Posts Tagged ‘cost savings’
« Older Entries |ROI for Workforce & Location Planning Projects
Wednesday, January 11th, 2012
By Tim Myllykangas, Principal
I was recently honored to have presented a workshop at the 2011 CFO Rising West Conference and Expo, which focused on “The Top 10 Strategic Challenges for the CFO.” Our workshop—Stay or Go?: Corporate Location Planning”—was well-received, with those in attendance interested in the variables that drive corporate location. As expected, they wanted to learn about the savings that can be realized when workforce and other performance benchmarks of an existing portfolio are measured and aligned with the business.
To reiterate what Workforce & Location Planning (W&LP) is all about, it is the first step in the corporate real estate cycle since it starts with a clean-slate perspective—i.e., it looks at the broader picture beyond the current real estate portfolio. Addressing what the C-Suite is most interested in, it focuses on ideal corporate locations based on workforce recruitment, retention, labor market saturation, competition, turnover, and salary levels.
But how can we demonstrate the value proposition, or return on investment, regarding W&LP and incentive fees? Actually, it is easy to do so.
Money-Saving Measures
In general, workforce and location planning specialists save companies money because:
-Labor cost reductions of 20%-40% per year are regularly achieved and easily measured.
-Labor cost reductions are typically 6-12 times that of real estate cost reductions.
-Labor performance indicators typically increase by 15%–25%.
-Turnover typically declines by 25%–35%, eliminating significant re-training costs.
-Incentives from municipalities generate savings through grants, abatements, discounts, etc.
-W&LP specialists measure sector saturation (the competition for and degree of utilization of the workforce) in the company’s current location(s) as well as in alternative locations. Sector saturation is the most important, yet least understood, factor in determining optimal locations. Since saturation data does not reside in any database or web site, it requires real-time primary research.
-Underemployment data is one of the top three workforce analysis factors, but this also does not reside in any database or web site. And most cities do not calculate it due to its complexity. Identifying which city has higher underemployment is actually more critical than identifying one that has a higher population or sector presence, and this will identify the city with lower labor costs, lower turnover and higher labor quality. Unemployment, a common data point used by companies, is not only an inaccurate measure of workforce availability but in some cases is an inverse indicator of work ethic. High unemployment, while thought to be a positive factor, often signals a lower work ethic, while low unemployment often signals a strong work ethic with the local workforce less willing to file for unemployment insurance and more likely to take a job that is below their skill level. And this is reflected in higher underemployment.
As a typical example of W&LP in action, consider our experience in identifying optimal labor markets for a 300-employee customer service center. The process resulted in higher labor quality and lower turnover, and over the five-year term of the lease, labor savings equaled $16 million, real estate savings was $3,200,000, and incentives added $500,000.
Labor Costs, Incentives, and Real Estate Cost
What if we were to extrapolate typical, minimum and average savings for a 500-employee, 60,000-square-foot facility? Consider the following projections:
Here are two ways to concisely summarize the numbers presented to the left:
-$1/SF/yr rent savings on 50,000 SF = $250,000 (5-year term)
-$1/hr labor savings on 250 jobs = $2,500,000 (5-year term, 50K SF)
Or…
-10% rent savings on 50,000 SF = $500,000 (5-year term, $20/SF rent)
-10% labor savings on 250 jobs = $6,250,000 (5-year term, $50K average salary, 50K SF)
Savings will vary according to individual circumstances, but the preceding examples give you an idea of what can be expected. It confirms that a properly planned workforce relocation, consolidation, and/or expansion can drive substantial savings in real estate and incentives, but the most significant savings is derived from reduced labor costs. As cost containment continues to be the mantra in the C-Suite, it makes sense to see how Workforce & Location Planning can improve the bottom line.
Tags: corporate real estate, cost savings, Site Selection
Posted in Workforce & Location Planning | Comments Off
Where did I put that lease? Finding your best real estate strategy
Wednesday, January 4th, 2012
By Ralph Benzakein, Vice President
Here’s the scenario: You just realized that your lease will be expiring in a few months and you start to think about what that will mean. For the most part, your current space works for you. You might need more open space or a couple of additional offices; the carpet is starting to show some wear; the walls have been marked up a bit. But, it’s close to home and you have a comfort level there (the car practically drives itself to the office). You also remember the nightmare of moving and the disruption to your business.
