 32 percent, and the average cost of a box move is $142. Monitoring churn is very important to help understand opportunities for cost containment. But churn is not all bad. It is a necessary activity and, as such, it is a part of business that is here to stay.

14%
Construction Moves

Vacancy
Vacancy is necessary not only to the corporate real estate portfolio, but the Business Units as well, in order to stay flexible. However, too much of a good thing results in excess cost. It is important to align real estate supply to the space demands of the business, but this can be a challenge.

58%
Box Moves

According to a recent survey conducted by IFMA, vacancy rates are on the rise, and with that, costs are rising too. Cost of vacant space can be determined a multitude of ways. If you use chargeback methodology in your organization, at the very basic level, the cost of vacancy can be calculated by

28%
Furniture Moves

multiplying the square footage of the space by the internal rent rate charged by your organization. For example: lets say your portfolio has one vacant workstation @ 250 square feet, in a building where your internal rent rate is $30. Take that 250 square feet multiplied by $30, and the result is $7,500/year.

Average Churn RateAll Industries

Source: Space and Project Benchmaking report, IFMA Research Report #34, 2010 Percentile 99 95 90 75 50 25 10 5 1 Mean 112% 93% 73% 46% 24% 12% 5% 3% 1% 32%

Now, imagine the same scenario for 100 workstations, or 25,000 square feet. That equates to $750,000 a year being paid for unused space. The longer the space sits vacant, obviously the cost continues to compound. This basic cost calculation does not even include the operational cost of the space.

Lack of Flexibility
Flexibility can be defined in different ways. It can be defined in terms of a lease commitment or the adaptability of a physical space. The adaptability of a built environment can be attributed to how it is built in regard to codes and standards, what type of furniture is in use, space entitlement and adjacencies of groups within a organization. Lack of versatility is often a major contributor to an inflexible work environment, and by proxy, often leads to higher costs. When a rigid space needs to respond to the ebbs and flows of a businesses changing needs, cost is incurred in multiple ways. This could mean not only box moves (moving of people), but furniture reconfiguration or change in furniture, and/or construction costs.

Lack of Accountability
In corporate real estate, there can be a constant tug of war between the organizations top objectives, and the objectives of the business units within the organization. This can manifest itself as an ugly monster when the real estate arm of the organization begins to make an actionable plan for space use.

Charge Back Programs

Many organizations have some form of a charge back program, whether it appears in the form of space charges or headcount charges.However, a major flaw for organizations that charge Business Units for the employees they house (headcount), is that there is no incentive to use their space efficiently.

Workplace Strategies to Cost Containment

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According a survey conducted by IFMA in 2010, the average vacancy rate across all industries has risen from 8% in 2007, to 13% in 2010.

Charge back programs can become complex to account for different types of spaces.As an example, the internal Real Estate group may decide to charge more for Class A space and less for Class C space. This can encourage behavior; some good, some bad. Groups who are cash rich could request Class A space, and more than they need, with little or no concern about paying for it.It is important for the Real Estate group to set up specific parameters on how to combat these types of undesirable outcomes.

Information Management
Accountability doesnt stop at the business units. As an organization, being accountable for the accuracy of the data is a primary piece of this accountability puzzle. Not only that, accurate data is the very foundation of the planning process. Assessing your specific needs is important when deciding what type of technology is needed to house your information.organizations might be able to get away with separate systems while larger businesses may need a full blown IWMS tool.

Solutions
Reducing Churn
Reducing churn can have more of an impact on cost than merely lowering the cost of moves. It can also have an impact on employee retention. There is new work being done to try and understand the correlation between businesses that have high churn and the resulting rate of staff retention. Although definitive conclusions are yet to be reached, there are some who believe the more stable of an environment you can provide your employees, the happier they are. This, of course, assumes the type of space they occupy fits the type of work they need to produce. While move costs can be significant, employees are the single most expensive part of any company. If stability truly increases employee longevity, occupancy planning will become a major factor in cost containment for all.

Densification of Space
Talk to a planner about a corporate real estate portfolio, and they will likely begin asking for metrics as an indicator of the existing view, or baseline, of the portfolio. Square footage per person and efficiency of the space are go-to considerations. If you find yourself with an expansion need and your portfolio metric is 350 square feet allocated per person, it is quite possible (depending upon your industry) that you could reduce that footprint to accommodate your businesses growth without an acquisition of more space. According to the 2009 CoreNet survey, companies are trending toward allocating less workspace per employee. The global benchmark of 200 or more square feet per person is beginning to change. Smaller increments are becoming more common, with almost 50 percent sitting within range of 125199 square feet per person.

