A Strategic Approach To Achieving Cost Efficiency

June 1 2011 – In good times and in bad, corporate leaders are always looking for opportunities to improve their bottom lines. During acquisition phases and in times of economic contraction, staff cuts are the normal course of action for many executives; however, real estate — as one of the top three generators of corporate overhead costs — also offers potential strategic savings. Most failures in real estate cost containment result from the swift changes companies go through as the economic tide ebbs and flows. Companies acquire space rapidly during periods of growth, but when the market slows, executive officers need to promptly pare down space and related costs. The best way to save is through a structured, process-driven approach to real estate management.

Executives must answer five crucial questions:

– Do we know what we have?
– Do we have what we need?
– Have we optimized what we have?
– Are we organized for execution?
– Are we measuring performance?

DO WE KNOW WHAT WE HAVE?

The first step in finding strategic savings is to understand the current make-up of the corporation’s real estate portfolio. Companies that have been through a series of acquisitions or have accumulated myriad offices and other real estate during a growth phase, often find that their financial departments do not know exactly what real estate the company holds. Nor do they know how the holdings are affecting profitability. Effective management begins with determining what the corporate real estate portfolio includes and then measuring the efficiency of the holdings. In order to create an actionable real estate database, it is vital to study financial statements and legal documents, which can offer information about lease rates and terms, cost per square foot, services, taxes, HVAC, parking rates, etcetera. The resulting real estate portfolio inventory provides a valuable database that can be used for strategic planning, competitive analysis and identifying consolidation opportunities. Every cost revealed in the portfolio analysis process can become a candidate for generating net savings.

DO WE HAVE WHAT WE NEED?

Management must determine whether or not their real estate strategy supports the company’s general business plan. Companies react to shifts in the economy and consumer demands, and managers make calculated decisions that can have several effects — rapid expansion, redistribution of employees, and relocation or reduction of staff and space. While all these changes in direction can add to operating expenses, they also present opportunities to generate savings.

HOW DO WE OPTIMIZE WHAT WE HAVE?

The next step is to assess how efficiently current real estate holdings are being handled. Companies add space to meet their marginal needs as they expand, but they often don’t evaluate what effect these additions have on the performance of their complete real estate portfolio. In a period of economic contraction, however, financial executives look for ways to save, and studying real estate — usage, square footage, furnishings, space configuration, etcetera — allows ample opportunity to do this.

ARE WE ORGANIZED FOR EXECUTION?

Planning is, of course, a vital component of proper real estate management. Creating an actionable database, analyzing the effectiveness of usage, renegotiating leases, obtaining, reconfiguring or getting rid of space, all employ resources and incur costs. To find out if any of these undertakings are useful, a firm must determine the costs and weigh them against the potential savings.

ARE WE MEASURING PERFORMANCE?

CFOs are accustomed to the financial community scrutinizing their companies’ financial reports and their quarterly results versus consensus projections. Each industry has key metrics that analysts and investors use as benchmarks for performance. Evaluating performance against expectations is just as crucial in ascertaining the outcome of real estate projects and space efficiencies. These final results allow a corporation to gauge its return on investment and to understand exactly how much it has saved in terms of money, time and resources. A disciplined, process-driven approach to delivering real estate services is necessary to achieve a corporation’s occupancy cost goals.

THE PROFESSIONAL ADVANTAGE

Executives must ask the questions discussed here as they work to reduce overhead and increase their bottom line. Real estate activities provide ways to identify, contain, control and reduce costs. It is imperative to ask the important questions and align the corporation’s real estate strategy with its business strategy in order to achieve savings and maximize value. Outside experts are typically enlisted to identify and control a corporation’s real estate costs.

An independent real estate service provider can devote the time and effort necessary to build and analyze a corporation’s real estate inventory. They can then supply an analysis once the database has been created. An experienced service company can also allow a corporation’s managers to track and report project status and cost savings, organize data, communicate critical dates and milestones, and to share files such as drawings, maps, floor plans, photos or financial analyses. Being able to measure results at each point of every project provides management with the information it needs to function more efficiently and to report its bottom-line results. office space calgary, commercial real estate calgary.

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