So…now what? You didn’t get into business to have to worry about this stuff, but now you need to. You decide there is plenty of time to address this and go about doing “more important” things.
At the same time, you begin to notice all of the “Available Space” signs on your way to and from your office. You call one or two of them and discover that although there is a sign in front of the building, there isn’t necessarily any space that would suite your operation, but the broker representing the building would be happy to show you other buildings. It then occurs to you that those signs never really come down and that they are really just a lead generation system for the broker.
More time goes by and brokers are calling you every other day to pitch you new space or tell you how much free rent they can get you. Nobody has taken the time to evaluate what your business needs are and how they can be aligned with your real estate needs.
It all becomes a little overwhelming and with about 30 days left on your lease, you contact you current landlord and “ask” him if you can renew your lease. He says, “Sure, I’ll send you a renewal letter, just sign it and you’ll be good for the next five years.”
Wow, talk about the path of least resistance. You think to yourself, done deal. You read the lease renewal, notice the part about continued escalations (seems reasonable), sign it, and it goes back in the drawer for another four and a half years.
You, my friend, are a landlord’s dream come true!
You may have saved some time, but it came at a very high price. Here are just a few of the items that a tenant rep would have negotiated for you:
- Lower rent (those continued escalations in the renewal have committed you to rent that is well above the market)
- Rent abatement (free rent)
- Refurbishment allowance (new carpets, paint, move partition walls, etc.)
- New base year for real estate taxes
- Reduce or enlarge space, per your needs
- Lower escalations
Your rationale that your landlord would not want a broker involved is accurate. I’ve just shown you why. It’s not because he doesn’t want to pay a broker’s fee, though he probably doesn’t. It’s because many of the countless clauses you are not equipped to negotiate are his profit centers.
And by the way, some landlords are more than willing to pay a broker’s fee, even on the renewal. Some even insist on it to ensure that the broker is not motivated to move the tenant out of their current space.
Bottom line: give yourself plenty of time to determine the best real estate strategy for your business. That usually means at least one year, if not more, depending on the size of your space.
Tags: corporate real estate, cost savings, landlord, lease, tenant
Posted in Transaction Management | Comments Off
Engineering Value, Not Value Engineering
Wednesday, August 31st, 2011
By Phillip Infelise, Chairman
In this edition I want to explore the difference between Engineering Value and Value Engineering, or specific ways that the New Day Project Manager can bring value to the project and put dollars back in the client’s pockets.
Any client that has been around projects long enough understands the term Value Engineering. And, frankly, shudders when they hear it. In the vast majority of projects, value engineering is a reactive position. It usually means the following:
-We have listened carefully and incorporated everything you wanted into the design of your project.
-We forgot to mention that some things you asked for (and we agreed to include in your design) you simply can’t afford in the context of the budget we (the whole team presumably) agreed upon.
-Now we have to show you the ways we will take thing that you really want (and maybe even really need) out of the project so that we can all say we delivered it “on budget.”
-In most case this means you get something close to what you wanted, but not quite. It may perform at a level lower, but hey, it costs a little less, right? Wrong!
In other words, Value Engineering is rarely a good thing—it means we are taking something from you that we promised we could provide. (The “We” means everyone on the Project Team that should know better; the client isn’t expected to know unless they have been told in advance).
In a proactive world where we hope most New Day Project Managers live (at least I know the CresaPartners ones do), it is appropriate to reverse the process and begin Engineering Value from the outset of the project. Engineering Value is a proactive approach wherein the Project Manager encourages the Project Team to always explore more cost-effective solutions wherever they may be, whether or not the client can “afford it”—since many times the same aesthetic and performance can be achieved at a much lower price point. It should be our everyday mission to always find a value-creating solution, no matter how big or small the client (or their pocket books). To do so requires that the Project Manager has a very strong grasp of what everything (absolutely everything) on a project costs and the experience to draw solutions from a variety of projects and source.
There are a deep and wide variety of opportunities to Engineer Value and here are just a few of them an experienced Project Manager will offer:
-Set the right budget (not just a too tight budget) in the first place and do the client the favor of avoiding Value Engineering entirely. Dig deep to make sure all of their needs are covered in the budget and help them envision items they may not anticipate themselves.
-Save square footage and save huge dollars. Understanding their business needs, creating appropriate but tight requirements, and producing efficient space programming creates a value home run that will mitigate the need for the bad value engineering phase.
