Couple ideas for cost optimization.

1. FACILITY MANAGEMENT (A.K.A.
NON-COREASSET MANAGEMENT)
COST OPTIMIZATION
Eugen Ion
April 2016

2. Table of content
Non-core Asset Management (a.k.a. Facility Management)
• 1. Overview
• 2. Illustrative cost structure
• 3. Potential savings
• 4. Property cost optimization
• 5. Utilities cost optimization
6. Services cost optimization
7. Examples

3. Common FM services - examples
1. Facility Management - Overview
Non-core support activities are considered Facility Services.
Facility Management (FM) is essentially providing non-core management services in order to
support core business activities in a timely and cost effective manner. It involves integrating
people, places and processes.
The costs associated with FM represent a large proportion in the total operational cost of an
enterprise.
The quantitative and qualitative levels of the Facility Management services directly reflect upon
the productivity, profitability and public image of a company.
Soft Services:
• Space optimization
• Property Management
• Rellocation
• Cleaning
• Security
• Landscaping
• Service desk
• Reception
• Pest control
• Car fleet, printing,
Hard Services:
• Building technical maintenance:
preventive and corrective
• Equipment's technical maintenance:
preventive, predictive and corrective
• Monitoring construction behavior in time
• Construction and fit-out

4. 2. Facility Management - Illustrative cost structure
FM cost structure Euro/month/sqm
Property
Rent Paid 12 55.30%
Service Charge 3 13.82%
Subtenant Income 0 0.00%
Local Property tax 0.2 0.92%
Total Property 15.2 70.05%
Utilities
Electricity 1.2 5.53%
Gas / Diesel 1 4.61%
Water 0.2 0.92%
Total Utilities 2.4 11.06%
Services
Repairs & maintenance 1.4 6.45%
Security 1.5 6.91%
Office support (Printing,etc.) 0.00%
Catering 0.00%
Cleaning 1.2 5.53%
Logistic and car fleet
Other facilities/misc 0.00%
Total Services 4.1 18.89%
TOTAL 21.7 100.00%
Price structure 100%
Profit Margin 30%
Payroll 30%
Facility Management 30%
Other 10%
30%
30%
30%
10% Margin
Payroll
Facility
Management
Other
70.05%
11.06%
18.89%
Property
Utilities
Services

5. 3. Facility Management - Potential savings
5,000 sqm building
100,000 sqm building portfolio
Potential saving/year Potential saving/3 year
Euro/month/sqm Year budget % Euro Euro
Property € 15.20 € 18,240,000 3% € 547,200 € 1,641,600
Utilities € 2.40 € 2,880,000 5% € 144,000 € 432,000
Services € 4.10 € 4,920,000 10% € 492,000 € 1,476,000
TOTAL € 21.70 € 26,040,000 € 1,183,200 € 3,549,600
Potential saving/year Potential saving/3 year
Euro/month/sqm Year budget % Euro Euro
Property € 15.20 € 912,000 3% € 27,360 € 82,080
Utilities € 2.40 € 144,000 5% € 7,200 € 21,600
Services € 4.10 € 246,000 10% € 24,600 € 73,800
TOTAL € 21.70 € 1,302,000 € 59,160 € 177,480

6. Space management Service charge Subtenant income
4. Facility Management – Property cost optimization
Space utilization : real
occupancy vs theoretical:
- Office space
- Meeting rooms
- Other spaces (get together,
kitchenette, relaxations, etc.)
Type of spaces, taillored for
each type of activity:
-Shared desk/hotelling vs fixed
allocated desks;
-Closed offices vs open space
desks;
-Multifunctional areas vs
dedicated areas;
Surface – sqm/wp or sqm/fte:
Landlord vs tennant obligations
in terms of services
- Clear understanding on
responsibilities
- Avoid double payments for
same service
Utilities:
-Tariff
-Consumption
-Split models
Surface – standards of
measurements:
Usually lease contracts don’t
offer the possibility to reduce
surface nor rent:
- Subtenants for spare surface
obtained due to space
optimization or changes in
organizations may help in cost
reduction.

7. Consumption Tariff
5. Facility Management – Utilities cost optimization
Space utilization :
- Grouping together teams or
individuals with same
behavior and correlate utilities
with their agenda,
- Common areas : served only
when are in use.
- Educating users
Define type of usage and
negotiate best price for yours
specific needs.

8. Outsourcing model SLAs and KPIs Procurement
Operational model analysis:
in-house services vs.
outsourcing services;
Type of outsourcing:
-Single service, single location;
-Single Service, all locations;
-Bundle service, single location;
-Bundle services, all locations;
-Total Facility Management;
Service Level Agreement (SLA):
imply clear service description, so
that all parties have the same
understanding of the services
provided, as well as measurement
tools.
SLAs can reduce cost by having
different levels for quality and/or
quantity applied to different type of
spaces.
SLAs can be detailed (operations,
schedule, teams), or based on
expected results (key performance
indicators).
KPIs should measure each line of
services and related with financial
aspects of the contract.
Procurement process should be
able to incorporate the
following principles:
•Transparency;
•Equal treatment for all suppliers;
•Risk of failure;
•Scope definition to fit purpose;
Eliminatory / Qualification
criteria:
•Experience;
•Expertise;
•Customers feedback;
•Financial power;
Technical criteria:
•Manpower;
•Procedures, processes;
•Solution : fit for purpose;
•Equipment;
Cost/price: it is possible to
perform the service in accordance
with applicable technical and
professional standards for that
price?
6. Facility Management – Services cost optimization

9. 7. Examples
Technical maintenance: reaction time/importance – impact
A lamp is not working, but this does not affect functionality (illumination level is not below 70%). Should
I replace it within 2 h, 1 day, 1 week, next schedules visit?
• For 2 h I’ll have to pay: materials, labor, transport and fee for fast intervention.
• For 1 day and 1 week: materials, labor, and transport
• For next scheduled visit: materials and labor
Cleaning: commercial space cleaning vs office vs storage space
Security: peak/of peak hours, physical vs equipment
Synergies between different services: cleaning personnel are always in location before employees and
have access to every facility; they can observe and report visual malfunctions to technical teams and
can be solve before serious damages. Same applies to security agents (especially night shifts)
Service desk: centralized point of contact for all needs, requests and complains, proper trained can
solve by phone a portion of request, can provide statistical data about malfunctions frequency (maybe
replace is cheaper then continually repairs), can help in communications, customer satisfaction by
setting up right expectation on intervention time and follow up for intervention results.
Warranty management
Scheduled/Preventive services vs corrective ones: based on expectation, technical status,
warranties, and number of incidents. Preventive maintenance is less expensive than corrective ones,
nevertheless quantity of preventive should not be to high (waste of money) or to low (more on
corrective)
Services cost optimization