Forecasting Supply
Balancing long term strategies with short term market trends can be tricky. Forecasting supply accurately, starts with gathering accurate demand forecasts. Being able to match up your supply and doing it in a timely matter, is critical. When working with groups within an organization, who is

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The least questioned assumptions are often the most questionable.

Pierre Paul Broca Physician, Anatomist and Anthropologist

providing information is just as critical as what information is being provided. Usually someone within the Finance/CFO organization is aware of business drivers that impact staffing changes, space needs and when changes will occur. Still, demand forecasting can cause business leaders discomfort for fear that they may not be 100 pecent accurate. Understanding the appropriate granularity required for the strategic exercise, and being able to communicate to stakeholders is critical. The size of your organization will likely impact the level of fidelity needed to accurately create supply/ demand scenarios. Information that is too high or too low can result in a misalignment of needed information, which in turn can lead to a recommendation that ultimately will not maximize your portfolio efficiency. It is important to review with your planning support: 1. Detail level required for forecasted data 2. Building information 3. Project status and expectations 4. Any other facility related items that will impact your space

Combating Bad Assumptions & Lack of Stakeholder Buy-In

We all must make assumptions in our work and daily lives. However, not including the right individuals and making the wrong assumptions in the beginning of a planning activity can be disastrous. The most dangerous thing about inaccurate assumptions is that you BELIEVE you are making the right choices based upon the data provided and the assumptions upon which it is built. Each portfolio has its own idiosyncrasies, therefore building assumptions with the presence of all stakeholders and their unique knowledge of the space will help maintain stakeholder commitment throughout the process and avoid both lost time and repeated effort. Although this list is not all inclusive, here are some thought starters for building assumptions and gaining (as well as keeping) stakeholder buy in: How accurate should our headcount projections be? What is the timeframe we will forecast? What is the level of fidelity we will apply toward forecasting our supply? What snapshot in time will serve as our current view of space information? Where will we obtain our current space information? What methodology are we applying to our growth forecasts? Who else may be impacted by this project, and what changes will your project or plan mean to them?

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Companies are starting to realize that instead of being satisfied that their building is 95% occupied, they should instead be worried that its only 40% utilized because people are so often out of the office.
Prentice Knight CEO, CoreNet Global

Alternative Workplace Strategies

Lessons of the current recession will have long lasting effects on future strategies, companies now realize that they dont have to choose between traditional and alternative workplace strategies. They are blending varied alternatives to improve space efficiencies, increase productivity, and continue to attract and retain employees. The time-honored traditional office environment is adapting to new strategies in an effort to increase worker productivity and optimize portfolio assets. Many strategies are currently in use and employees are taking advantage. The varying modes of Alternative Workplace Strategies encompass telework, mobile workers, hoteling, home offices, and satellite office space. Through a study between Steelcase and CoreNet Global, these strategies were categorized into five sections: 1. Telework or Telecommuting in which an employee works from home, substituting telecommunications for the commute to work. 2. Mobile Work, a work style in which a person consistently uses multiple spaces, both inside and out of the office, to accomplish his or her work. 3. Hoteling, temporary workspaces assigned through a reservation system; typically used by

Adoption of CAFM Systems

Source: IFMA Research Report #34, 2010

mobile workers, but also used by any worker not near his or her assigned workstation. 4. Home Office used as an alternative location to the primary office. Employees may work from home on a set schedule or on an as-needed basis. 5. Satellite Offices which are smaller space located in the areas closer to employees homes for greater convenience.

Increasing Accountability
Increasing accountability or building a culture of accountability is a daunting task. But getting the desired results of the organizations top objectives AND the objectives of the business units within the organization ensures that everyone wins. Ultimately that is your formula for planning success.

Charge Back Programs

Implementation of a charge back program within the organization shifts the focus to the financial impact of real estate decisions, not only impacting the individual business units, but the organization as a whole. When the Business Units themselves are internally billed for the space they are allocated, they are more likely to ensure that space is as efficient as possible.When inefficient space is reduced across the portfolio, the cost savings can be huge. Its a win-win.

Information Management
CAFM systems have been around for 35 years but, according to a recent study conducted by IFMA, adoption of these systems has recently taken off. CAFM applications are primarily used to track and manage space. IWMS solutions are typically comprised of five components: 1. Project Management
2002 2007 2010

2. Corporate Real Estate

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Types of CAFM Systems Used

Source: IFMA Research Report #34, 2010

3. Facilities & Space Management 4. Maintenance Management 5. Environmental Sustainability Finding the appropriate IWMS system may be driven by the size of your organization and your business needs. To help determine the best IWMS tool for your business, we have put together a list of items to consider when looking for an IWMS system: 1. Do you fully understand your current business processes? 2. Does the software have a good reputation? 3. What type of technical knowledge does it take to operate? Is it user friendly?