-Right Size everything—offices, workstations, file rooms, take periodic storage offsite, etc. Again, economizing on square footage creates the biggest value right up front and can create an enhanced workplace.
-Hire the right project team that wants to partner on value creation and is not paid on a percentage of costs, which creates a potential disincentive to engineering value as a team.
-Force the design team to attach a specific dollar amount to every design solution that they offer so that the client understands the price of what they are falling in love with.
-Question any procurement where the client suggests they have “great national purchasing agreements.” There is so much exposure here that we often offer to work for just the savings on that specific item, as value gaps on big ticket items like furniture can cover our PM fees many time over.
-Explore “pre-owned” furniture in this aggressive market so long as you understand the full costs involved—but be prepared to buy all new as manufacturers have adjusted pricing to compete head to head against that market.
-Specify carpet face weight based on the years the client will be in the space—use lower carpet face weight for a seven year term, higher for a ten, and highest for a twelve. Face Weight = Cost. Don’t pay for value you will never be able to access.
-Purge. Force the client to energize a serious purge campaign so that they are not paying to relocate stuff they will never use.
Note that none of these suggestions sacrifice quality or performance; they simply suggest alternatives that cost less money. That’s Engineering Value. That’s what we do.
If you are following this blogger, you know we have followed an evolving pattern of subjects since day one. For the next edition in a few months, I am ready to take suggestions. Let me know what you want to hear about in this wonderful world of the New Day Project Management approach.
Tags: corporate real estate, cost savings, engineering value, PM, project manager, value engineering
Posted in Project Management | Comments Off
Workforce & Location Planning: The First Step in the Real Estate Process
Wednesday, August 3rd, 2011
By Tim Myllykangas, Principal
Founder, Workforce & Location Planning
Earlier this year, when I was speaking at the CFO Rising conference, I asked those attending my session if they knew how Workforce & Location Planning (W&LP) could help them with their corporate location planning. More than 90% indicated they had never used a workforce planning consultant. But by the end of the session, many said they could definitely benefit from this service and wanted to learn more.
Indeed, it is important for C-Suite executives to be familiar with this offering as part of an integrated package of corporate real estate services. Accordingly, I thought this would be a good time to address what W&LP is all about and how it can meet your needs.
The Process
In a nutshell, W&LP is primarily about business and workforce strategy, not just real estate strategy.
Often, companies first examine their current portfolio and try to work within those parameters. This is a function of Real Estate Portfolio Strategic Planning, which is actually step 2 in a typical portfolio optimization process.
In a typical portfolio or multi-city project, W&LP is the first step in the process since it starts with a clean-slate perspective—i.e., it looks at the broader picture beyond the current real estate portfolio. Addressing what the C-Suite is typically most interested in upfront, it focuses on finding ideal corporate locations based on workforce recruitment, retention, labor market sector saturation, competition, turnover, and salary levels. In other words, W&LP is ensuring that the most valuable asset and largest expense—people—is driving the location decisions for existing and new locations. The goal is to create an optimized workforce footprint, whether that involves existing locations or not.
In addition to workforce, other non-real estate location factors we research, analyze, and compare include: power costs, power reliability, natural disaster risk assessment, and incentives.
The Pitfalls
Some companies think they can short-circuit the process by working with brokers or consultants who don’t specialize in W&LP. For example, they will pull labor costs from a web site and plug that into a cost-line analysis. This is a dangerous approach for several reasons:
-Companies need to take a “deep dive” into competition levels, recruitment, retention, turnover, etc. A slightly lower-wage city might actually have higher turnover, making total labor costs higher when re-training and recruitment costs are considered, or a lower-cost community may have an insufficient amount of labor.
-Our research has found that in many cities there is an inverse relationship between unemployment rates and workforce supply. In some cities, the higher the unemployment rate, the lower the available workforce, often due to a lower work ethic. In some cities with lower unemployment rates, there can be more available workforce. This is due to higher levels of under-employment, a factor that is far more indicative of the ability to recruit and retain than unemployment.
-Companies need to work with experts who can interpret the data collected from multiple sources and understand its limitations, where and how data is often over-averaged, especially if the source is a free web site. Without the benefit of more comprehensive, “real data,” companies often ill-advisedly eliminate cities that might potentially be great candidates, or they might keep poor choices on the short-list that should be eliminated.
The added value lies in analyzing and interpreting the data from many sources, then turning that into strategic, actionable recommendations.
