Leveraging Total Cost to Occupy Data for RE and FM Decision-Making Intelligence

An understanding of total cost to occupy (TCO) is fundamental to any business’ real estate (RE) and facilities management (FM) operations, regardless of size. However, historically, few organizations have been able to answer two central questions related to TCO:
  1. What is your cost to occupy?
  2. What is your cost to operate?

The reason for this knowledge gap has primarily been due to RE and FM operations being fairly low on the list of business priorities. Most attribute this to the lack of access to RE and FM-specific data as it was not organized in a framework that enabled decision-making. Without clean data in an organized framework, external and internal benchmarking was virtually impossible. Today, this “old-school” mentality is shifting and CFO’s and executive-level management are finding this data imperative to not only meeting changing compliance requirements (FASB and IASB) but to advancing their larger business goals.

A transparent view into cost to occupy metrics (rent, lease, taxes and administrative costs) as well as cost to operate metrics (utilities, maintenance and support services costs) enables organizations to not only identify cost reduction opportunities, it also informs decision-makers as they align portfolio costs with larger business objectives or consider the implications of a merger or acquisition. TCO is a key data point in acquisitions of buildings as it provides insights into the lifetime cost with depreciation of like properties and it helps determine if it’s the right fit with scenario planning. With a framework in place, organizations can now look at costs dimensionally (for example periodic costs vs recurring costs, soft costs vs hard costs, etc.).

Understanding TCO isn’t about knowing where every penny is spent; it’s about converting raw data into decision-supporting intelligence and understanding your RE and FM spend in terms of buckets and broad categories to help you manage it better. With that said, technology alone isn’t the answer. Business processes should be (re)examined and (re)implemented and the right people assigned to govern both process and data.

An industry-standard TCO framework (with governance and process) is the lynchpin to fully leveraging your organization’s RE and FM data’s value, both as short-term (tactical) and long-term (strategic) decision-making intelligence. The framework acts as a template helping RE and FM organizations isolate and track a building’s critical cost data and key performance indicators (for example return on assets (ROA), operating spend by square foot (SF), earnings per share (EPS), operating expenses/ facility condition index (FCI) for asset insights, etc.) while identifying actions required to right-size the portfolio. The framework aggregates data it in such a way as to facilitate direct, apples-to-apples comparisons among industry peers or within that organization’s internal portfolio.

For most organizations, RE and FM are cost centers, and the overriding challenge is understanding TCO. These orgs have always wrestled with questions like, “Do I know if my investment in real estate is at the right level? Do I know my total financial obligations?” The difference is, today, they know (RE and FM) data is the key to answering those elusive questions.

Mayu Roy
Senior Managing Director, Consulting


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