By Reagan Nickl
Enterprise Customer Success Senior Manager
SpaceIQ
Cost governs just about everything in the business world. It’s no surprise that facilities come with one of the highest price tags. But “facilities” is a broad category spanning more than just the cost of a lease or utilities. Breaking down facility costs sheds light on what it actually takes to run a business. More importantly, it yields insight into potential savings.
What are facilities and administrative costs?
Facilities and administrative costs are associated with physically running the business. They’re specific segments in the broader realm of operating expenses, and include the following:
- Cost of your lease
- Building upkeep and repairs
- Cost of capital improvements
- Building operational expenses
- Departmental costs
Together, facilities and administration costs are part of the collective fees it takes to run your business. Unlike overhead—hard-to-track general costs—facilities and administration costs refer to specific, traceable dollar figures.
Facilities managers are responsible for tracking and reporting on facilities and administrative costs. Every business will track facilities costs they deem most important, but four stand apart as integral for showing what it takes to keep a workplace running.
1. Used and unused space
A lease is the single biggest operating expense on a company’s balance sheet. It’s also one of the most difficult facilities expenses to contextualize and understand. You can’t truly understand the cost of your lease until you understand space utilization.
Anyone can figure out the cost per square foot of their lease—it’s just the cost of the lease divided by the square footage of the office. A $5,000 monthly lease for 1,000ft2 amounts to $5 per ft2. But that’s only a benchmark. If you’re only using 800ft2 of space, space utilization costs come into play. Eighty percent utilization brings the cost per square foot up to $6.25 per ft2. You’re essentially paying a premium on the space you’re using—or, a penalty for space you’re not.
Space utilization costs factor into other workplace measures. Knowing how much used and unused space you’re working with influences decisions like whether to expand or consolidate, or how to properly design a floor plan. Few metrics are as important as space utilization for unlocking real operating costs.
2. Worker Productivity
Throughout the life of your business, you’re bound to make decisions that lose money. Thankfully, losses can be recouped through a good investment. One cost you can’t get back, however, is lost time. Minimizing wasted time starts by improving office productivity.
Productivity is part of facility direct costs. Your workplace’s design and function dictate worker productivity. To quantify this, facilities managers need to look for productivity traps. For example:
- How much time is lost because of overbooked meeting rooms?
- What is the cost per hour of network downtime?
- What is the productivity rate across certain areas of the workplace?
- What are the most time-consuming tasks in the workplace?
Identifying waste provides tangible numbers for lost time and hampered productivity.
Let’s say, for example, an average of 15 minutes is lost due to conference room overbooking. This time may equate to $5 of revenue lost per employee. If four people can’t find a conference room, it costs the business $20. Now, say this happens 10 times per week. That’s $200 weekly and as much as $800 a month in lost revenue from stunted productivity.
3. Life cycle costs
Asset management is a pillar of facilities management. Every asset has a lifespan. Knowing the life cycle of your assets (big and small) sheds light on costs coming down the pike—whether in the form of repairs, maintenance, or replacement.
Take a copy machine. Buying a new one is $10,000 and may last a decade. Or, you can repair your 5-year-old model for $2,000 and get another two years out of it. Understanding costs in context with return on investment leads to informed decision-making about critical assets.
Life cycle costs encompass everything from high-value items like copy machines to consumables like light bulbs. Identifying and tracking the life cycle costs throughout your facilities paints a clearer picture of what it takes to operate.
4. Vendor costs
You can’t maintain every aspect of your facilities by yourself. For most things, you’ll have vendor partners. Plumbers, electricians, HVAC specialists, IT consultants, and landscapers represent the most important vendor partnerships to cultivate. Even more important than finding a reliable partner is understanding what you’re paying them and how your facilities benefit.
Track individual vendor costs as closely as possible. Doing so exposes you to important insights, including:
- Areas of your facilities prone to common repair and maintenance
- Potential for vendor contract renegotiation
- Under- or over-budget allocations
- Opportunity for capital improvements
Seeing an annual increase of 11% in plumbing fees will alert you to investigate further, just like recurring repairs to your building’s rooftop AC unit might point to capital improvement as a smarter investment.
The more you track, the more you know
Facilities managers track a bounty of metrics to understand total facilities’ costs. The four above are distinguishably important because of the insights they yield. They measure and account for some of the biggest contributors to total operating cost. And, they provide facilities managers the insight they need to responsibly cut costs and optimize expenses.
Keep reading: A facility managers guide on how to select the best facility management software for your organization.
By Jonathan Davis
Jonathan writes about asset management, maintenance software, and SaaS solutions in his role as a digital content creator at Eptura. He covers trends across industries, including fleet, manufacturing, healthcare, and hospitality, with a focus on delivering thought leadership with actionable insights. Earlier in his career, he wrote textbooks, edited NPC dialogue for video games, and taught English as a foreign language. He holds a master's degree in journalism.
