HQ performance

Most large-scale organisations have an HQ facility of a significant size. Often high profile, they can play a key role, presenting the culture of the organisation to both users and visitors. Their use profile often involves accommodating a mix of customers, senior executives and business functions such as finance, planning, human resources. So interiors and facility service levels must be of a consistently high quality.

An explicit understanding of the relationship between service quality provision and its cost, and how that quality supports business activities, is therefore essential in judging whether the often significant amount spent on such facilities for operation and upkeep represents value for money.

Our research shows that for mainly office based organisations, property costs fall between 10% and 15% of total annual expenditure. Facility management costs can be as much as 40% of the overall property total.

What follows is intended to help organisations assess not only whether their HQ facilities are costing the right amount, but more significantly whether they are providing an appropriate level of service quality for that cost. Below is a profile of the HQ building being analysed, and a description of the assumptions relating to how it is being occupied. Cost performance data is then presented for a range of facility services relating to differing grades of service.

Building profile

M25 corridor location, approximately 1km from central shopping/business area 17,750m2 gross internal area, comprising:- Please see accommodation table.

Occupancy profile

Sole tenancy of building; central administrative business processes; 750 ‘full-time’ occupants (direct and contract) in 800 planned workplaces; 40 per cent ‘churn’ (ie 300 person moves each year); IT density 1:1 (one computer per person – generally client/server architecture using a corporate intranet with e-mail service); working hours 8am to 8pm, five days a week, with some use 8am to 2pm one day a week; three site entrances, (one part time); 400 parking spaces in medium landscaped surrounding.

Cost profile

All costs exclude VAT, rents, rates/local taxes, service charges, insurance, depreciation, small project work, IT, local taxes, and capital investments or purchases (eg new build construction, refurbishment, furniture). No multi-tasking has been considered (eg security and reception are often combined to improve use of resources). The facilities management function has not been included in the costs.

Performance findings summary

The analysis of service performance emphasises the range of costs possible within a facility (summarised above with respect to varying service grades). It is interesting to observe that:

• Although most services demonstrate cost reductions (at least in the short term) by reducing the service grade, several (eg utilities and stationery) actually increase due to the reducing influence of good management.
• The overall spread from the lowest service grade (5) to the highest (1) is an extra 128%.
• The spread from the mid-point service grade (3) to the highest (1) is an extra 41%.

When the extremes of performance are considered by taking the highest absolute cost for each service, and introducing procurement and productivity variance, then an even broader cost spread is achieved. These show that, at its most expensive, the model facility would cost £3.9 million a year, which compares to £1.1 million at its cheapest. But it is doubtful whether an organisational HQ would choose to operate below grade 3, which costs £2.3 million.

This degree of variance can have a significant impact on bottom-line performance. Assuming there is no productivity impact to core business, (which may not be the case) a cost reduction achieved by cutting service grades from 1 to 3 could increase profitability by 30%. A sustainable shift from grade 1 service throughout to grade 2 achieves an overall cost reduction of 13%, the equivalent of adding nearly 1% to the pre-tax profit of the occupier.

General commentary

Maintenance Includes heating, ventilation and air conditioning, electrical systems, water and sanitary systems, fire alarm and extinguishing systems, UPS, general fabric repairs, lifts, and catering equipment. It excludes capital expenditures, landscaping and security systems.

The grades of service reflect increasing facility reliability. As service standards rise, occupiers need to weigh up decreasing risk to business continuity and affordability. At the lower service levels, especially 5, the cost performance reflects the short-term impact of reduced maintenance, and not the longer term cost of maintenance backlogs and increased equipment replacement. The nature of the HQ facility would most probably see a full time maintenance presence, which would be reflected in a grade 1 or 2 service level arrangement.

Utilities Includes all energy consumption (electricity and gas) and water. Here the grades of service reflect changing management competence and practice. This results in increasing consumption levels and costs as management expertise and control diminishes.

Cleaning Includes general cleaning of all internal areas, periodic ‘deep’ cleans, external window cleaning, waste removal and pest control. Increasing the grade of service generally means the frequency with which tasks are carried out, hence increased costs. Between grades 1 and 2, costs decrease by 10%, and between levels 2 and 3 by another 25%. It is doubtful whether an HQ could operate below grade 2 other than in exceptional circumstances.

Security Comprises general guarding, control room operation, and all maintenance to security systems (eg CCTV). Higher service standards are generally achieved by increasing the amount of resource deployed in providing the service. There is also a similarity with maintenance, in that occupiers need to weigh up affordability and risk. The biggest jump in costs occurs between grades 3 and 2, when the sophistication of the systems increases considerably. Security cost performance also displays limited variability in terms of procurement and productivity performance.