Tags: corporate real estate, cost savings, location planning, Site Selection, unemployment
Posted in Workforce & Location Planning | Comments Off
Foreign Trade Zones
Wednesday, June 22nd, 2011
By Rob Wheeler, Vice President
If you have been around the world of industrial real estate and supply chain management long enough, you have come across the term Foreign Trade Zone or FTZ. We hear the term often, but at the same time there are questions about what it is, how it works, and what savings can be achieved through the use of a FTZ.
Foreign Trade Zones are areas in the United States that are in or adjacent to U.S. Ports of Entry and are under the supervision of the U.S. Customs Service. These areas allow companies to operate as though they are outside the United States. Merchandise can be brought into the zone and held without being subject to normal Customs Duties and Taxes. If manufacturing occurs in a FTZ, the duties and taxes are applied to the product as though U.S. based added value (think domestic materials, labor, overhead, profit) never happened. In other words, the manufactured product is treated as though it’s just the parts, not the sum of the parts that has been assembled.
Although overseen by the U.S. Customs Service, a Foreign Trade Zone is actually a local community development. FTZs are typically an offshoot of an economic development corporation (EDC) or port authority that is trying to use the FTZ status to attract industrial development. Corporations going through the industrial site selection process may see Foreign Trade Zone status as a “must have” if they import a large quantity of goods.
In most cases, to obtain the FTZ perks a company has to locate to a General Purpose Zone. This zone is typically land owned and developed by a port or economic development entity, or possibly an institutional development group that has partnered with the local EDC. In some cases an organization might have enough business that a subzone is created just for that building.
An FTZ is a hot destination because of the savings it offers to the tenant. Not only are there elimination of duties and taxes, but being in an FTZ also allows a company to file for entries on a Weekly Entry basis, not a per shipment charge, resulting in significant savings. With the maximum dollar amount for entry on a per shipment basis being $485 for shipments valued at $230,952 and higher, a little math shows the dramatic impact of a Foreign Trade Zone.
EXAMPLE: 15 shipments per week, each with a value of over $230,952, would amount to a merchandise processing fee of $7,275 ($485 x 15) per week. If this number is annualized the amount is $378,300 (52 x $7,275) per year.
Companies in a Foreign-Trade Zone may take advantage of the Weekly Entry procedure. In the case of the above example, Weekly Entry would provide for one Entry per week. For example: the 15 ($230,952) shipments per week would be filed as a single shipment of $3,464,280 each week. The merchandise processing fee would amount to the maximum of $485 total for the week. If this fee is annualized utilizing Weekly Entry it is a total of only $25,220 yearly. In this example Weekly Entry provides a savings of $353,080 per year. The savings can be more or less depending on the number of shipments received during the year.
As you can see being in a Foreign Trade Zone can have a significant impact on budget of the supply chain department. There are potentially significant savings to be had. Is locating in a Foreign Trade Zone right for you? The Industrial / Supply Chain team at CresaPartners has the experience to help your organization walk through the decision making process.
Tags: corporate real estate, cost savings, Foreign Trade Zone, FTZ, industrial, tenant
Posted in Supply Chain | Comments Off
More Thoughts on FM Outsourcing
Wednesday, June 15th, 2011
By Jim Ricker, Vice President, Corporate Services
In last September’s blog post entitled “Is Outsourcing Facilities Management a Solution for my Business,” I wrote about the pros and cons of outsourcing this critical CRE function. Based on a recent study I worked on for a major institution, this discussion is more relevant than ever.
The study focused on a portfolio of 1,000,000 SF of space in multiple locations within a 50 mile radius. At the onset of the study, Facilities Management (FM) was managed internally with some activities provided by third party vendors (commonly referred to as out-tasking as opposed to outsourcing). In order to determine if this approach was cost-effective for the institution and supportive of the business units, the study considered costs, customer satisfaction, processes, and FM employee knowledge. Given the size of the portfolio, this would logically be a mid-sized outsourcing opportunity that would attract several service providers.
