Facilities Budgets have always been limited to the actual operating costs of the department which means that purchasing decisions are based on the savings / benefits in direct proportion to the amount of money available in the Facilities Budget. Achieving this hurdle rate – or ROI is the basis for accessing the viability of competing demands for scarce capital. For certain acquisitions, this is the correct method. However, there are acquisitions made by Facilities that, although primarily used by facilities personnel, have a far greater economic value to the university as a whole. As such, its acquisition costs (and the financial and societal benefits derived) must be considered in a much wider context.
A classic example of this is the software required to plan, maintain and operate campus infrastructure (commonly called Integrated Workplace Management Software, or IWMS). Although this software is resident within the Facilities Department and is used mainly by those employees, the campus wide benefits derived from implementation far outweigh the benefits that add directly to the facilities group.
Attempting to develop a defensible ROI based on cost as percentage of the facilities budget will invariably result in a multi-year payback — and Finance will invariably find other programs and initiatives that achieve a quicker payback at a higher ROI that are “core” to the University’s business. Failing to implement an IWMS solution because of this ROI method will result in significant increased costs of infrastructure management and facilities services in future years. These will be by reducing or eliminating the “quick payback” core programs, ultimately impacting the institutions long term viability and competitive edge.
Facilities Leaders must change the decision-making paradigm used by Finance and Administration by demonstrating the campus wide benefits of an IWMS solution. This requires understanding what your true total costs of operations are and what the true benefits are.
This requires the development of a Total Cost of Ownership (TCO) model. This model will build a defensible argument for implementing an IWMS system and will also demonstrate the risk cost of not pursuing.
Total Cost of Operations
What makes up the total cost of operations? Certainly not what is contained within the facilities budget. This is just a fraction of the costs spend each year to keep the doors open.
The total cost of operations should take into account all organisational, operational and infrastructure data. Since sustainability is becoming business as usual, the total cost of operations should also include the carbon impact of operations. This also includes the carbon impact of students and staff traveling to and from campus. In determining the total cost of operations, analysts need to consider the following information at a minimum.
Size of the campuses portfolio
Size of grounds
Number of Students (EFTSL)
Number of Staff and Faculty
Number of Facilities Personnel broken down by position/ trade
Number of Facilities Management
Number of owned vs lease facilities
This information above can be obtained from internal records. Base rent is defined as actual rent paid plus the implied or imputed rent cost of owned facilities. You may need the services of a professional appraiser if you do not already have this information. Note that the total occupancy cost per square metre is considerably higher than the base rent per square metre. This cost is increased dramatically in areas of higher property costs (e.g. Sydney, Melbourne, etc).
The total cost of operations also includes the actual facilities budget including real and implied rent and cost of fixed assets as shown below. The facilities budget typically is broken up as follows:
Projects (non capital)
Rent and Escalations
Cost of Fixed Assets
Fixed Asset information is generally obtainable from your general ledger. These costs are ones directly attributable to staff and faculty. Student asset costs are not covered as Facilities has no impact on them. IT will generally monitor such assets separately.
If an accurate asset survey is conducted each year, you will find there are a percentage of assets that do not get used year to year (Asset shrinkage). Industry standards indicate that this is around 6% per year. Additionally, an accurate annual survey will determine your asset loss (theft, accidental loss, misplacement etc). Industry standards indicate that this is around 2% per year.
The final set of inputs is probably the easiest set of information to obtain. These directly relate to the Facilities Department and include all of their internal costs and data and include such items as:-
Total number of work orders performed per year
Operational time per work order
Work order management costs (overhead)
Reporting time and cost.
Work Order management costs are those that are incurred in opening and closing a work order. This a non material, labor costs only. These work orders also include the service requests that originate with non-facilities personnel. A cost of doing business is the amount of time you and your staff spend running reports for field use or management. Past analysis of higher education facilities departments show that about 75% of facilities personal are involved in producing some form of reporting each month and that these reports account for around 2 hours per week of time –even with CMMS systems in place. This is due to the fact that most reports need to get data from a variety of sources and unless the CMMS system contains this information – generally spatial, financial and sometimes human resources, them obtaining that information and integrating it into reports can double this time.
You also need to enter the sunk costs of your current system into the mode. This may or may not be required depending on your Finance group, but since it was used in maintaining facilities to date, it is a part of operational costs and should be included. These sunk costs include the initial license fee and any software purchase to support it since, the implementation costs, cost of training and annual maintenance and any consulting fees associated with the software package. If you purchased hardware to support your current solution and will not be using it going forward, you need to include this cost as well.
This is the basic amount of information required to determine the actual operational costs for your university. Once established, you can begin to determine the costs of a new IWMS system and the financial benefits it delivers.
Cost Savings/ Avoidance
Facilities can contribute to cost savings in greater ways that just by trimming its budget. Real estate and facilities costs are generally only second to HR costs, so it stands to reason that Facilities Operations has a lot of potential for cost savings. To be able to save money means understanding what you are spending money on. This presupposes the need for information and the ability to manipulate it. Since a university is full of disparate information databases, it is obvious that a solution must be found that allows users to view all of this information quickly and determine actions based upon it. This is the premise of an IWMS system. It is integrated within itself and to other systems. It tracks and manages information pertaining to the workplace (real estate, assets, facilities, projects, etc) and it is a management information system which allows user to manipulate data, generate reports and develop strategies. IWMS systems can give Facilities Leaders an edge by forecasting need, highlighting areas of opportunity and managing costs.
The four major areas of cost savings within Higher Education are:
1) space utilisation savings
2) maintenance and operations savings
3) real estate and asset savings
reduction in lease costs
reduction in asset costs
4) environmental savings
Traditional Computerised Maintenance Management Systems (CMMS) systems cannot deliver this scale of savings as they only account for the “care and feeding” side of operations and were never designed as a strategic management tool. Some CMMS systems have developed bolt on pseudo CAFM technology which provides a limited degree of space optimisation capability. CMMS systems by themselves will deliver about 30-40% of the savings about the same cost as an IWMS system. This means that the purchase of an IMWS system will deliver greater savings for a far greater ROI and much faster payback.
Space Utilisation Savings
Universities, by their nature, have a lot of space. It is not unusually for a 10,000 student campus to have over 1 million square metres of space and several hundred hectared of grounds. Physical facilities, like personnel and financial assets, are resources to be planned, managed and maintained in line with the universities strategic objectives. The goal of space planning, management and allocation is to make the best possible use of these assets and to plan for future needs. In order to assess whether space is being used effectively, space standards are generally used to determine true need against actual provision. When this equation is out of kilter, the university has a space under-utilisation problem and this can account for a significant sum of money in terms of actual expense and lost opportunity. Over-utilisation is just as big an issue in inner-city campuses requiring the need for some real time optimising in concert with smart time-tabling to avoid and over build capital program.
Additional savings can be made from embracing alternate workplace practices and flexible work policies among staff and faculty and via multi use accommodation strategies for student (classroom) environments which increase space utilisation and reduce occupancy cost.
Using the above example of a 10,000 student campus and assuming a very modest improvement in space efficiency of 1% per year, it is possible to achieve savings over around $3.0 million over 5 years. When combined with other savings (relocation, construction, etc), we can start to achieve savings of around $4.5 million over the same time frame – or about 6% of the total cost of operations.
Maintenance and Operations Savings
Maintenance and operational expenditure comprises a number of areas:-