Internal planting Maintenance of plants is a minor cost which only arises at the higher service grades. Its significance is related to visual impact. Most HQs tend to have service in grades 1-3, as appearance is particularly important in prestige areas such as receptions.

Internal moves Includes the planning function and the performance of the physical move (excluding IT, telecoms and cabling, refurbishment or minor works) and assumes all activities are undertaken outside normal working hours. The significant cost driver within this function is the number of moves carried out, often expressed as the ‘churn’ rate. Of greater significance than the direct cost of the moves can be the indirect cost of time lost by those being moved. This should always be considered when deciding on the appropriate level of service.

Reception services Cost performance tends to increase in steps relative to the number of full- and part-time receptionists needed. As the first point of contact, this area is crucial for visitor and customer perceptions. Increased emphasis on this service is also caused by visitor volumes, which are usually high in an HQ. Hence a high quality ‘meet and greet’ service is often used.

Reprographics This service includes equipment leasing, consumables and paper. The grades of service reflect the sophistication of equipment, its convenience and availability. As with internal moves, the negative impact on user time should be assessed, as lower levels of service grade are considered. A typical pressure on reprographics within HQs is the need to provide printed information to regional offices within an organisation. This tends to drive up the cost base.

Stationery This includes all of the typical consumables of office work, such as paper, pens, envelopes, folders, dividers, computer discs, flip pads, overhead projector film, etc. Grades of service relate to varying management practice, which as it improves reduces the unit rate cost of purchases and controls unnecessary demand, leading to lower overall costs. Due to the nature of the HQ’s business tasks, stationery use is higher than in a typical administrative office, which results in increased cost.

Post room services All grades of service assume a constant volume of mail being dispatched and received. Costs include the postage charge, courier charges and the post room resource. Equipment depreciation is not included. Aside from the postage charge, a major cost driver within this function is the frequency of deliveries and collections, together with the number of drop-points. This has a significant impact on the number of post room staff required. Typical HQ functions require a robust and frequent internal post system to cope with demand.

Switchboard services As with reception services, costs tend to vary relative to the number of full- and part-time operators. This in turn is influenced by the call answering response times required and the volume of calls going through the switchboard as opposed to direct-dial. No call charge costs have been included.

Catering Includes all food preparation, serving and vending. The costs do not take account of any cost recovery from consumers, which will vary by organisation. The cost performance increases as the grades of service improve, driven by the quality of the food produced and the degree of service in the dining area. HQs often provide a much more varied range of international cuisine for both staff and visitors, coupled with significant hospitality services for the regular executive and customer meetings.

Key influences

Occupancy density can have a considerable impact on cost performance. The base model used here has been occupied at a density of 24m2 gross per occupant (19m2 net per occupant). If the density is reduced by 20%, the cost per occupant increases by nearly 13%. If the density is increased by 20%, the cost per occupant falls by just over 5%. The beneficial impact of increasing density from a cost perspective is more completely seen when property costs (such as rents, taxes and insurance) are added. As a fixed cost relative to the size of the building, they will reduce as a cost per occupant as the density increases. However occupant productivity and well-being must also be considered so that ‘penny-wise’ facility savings do not lead to ‘pound-foolish’ people consequences.

The age of facilities also has an impact on costs, particularly for maintenance and utilities, where cyclical equipment replacements, decreasing service intervals and energy inefficiency can increase cost levels. Legacy issues such as persistent neglect can be significant.

Opportunities for multi-tasking should also be explored. Intelligent use of resource can lead to a 15% to 20% reduction across security, reception, post and switchboard – the equivalent of a 4% to 5% cut in the overall facility service cost.

Grades of service descriptions

Each of the facility services has a range of cost performance levels relative to varying grades of service: ‘1’ relates to the highest service grade/quality level, and ‘5’ the lowest. The grades are consistent with previous profiles.