As I mentioned in last September’s entry, to be successful, FM outsourcing depends upon several factors:
-Clearly stated goals that are achievable
-Client commitment from the executive offices
-Performance-based contracts with rewards and penalties
-Single points of contact for both client and service provider
-Constant communication – informal and formal
-Flexibility as scope of work and economic climate changes occur
-Technology applications that provide relevant information for decision-making
When this institution was considering outsourcing, it was clear that all of these factors could be met or already existed. But there were also two other considerations that affected the institution’s decision:
-A unique culture within the client company that was extremely difficult to replicate; therefore it would take a service provider several years to fit in and become productive; and,
-The need for reduced operating expenses by subcontracting high volume, low cost services such as custodial and low volume, and high cost services such as elevator maintenance.
And missing from the institution were the following actions:
-Reorganization to eliminate redundancy and poor performance
-Implementation of performance-based review system for employees
-Consolidation of services to take advantage of bulk purchasing
-Institution of a training program to maintain and enhance staff knowledge
While it might appear that the logical outcome would be for the institution to outsource its FM function, the study reached a different conclusion—recommending that the work continue to be performed internally provided that several changes were made. One major reason given for this recommendation was the unique culture of the institution: a culture that would make outsourcing a time-consuming, lengthy process involving significant management attention with disruption to several critical business operations.
The other major reason for this somehat surprising recommendation was that senior management was willing to implement the changes necessary for a successful in-sourcing. They were willing to eliminate senior positions that were redundant and added little value—and were sometimes even counter-productive. The organization was therefore simplified with fewer layers and improved communications. Performance-based reviews for employees were adopted, consolidated purchasing was improved, and training was increased.
As a result of these changes, the institution realized savings (based on benchmarking) equal to or greater than what an outsourcing contract would yield, employee morale and performance increased, and customer satisfaction improved—all achieved with virtually no disruption.
Although outsourcing works well for many organizations, it is not always the best solution. The decision is much more than a financial exercise and needs to account for the culture of an organization.
Tags: corporate real estate, cost savings, FM, real estate outsourcing
Posted in Facilities Management | Comments Off
Audit or Administration? Providing Value to Smaller Spaces
Wednesday, June 8th, 2011
By Jeff Tosello, Principal
Choosing a boutique firm to audit your company’s largest leases at the lowest possible contingency fee you can negotiate—isn’t that all you need to do to ensure that your portfolio is protected?
In a word: no. You may be missing one of the greatest potential sources of cost reduction in the real estate department and passing up an opportunity to be a hero not only to the business unit with the largest amount of space, but to the smaller space users as well.
Often, lease audit is a phrase used to raise questions and entice tenants into discussions about representation. It can also mean many different things—a desktop review, an exhaustive desktop analysis, an onsite review of the landlord’s books and/or extended discussion with the landlord over any number of gray areas open to interpretation in the lease where expenses are involved. Many times, what a tenant thinks they’re going to get is not what the contingency firms actually do, and as a result, they end up paying too much to have the work done. Understanding the nuances of this business and considering a more specific approach to expense review may influence how a company proceeds with this type of program.
Used properly, lease audit is an effective means of resolving past issues and, more importantly, of ensuring compliant lease payments in the future. But the type of audits employed and how they are applied to the portfolio of locations is a big part of the equation. Further, implementing procedural changes in the payment process after audits are performed can increase the benefit of such a review exponentially.
Looking at a real-life example, let us suppose that we are considering a company with 50 locations in the US making up 1,000,000 SF and having an average size of 20,000 SF. A closer look at this portfolio reveals the following (using the old 80/20 rule):
Assumptions:
-1,000,000 SF portfolio (average = 20,000), 50 locations
-80% of the portfolio averages 8,750 SF
-20% of the portfolio averages 65,000 SF
-Of the 10 locations that make up the 65,000 SF average, only 3 are above 40,000 SF
-Average cost per square foot = $30 (base rent plus OPEX and taxes)
-Ratio of basic errors to complex errors = 1% vs. 2.5%
| Factors | Conventional Approach | Our Approach | Net Difference |
| # of Leases to Audit | 3 for 195,000 SF | 50 for 1M SF | 47 |
| Basic Errors Found on All Leases (1%) | $58,500 | $300,000 | $241,500 |
| Complex Errors on Big Leases (2.5%) | $146,250 | $146,250 | $0 |
| Total Savings = | $204,750 | $446,250 | $241,500 |
| Cost of Auditing Just 3 = | $71,663 | Flat fees of $900 + % of $51,188 = $52,087 | ($19,575) |
| Cost of Auditing the Balance | $0 | $14,100 | $14,100 |
| Net Savings to Client = | $133,087 | $380,063 | $246,975 |
As you can see from this example, avoiding review of the small locations leaves $250,000 on the table even assuming a 1% error rate! Pure audit firms won’t touch these because a 1% savings at a 2,500 SF location means saving about $750, netting them only $263 which is less than their cost of doing the work.
