Study Reveals Benefits of Managing
Real Estate & FM Spending

by Beth Leibson Hawkins

Real estate and facilities lifecycle management solutions can cut costs while establishing significant process efficiencies, according to a new study published by Aberdeen, a Boston-based Harte-Hanks Company.

The Real Estate and Facilities Lifecycle Management Benchmark Report, based on the insights of corporate real estate, facilities management, finance, and procurement executives from more than 250 diverse enterprises, found that visibility into both spend and process is severely limited. While real estate and facilities management are inextricably linked, day-to-day coordination is often challenging. Yet these two areas represent significant portions of enterprise spend—almost a third, in fact, reports Aberdeen. Most enterprises in the top 20% of their industries are increasingly thinking strategically about real estate and facilities management as they focus on people, process, and technology.

Aberdeen evaluated 254 enterprises in June 2007 and distinguished Best in
Class enterprises by two key measures:

(1) percentage of Real Estate Facilities Lifecycle Management (REFLM) spend
under management and

(2) visibility into both spend and process. Best in Class enterprises in this study are notable for their superior performance and credit REFLM solutions for delivering the following benefits:

• 5.0% reduction in their total cost of occupancy
• 3.3% reduction in maintenance costs per square foot (psf)
• 2.6% reduction in the cost of capital improvements
• 56% reduction in amount of time to close facility work orders

“With the significant impact real estate and facilities lifecycle management can have on the enterprise, managers of these groups are working more and more with their executives to link their business plans with the strategic goals of the organization,” notes Andrew Bartolini, research director and practice leader at Aberdeen Group. “The key for continued success will be solutions that provide an enterprise-wide platform for collaboration and for visibility into spend and process.”

Among the survey’s participants were FM:Systems customers. It was found that they were, on average, more likely to report high levels of visibility into facilities spend and process. Comparisons of FM:Systems customers against the entire survey base revealed dramatic results. One key metric was space utilization, where FM:Systems customers reported utilization rates of 93 percent, which was 12 percent higher than the survey average of 81 percent.

Figure 1: Real Estate and Facilities - Spend Under Management

The report also found that FM:Systems’ customers are more focused on strategic issues, revealing the benefits of automating routine functions of facility management.  “The FM:Systems’ customers who participated in this research effort distinguished themselves and reported visibility rates that were comparable to the Best in Class,” adds Bartolini.

Years ago, the Gartner Group conducted a similar survey and found that after HR, facilities and real estate accounted for a company’s greatest expenditures. Among the customer base at FM: Systems, for example, they wondered how the results compared and determined:

• The best-in-class companies are expending 20% on real estate and facilities;
• The average companies are spending 50%;
• And the laggard companies are seeing 30%.

The Best in Class are doing much better than average with a 5% reduction in accounting costs and a 3 percent reduction in lease costs. All the reductions were credited to implementation of technology.

Of the large North American organizations surveyed, the responders were FM professionals (23%); IT professionals (29%) and corporate real estate managers (12%).

Best in Class performers shared many common characteristics with respect to their real estate and facilities lifecycle management strategies. They…

• Use standardized processes more often in real estate (42%) and facilities management (including capital planning) (62%)
• Are at least 30% more likely to track performance across cost and general performance metrics
• Are between 22% and 71% more likely to automate the different areas that comprise REFLM

The cost controls tracking function measures costs before software tracking implementation and after implementation.

FM:Systems’ customers also were able to cut maintenance response times in half after technology was employed, according to Marty Chobot, vice president of marketing, FM: Systems.

In some cases, service response time was cut to less than one day. And much better collaboration was shown between real estate and facilities including automation of leases and mortgages.

Figure 2 - Average Time to Complete Facilities MaintenanceRequest (in Days) – Before and After Technology Deployment

Growth, cost-cutting are top challenges

The top pressures on real estate and facilities management are company growth (52%), cutting the total cost of occupancy (23%), reducing corporate spending on leases and mortgages (21%), lowering facilities maintenance costs (19%), and lowering total overhead costs (18%), according to Aberdeen.

To meet these challenges, top performers are taking the following steps: centralizing real estate and facilities management functions (56%), establishing a capital planning process (50%), centralizing facilities management (47%), developing a strategic master planning process (46%), and better aligning functional and organizational responsibilities (32%).

Centralizing and standardizing are solutions

Based on research findings, Aberdeen recommends centralizing real estate and facilities management, standardizing the processes, and using solutions that bring visibility to the spend process. Specifically, they suggest that companies:

• Establish and actively monitor key metrics for real estate and facilities lifecycle management;
• Create strategic alignment of the real estate and facilities lifecycle groups, in line with the goals of the larger enterprise;
• Develop a platform between the real estate and facilities functions that enables collaboration;
• Centralize and automate mortgage/lease management; and
• Leverage third-party facilities management services to augment current capabilities.

Overall, the most effective companies use a formal capital planning and management process and automate, measure, and share space planning management. Specifically, best in class enterprises are 43% more likely to have a capital planning process in place, leading to 1.4 times more process visibility and 1.3 times more visibility for capital projects. Similarly, best-in-class companies are 41% more likely to use technology for space management and 50% more likely to use key performance indicators to measure performance.

CA sees recurring savings

CA (formerly Computer Associates) with 80 locations in North America, knew that it could generate significant savings by optimizing use of space and minimizing vacant space. However, they also knew that they would have to improve visibility into facility usage for the facilities group, business managers and others involved in real estate decisions.

Based on results from the North America implementation, CA estimates that across a global real estate portfolio of more than 6.7 million square feet it will realize reductions in portfolio costs which will result in significant recurring savings. As a result of improved processes and supporting technology they conservatively estimate they will receive more than a 400 percent return on investment on the initiative in less than three years with a payback period of less than a year.

“Increased visibility enables our executives and facilities team to make better strategic decisions that affect our entire organization,” said Robert Paul, vice president of Americas facilities for CA.  “Having access to real-time data means we are always aware of where the company stands in terms of utilization of our properties, which results in significant savings to the bottom line.” 

To read the report, please go to: www.aberdeen.com/c/report/benchmark/4001-RA-real-estate-facilities.pdf