45%
Networked in house, Enterprise Software

33%
Web Hosted

22%
Stand Alone 4. Do I require technological knowledge to make changes? 5. What type of scheduling functionality will I need?

Electronic Files Include

Source: IFMA Research Report #34, 2010

6. Can it support multiple database environments (integrated systems)? 7. How thorough is the system documentation? And will it support smooth implementation? 8. Does it have the ability to track and capture critical data, such as real estate and financial data? 9. Is it flexible enough to respond to my ever changing business environment? 10. Can it manage new properties, analyze what-if scenarios and more users with different roles? 11. Does it track the key performance indicators that are critical to my business?
(additional sources: blog post by Jill Duncan, US Sales Manager Healthcare Legal Corporate for NFS Hospitality.)

Managing the integrity of data and information is pivotal in almost every area we have discussed. Data is needed to understand churn rates, or why people are moving, and how you might combat unnecessary churn. Data is needed to analyze the vacancy rate and durations within your portfolio to look for opportunities.Accurate data is crucial for not only getting accurate forecasting data, but making sure it is consistent across all groups who will use it. Last but not least, gathering and housing data relative to how, when and where your employees work, is essential to planning densification and alternate work place strategies. In short, information management and housing make up the planning foundation for any organization with a real estate portfolio.
24% Layout of interior walls and furniture 26% 50%

Other Cost Cutting Strategies

At the beginning 2009, a survey of corporate real estate was compiled for Steelcase by CoreNet Global. It shows that 63 percent of companies expected their companys real estate portfolio to contract that year. Only 12 percent expected their portfolio to grow, and 25 percent indicated it would remain the same.

Layout of walls, Complete details, furniture and including site system details infrastructure and distribution systems

Workplace Strategies to Cost Containment

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According to the study, below are some additional cost cutting strategies implemented by respondents: Exercise early termination options or restructure leases Sale of owned properties Reduce/Defer maintenance Deferment or cancellation of capital projects/expansion plans and acceleration of projects that reduce expenses Move or shift work to lower cost locations

The NELSON Differentiator

workplace through design history of OP work
Although we recognize that standard solutions still work, NELSON Strategies differentiates itself based on an approach that is focused on organizational performance, building the data, utilizing highly innovative, fully tested, experienced and flexible processes, and built on a core value of working collaboratively with clients as trusted partners in providing services as solution drivers.

tailor process to clients cost efficient workplace strategy

onsite relationships with clients

Benchmarking
Benchmarking provides data of industry performance. By comparing metrics across companies, opportunities, consistencies, and other areas for further consideration are highlighted.

end to end service provider

But in order to effectively utilize the information, NELSON goes a step further and evaluates the processes used to achieve their performance levels. By applying the lessons learned from benchmarking exercises, we can facilitate improved performance within key areas of an organization.

no competing interests

CRE OrganizationProcess Improvements

collaboration with RE firms
Process evaluations can help assess short-term changes in skills, attitudes and knowledge of the participants. At NELSON, we use the Six Sigma process to develop a metrics-driven approach to projects. Our integrated planning model, which is based on the DMAIC (Define, Measure, Analyze, Improve and Control) model, is a cyclical process that draws on our core tools, industry best practices and diverse experience to consistently improve the quality of our client`s facilities. We use the same

The starting point for improvement is to recognize the need.

Masaaki Imai, Founder, The Kaizen Institute

methodology when evaluating our clients process flows. Working with our clients, we make recommendations that consider our clients business drivers and needs as well as industry best practices.

Change Management
At NELSON, we believe change management begins when we begin work with our clients. Active, integrated involvement at all levels of the organization help us understand how leaders envision the future of their workplace, including how team members work today, how they should be working in the future, and gaps that need to be bridged. Change management activities recognize that while the workplace and workplace processes can support new and more efficient ways of working, those two things alone cannot change behaviors of the work society. An implementation strategy of programs that encompass education, communication and active participation will ultimately drive higher work performance.

Workplace Strategies to Cost Containment

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Acknowledgements
We would like to thank NELSON leadership for building a culture that drives high quality delivery by embracing continuous improvement and motivating teammate learning. Special thanks to our supervisor, Donna Schroeder for her encouragement, guidance and support of this project, and to Cindy Froggatt for her contribution to the change management section. Finally, we would offer gratitude to all those who supported us in any aspect of this endeavor. Gina Payne and Erica Stricker

Workplace Strategies to Cost Containment

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