The bottom line: Higher value, more savings, better results – Isn’t that what wins business?
Tags: corporate real estate, cost savings, landlord, lease, lease audit, tenant
Posted in Lease Administration | Comments Off
Data Center Location Planning
Wednesday, May 25th, 2011
By Tim Myllykangas, Principal and Mitch Jacoby, Principal
Factors to consider when evaluating the optimal location vary by the type of facility. For customer service centers, labor is usually the most significant cost. For an industrial or logistics project, freight costs are the most important factor. But what are the key drivers and most significant savings opportunities in identifying an optimal location for a data center? Access to telecommunications fiber and availability of real estate are important, but the single most significant variable in selecting the optimal site for most data center projects is the cost of electricity.
Typical top drivers in determining an optimal data center location include:
-Power Rates: These can vary by state, county, municipality, utility district, industrial park, and incentive zone.
-Power Reliability: Using industry indices such as CAIDI (Customer Average Interruption Duration Index), SAIDI (System Average Interruption Duration Index), and SAIFI (System Average Interruption Frequency Index), significant differences in power outage frequency and duration can be identified in advance.
-Sales Tax Rates: In some cases, the most significant savings opportunity is through sales tax on technology line charges, as well as on construction and equipment costs.
-Natural Disaster Risk: Researching and comparing the historical frequency of occurrence for the eight major Declared Disaster categories can add or delete a location from the short-list, and can align with a company’s Business Continuity or Disaster Recovery Plan.
We recently worked with a Fortune 500 technology client that was seeking a new data center location, and planned to hire 200 people which would require a 400,000 SF building in the US. The company wanted to consider multiple options, on both the east and west coasts. Initially, 32 communities were identified for a long list that had competitive variables, with the most significant driver being the cost of electricity. The client requested that a current location be considered, but it soon became clear that power costs for the current location were two to three times higher than those for any of the communities on the long list. A short list of six sites was identified from the initial long list, until the finalist community was selected.
Through research and comprehensive analysis, the company identified 10-year savings opportunities as noted below:
Power: $163,000,000
Labor: $ 14,000,000
Incentives: $ 5,800,000
Real Estate: $ 2,600,000
Total $185,400,000
Real estate cost savings were minimal, as any of the alternatives would involve a build-to-suit and the differences in construction and land purchase costs across the various states were not significant compared to total project costs.
Clearly, researching, analyzing, and identifying the most cost effective and reliable power sources are the the key location drivers for data centers. To maximize savings and select the most competitive locations, companies should make the non-real estate location decision factors the key project drivers before focusing on the real estate.
Tags: corporate real estate, cost savings, data center, Site Selection
Posted in Workforce & Location Planning | Comments Off
Tenants Start with Project Management, Finish with Big Savings
Thursday, March 24th, 2011
By Dwight Patten, Director of Project Management
While the recovery slowly continues, it continues to be a tenant’s market, and cost-conscious companies are finding opportunities to save that go beyond reduced rental rates. Whether companies are upgrading or renovating existing space or building out new space, many are discovering that they can realize significant additional savings—in some cases more than $1 million. How? By adapting upfront, value-added Project Management.
Project Management—often overlooked and misunderstood—is a process that oversees all components of commercial real estate projects following strategic and portfolio planning. It involves managing all the elements that help you optimize your space needs, align your real estate with your business plan, and improve your bottom line.
To maximize savings, you should engage a Project Manager before the lease signing. Typically, the Project Management sequence includes the following steps:
-Lease negotiation (right-sizing space, maximizing tenant improvements, ensuring on-time project completion)
-Needs analysis and project objectives
-Vendor selection (architects, engineers, general contractor, IT, furniture)
-Design planning and space programming
-Construction control
-Move-in coordination
The right Project Manager orchestrates the whole process (including measures to “green up” your office, as needed), ensuring that your project comes in on time and on budget.
What Are the Benefits?
As far as cost savings, we have found that tenants will save at least the cost of the Project Manager by the project’s completion. One way Project Managers can guarantee savings is by leveraging relationships with vendors who want to work with them. For instance, they can drive 70% price reductions from furniture manufacturers alone.
