Real estate costs money and money is the bottom line for any company. Facilities managers who recognize this can raise their profile and contribute to the success of the company by accurately establishing facility costs and positioning the information for better corporate decisions.
Facility Cost Allocation (FCA) is often associated with a chargeback model. Charging users for services and space is just a tool and should not drive the FCA model.
With an effective costing system in place, facility managers can communicate the cost information in a meaningful way to the facilities group, user departments and other senior decision makers in the organization. By doing this, the facility manager also plays a larger role in future decisions and ensures they will be consulted about major decisions that impact facility costs.
Costing systems are referred to by a number of different terms, including transfer pricing, chargeback, activity based costing, cost accounting and others. Using a more generic term such as FCA to describe the practice in FM is more appropriate, since while the mechanism and techniques to implement and manage a costing model can vary considerably, the underlying principles are the same – identify and communicate costs to drive behavior and ensure the most effective and efficient use of real estate resources in support of the corporation’s core business.
Setting Goals for Chargeback
While many facility managers immediately associate FCA with some form of chargeback model, actually charging users and departments for the services and space you provide is simply a tool within FCA. It should not drive your FCA model.
The goal is efficient and effective use of real estate resources with information that drives decisions and behaviors that benefit the corporation.
To do this, facility managers must clearly understand the issues and the implications before establishing goals. This includes current funding and budgeting processes, establishing how and where decisions that affect real estate are made and understanding the current mechanisms in place for measuring the performance of individuals and departments.
The initial goals may be as simple as providing facility-use options and the related costing impacts, identifying the costs of providing work-order services to various departments, establishing benchmarking information that show the differences in costs to provide space for various departments or functional areas, or determining whether services are efficiently delivered.
FCA includes a management and a costing component, both of which are required to effectively influence behavior.
The costing component enables accurate and effective calculation of the costs to own and/or operate the facilities on a unit basis and establish the cost of providing specific services based on their own unit of measure, such as mail costs per employee, move costs per work station, etc.
Accounting packages and integrated FM software can help establish the costs, although it takes some planning and forethought to ensure the results are accurate, timely and structured enough to be useful and meaningful within your organization. Only then can they be used for asset analysis, cost control and to drive behavior both within the FM department and throughout the organization. Techniques for doing this are well documented and are used successfully in many other industries. The most recognized methods include activity based costing and traditional cost accounting methods. The most basic difference is how overhead and other non-transaction costs are allocated.
The management component of FCA provides facility managers with the influence they need to effectively drive behavior. While the cost accounting component of FCA is relatively straight forward, the management component can be much more difficult, since it needs to be developed and supported in a way that ensures attention is paid to the results. It must be established well before you start developing costing models, since your costing models must support the management objectives.
While a common approach is to charge departments and other users for the space they occupy and the services they use, this can complicate the underlying objectives and introduce behaviors that are not in the best interests of the organization as a whole. Alternatives to charging should be carefully considered before implementing a chargeback mechanism. It may be better to begin the process from a reporting and management basis and integrate the information into the decision making process. With the right support, implementing a direct chargeback mechanism can be avoided while achieving the behavior changes at the same time.
To be successful, FCA must have full support within the organization and must be included on the executive agenda and business plans in order to drive real estate decisions. At the same time, care must be taken to ensure that costs are not the only factors used in decision making, since costing information taken on its own could influence poor decisions, especially where an isolated decision does not consider the impact on the organization as a whole.
Effective implementation of the costing and management components of FCA are just as critical as the actual components themselves, since even a brilliantly-designed system will fail if it is ineffectively implemented.
This is true from a business process and a communications perspective. The business processes, as mentioned earlier, must dovetail into existing processes and support or complement the current decision making and measurement tools within the organization. You can implement these using a building block process or all at once, depending on your organization’s culture, level of support and the complexity of the FCA system you design and the existing business processes. The building block process allows elements to be implemented in stages, giving you time to gain acceptance and prove their usefulness within the corporation before implementing the next element. Regardless of your approach, gaining visible support from the necessary decision makers is part of the business process element.
While implementing chargeback can be difficult, there are a number of benefits if you implement it carefully to meet your goals, not just to shift responsibility or budgets. These benefits include:
Provide support for consolidation initiatives.
Place the accountability for miscellaneous work order costs back on the department using the service.
Improve space utilization.
Increase support for cost savings measures by showing how it will impact the bottom line of every department involved, and therefore the company as a whole.
Put facilities costs in front of decision-makers.
Behaviors You Can Change
In addition to the benefits above, chargeback systems can influence the behavior of occupants at your facilities. Keep in mind that sometimes behaviors can change in ways you don’t expect, especially if you implement systems in a way that makes the occupants think they are in a “free market” and can make all their own decisions about facilities services and space to benefit their own department with little regard for the overall impact.
Take Care to Avoid:
Ignoring the cost of real estate when making operational decisions.
Not planning changes for maximum real estate savings.
Inefficient use of facilities services and resources.
Lack of coordination between departments regarding space usage.
Failure to fully cooperate in cost savings/environmental activities (such as energy/recycling).
Resisting significant facilities-driven consolidation and planning measures.
Implementing and managing an FCA system is fraught with challenges and will take incremental resources to make it work. If your goals are clearly identified and well-supported organizationally, it will be worth the time and effort and place facility management in a more influential role within the organization. It will ultimately ensure that the real estate resources are efficiently and effectively used to support the organization’s core business and contribute to its success.
Michel Theriault is the author of the new book “Managing Facilities and Real Estate." He is an independent consultant providing strategic and management solutions for Facility Managers. He has many years of experience in all areas of FM, including operations, performance management, change management, customer service, service level definitions, outsourcing, and RFP’s. He authors a blog at thebuiltenvironment.ca and recently started a new website for FM surveys and research at www.fminsight.com. He welcomes your comments and feedback at email@example.com or strategicadvisor.ca.