Maintenance

1 Full risk/reliability maintenance regime, with planned preventative maintenance using database support, dynamic building control system monitoring, condition and/or time-based maintenance, reactive/run to failure maintenance, all to maximise business value in the context of manageable risk

2 Full planned preventative maintenance

3 Condition and/or time based monitoring

4 Periodic inspections of plant/equipment

5 No preventative strategy – all reactive

Utilities

1 All utilities consumption and costs continuously monitored, controlled, and performance managed. Trending reports regularly analysed. Regular energy audits

2 Utilities consumption and costs continuously monitored and trending reports regularly analysed. Some energy audits

3 Utilities consumption and costs reviewed periodically

4 Utilities consumption/cost reviewed yearly

5 Utilities consumption not managed

Cleaning

1 All areas cleaned at least once every working day, common and customer areas cleaned twice. General duty janitors available throughout the working day

2 All areas cleaned at least once every day

3 Common and customer areas cleaned at least once every working day. Other areas cleaned at least on alternate days

4 Common areas cleaned at least on alternate days. Other areas cleaned at least once a week

5 All areas cleaned once a week or less

Security

1 Complete access control to site/buildings at all times using personal ID badges. CCTV and other security systems

2 Complete access control to site/buildings during business hours, using personal ID. CCTV and other security systems. 24-hour guarding

3 Access control to buildings during business hours using personal ID. 24-hour guarding

4 Access to buildings for visitors during business hours via ID badges. Guard present

5 No formal access control during business hours. Limited or no ‘out-of-hours’ guarding

Internal planting

1 Well stocked and healthy planters throughout building, regularly maintained. If present, atrium is also well stocked

2 Limited use of planters, primarily in visitor/general circulation areas, well maintained and healthy

3 Sporadic internal plants, primarily placed on desk tops etc by staff, mostly healthy

4 No planters or individual plants

5 Planters or plants that are not maintained, so are dying and of poor appearance

Internal moves

1 Full-time move management team with a formalised process using CAD and/or database

2 Full-time move management team with formalised process

3 Full- or part-time move management team with part-formalised process

4 Full- or part-time move management team with no formalised process

5 No managed co-ordination of moves

Communications/switchboard

1 Direct dial facility, with all central exchange calls answered within 10 seconds, and to an average of 5 seconds or less

2 Direct dial facility, with all central

exchange calls answered within 15 seconds, and to an average of 10 seconds or less

3 No direct dial facility, with all central exchange calls answered within 10 seconds, and to an average of 8 seconds or less

4 No direct dial facility, with all central exchange calls answered within 15 seconds, and to an average of 12 seconds or less

5 No telephony standards

Reprographics

1 Assisted bulk and specialist copying service with colour and digital printing. Photocopiers within 20m of most of the staff, on same floor

2 Assisted bulk copying service, monochrome only. Photocopiers available within 20m of most of the staff and on same floor

3 High output photocopiers available within 20m of most of the staff and on same floor

4 Photocopiers available within 30m of most of the staff and on same floor

5 Photocopiers exceeding 30m from at least half of staff and may not be on same floor

Stationery

1 Dedicated department delivering on demand, computerised inventory tracking

2 Dedicated department delivering on demand, manual inventory tracking

3 Account with stationery company for next day delivery through single source in company

4 Weekly or regular delivery of stationery that staff order in advance through single source

5 Ad-hoc purchase, minimal storage on site

Reception

1 24-hour uniformed (but non-security looking during working hours) receptionists with automated badging facilities. Spacious waiting area with plentiful seating, up-to-date, tidy casual reading, beverages, toilet access

2 24-hour receptionists/security with badging facilities. Waiting area with plentiful seating, up-to-date casual reading, access to toilets

3 24-hour receptionists/security with badging facilities. Some seating/reading in waiting area

4 Working hour receptionists/security with security badging facilities. Some seating in waiting area

5 No formal reception service

Post room

1 Delivery and collection of all mail at times to suit individual groups/functions, mainly delivered to local workgroup or individual drop points. Fully automated franking. Computer access to special delivery/overnight services. Dedicated messengers with vehicles to suit package size and delivery location

2 Delivery and collection of all mail at least five times a day, mainly delivered to local workgroup or individual drop points. Fully automated franking. Dedicated messengers

3 Delivery and collection of all mail at least three times a day, mainly delivered to local workgroup or drop points. Manual franking. Formal arrangements with contract couriers

4 Delivery and collection of all mail at least twice a day, delivered to centralised, local workgroup or individual drop points. Manual franking. No formal courier arrangements

5 Centralised sorting and dispatch of post, but no formal delivery or collection to/from recipients. No formal courier arrangements

Catering/food services

1 Full waited lunch. Service provided

throughout business hours. Varied hot and cold food. High quality vending/‘tea’ service

2 Staff self service. Optional waited service for guests in ‘private’ dining areas. Varied hot and cold food. High quality vending/‘tea’ service

3 Self service for all users at lunchtimes only. Reasonable range of hot and cold food.

Vending, ‘tea’ service or kitchenettes provided

4 Self service for sandwiches/snacks. Vending, ‘tea’ service or kitchenettes provided

5 Drinks vending or kitchenettes only