Beyond cost savings, they will help you mitigate risks and minimize your time and stress. And additional benefits continue long term as space upgrades often lead to improved employee productivity and morale. For instance, through space reconfiguration, you can avoid empty pockets of vacant space, bring employees closer together, and establish a more collaborative environment. Sustainable practices will also produce a healthier workplace—and they are proving to help companies be more competitive, enhance recruitment efforts, and not necessarily cost additional “green.”
Overall, alternative work optimization strategies such as space restacking are now particularly timely as a new generation of younger employees are benefiting from new technologies, working in virtual areas, and sharing space at the office.
How to Proceed?
Meet with a project manager and real estate advisor who can integrate all your real estate needs, objectively arrive at a consensus, and represent your best interests. And remember to put project management to work before the deal is done.
Think of project management as an insurance policy that gives you peace-of-mind. The right team will provide a single source of accountability with professionals who will navigate around potential pitfalls and squeeze savings every step of the way.
Whatever the economic climate you should consider engaging an experienced, knowledgeable Project Manager who will plan intelligently and deliver as promised.
Tags: corporate real estate, cost savings, lease, PM, tenant
Posted in Project Management | Comments Off
What’s in Your Wallet–and How to Keep It There, Part II
Friday, February 25th, 2011
By Phillip Infelise, Chairman & Managing Principal
In Part I, I began discussing the communication between Project Managers and clients surrounding the overall Project Budget, starting from a Conceptual Project Budget and moving toward a Preliminary Project Budget.
In this entry, I will continue the discussion.
Once focused on a specific site and true design documents evolve, we turn to a working Project Budget Revision that is a collaboration among all of the project team to meet the client’s needs within an established spend authorization. We have established line items that properly reflect expected spend, and then our challenge is keeping the team and the client always talking about solutions that fit into those line items. We establish a hard budget column, a current update column, and a final budget reconciliation column to track all costs in real time. We will issue a Project Budget Revision (maybe 12 to 20 over a typical project cycle) any time there is movement that suggests reallocating monies between line items. We do not stay in business if we need to increase the bottom-line spend; consequently, we are proud of our track record for not doing so. Most important, though, is our ability to counsel the client on where scarce dollars are best spent—a good example is whether to insulate walls or install sound-masking to get the best acoustic for the dollar spent.
Design and construction costs are not the money sink in projects, as they are the easiest to control for the Project Managers. (Stay tuned for a follow up blog entry on change orders.) Usually, we can establish accurate targets for these and work with our project partners to deliver the desired result within those parameters. The bigger challenges are the other numbers like:
-IT Costs. For some reason, few internal IT departments want to openly share their plans and the attendant costs. That’s problematic since an average project budget will need to include about $8 – $15/SF in overall IT costs, including structured vertical and horizontal cabling, IDF equipment, servers, new phones (now always VOIP), and more.
-Audio Visual. While they are useful communication tools, AV costs can quickly spiral out of control. Equally important are late AV additions that require infrastructure that should have been installed before walls were closed and the retrofitting that then impacts multiple trades.
-Wish Lists Unrevealed. Project Managers are very good at budgeting for what they know. No one is good at budgeting for what they don’t know. Even though our process requires that we ask the same cost questions multiple times, what is unsaid costs money. Typical budget costs not revealed until very late in the game include new AV applications, art work, special signage, graphics, special security, specialty lighting, plants, and special furniture, among others.
What surprises a client the most in a typical tenant build project? Usually, it is the overall cost—and the range of costs—for furniture. Many have heard that the build is in the $35 – $50/SF range. Few understand that all new furniture can add $25 to $35/SF. However, that being said, we also believe the biggest savings can be realized by accurate and leveraged furniture purchasing, blending old and new, understanding the relocation impacts and costs, looking at re-use products, and a wide variety of other options.
Yes, we talk our clients through our budgets. It is often not the easiest of conversations, but it is certainly one where we truly need to talk the talk and make sure our clients understand every word we are saying or not saying. The best chatter is at the end of the project when we talk about a result that exceeded expectations and returned savings to the bottom line!
Next time, I promise, let’s have a little fun and look at some acronyms and industry speak that baffle our clients—and some of our client speak that baffles us.
Then, much later, we will return to a sore subject—the curse of the change order.
Tags: budget, corporate real estate, cost savings, PM
Posted in Project Management | Comments Off
