Facility costs are for many organizations, the second largest expense category behind personnel costs. These organizations largely depend on the capability of a Manager or Director who may have experience with a few organizations in his or her career. These managers usually do not have the support at higher levels in the organization because “facilities” is not a core competency of the organization. It is common that annual budgets are prepared and costs for operations, maintenance, and custodial services are passed on as a necessary cost without much scrutiny.[/one_half] In many cases, the manager of facilities has other responsibilities that are not facility related thereby diluting the required focus to have an excellent facility program.This article focuses on a discussion of the following 4 major areas where outsourcing facility maintenance department save their clients money in the area of building or facilities management:
Labor Optimization Savings
Labor optimization savings relate to having the optimal mix of site based employees from the service provider and subcontracted labor. When this balance is not optimal, excessive costs exist. If an organization has a building maintenance and janitorial staff with inadequate skill sets, in most cases, the organization is spending too much for “per call” subcontracted services when the work could have been done by site based employees. Conversely, if the facilities organization is overqualified and does not often use these skill sets because the work does not require it, high cost labor is providing work that could be done by a less expensive employee.
In some cases, your organization may have two or three groups doing similar activities. In these cases, organizational boundaries prevent an optimal use of labor. For example, at a University, there may be a separate housing maintenance group, a special events set-up group, and the regular facilities department providing similar services. In other cases, organizational boundaries between the custodial staff and the maintenance staff may cause work compartmentalization. One group may have a high volume of work requiring overtime while another group performing similar labor may not have enough work. This is costly.
To optimize labor, the right level of multi-skilled labor must be used on site supplemented by “per call” subcontractors who are used for their specialized skills and equipment or added capacity when the workload is beyond the capacity of the site based employees. Facilities service providers provide measurable savings by having the most cost-effective labor provided on the site as needed.
Process Improvement Savings
Outsource facility service providers, because of their experience overseeing and managing numerous types and sizes of facility organizations, have a vast knowledge base of process procedures that can be appropriately customized and used at their client sites. Savings from process improvement may result in reductions in costs relating to site based labor, subcontracting, procurement of supplies, and utilities. For example, adding processes and capabilities to overhaul or maintain boilers, backflow preventers, gas lines, or kitchen equipment may reduce the “high per call” costs of subcontracting. Developing a process for getting water and electric rebates from the local utilities will save money for the client. Developing a process for building automation strategies may result in reductions in energy costs. These are all examples of work process improvements that service providers can offer.
Personnel Substitution Savings
Personnel substitution savings may occur when your employee is transferred to be an outsourced employee working for the service provider. Though there may be savings from reductions in cost from benefits, this is not an area of focus as the outsourced company must be a company that takes great care of their employees by having competitive salaries and benefits.
Major personnel substitution savings come from a reduction in the overhead costs of the employee when they work for the service provider. In most cases, service providers’ billing rates are less costly than the total cost of the client employee when overhead costs are included in the comparison. Overhead costs per employee are relevant costs when seeking to reduce costs in the long run. Companies and organizations with high overhead costs recognize this area of savings. For companies, overhead costs can be found in their income statement for the annual period. Divide this by number of employees in the company and an overhead cost per employee can be computed (Don’t include overhead such as R&D and Sales or Marketing costs) in these overhead amounts).
Facility Optimization Savings
Facility or building optimization is developing and maintaining a plan to optimize capital improvement and equipment replacement taking into consideration the total cost of ownership of the facility assets. This program from year to year must be able to optimize cost based on the organization’s cash situation, growth and strategic needs, replacement, and improvement needs. Capital expenditures may be recommended, reviewed, and decided on by payback, net present value, or internal rate of return thresholds determined by the customer working with the service provider. Measurable savings come from making the right capital renewal and improvement decisions based the correct balancing of paybacks subject to the liquidity situation of the client organization. Facility service providers have programs and capabilities to reduce costs for their client organizations. Many of these savings can be accomplished by your organization. However, if your organization does not believe that it has these capabilities, using a facility service provider may be a viable option for you.
There are many additional reasons supporting outsourcing to a facility provider beyond cost savings. Please click here for a detailed discussion relating to the benefits that can accrue to your organization through outsourcing.