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Home > Facility Services > Article > Costs are rising, frozen, fixed and variable. How is the FM industry reimagining operations and contracts for the best possible cost-benefit ratio?

Costs are rising, frozen, fixed and variable. How is the FM industry reimagining operations and contracts for the best possible cost-benefit ratio?

Focus 1Popularly called the place where agreements are signed or where disagreements are gulped down with a mouthful of coffee. Essentially so, when these talks are initiated by facility service providers with their prospective clients. It is on this table that either SLA contracts get signed or head-count-based deals supersede the latter. It is on this table that cost optimisation is played up against cost-cutting and quality-compromise.
The paradox of cost optimisation vis-à-vis negotiations is well explained through different perspectives by experts of the industry. In conversation with Clean India Journal, Sangeeta Ray, Vice President – Siemens Real Estate – Asset Management Unit India & Bangladesh, Atin Tandon, Cluster Director-Facility & REM, Asia-Pacific, Tetra Pak, Amit Saxena, Site Director, Merck, Anurag Sharma, Executive Director, GDX Group and Prabhu Ramachandran, CEO, Facilio lay down the practices in place to control costs.

Service providers are integral to cost optimisation

We cannot ignore the fact that it is facility owners and FM heads who have to deal with straitened budgets first, even before the burden is shifted to service providers. Now more than ever, it should be obvious that outsourcing FM services is a sureshot way to control costs.

Ray shares her own example: “We are an engineering company. We want to maximise the value of our real estate, but our intention is not to be a real estate company. We have sites and plants spread across the country. It is not practical for us to build the same level of skills at each location”.

‘“Service providers have skilled personnel across cities, and can be of help”, she continued. “Logically, I will seek out a specialist organisation who eats-drinks-sleeps FM, which can do far more than we would be able to do on our own”.

“Cost tends to be the only thing companies see, but costs are not important or unimportant in isolation. We need to look at the big picture.”

-Sangeeta Ray

 

What is the need for cost optimisation?

Many may ask this question. One can say that the market decides prices, and based on the price, costs are decided. One may further claim that since prices are fixed, at least in the short term, costs are too.

This is a utopian view. The fact of the matter is that prices (per square foot) are nearly frozen, margins have been shrinking over the years and optimising costs is the only way to remain profitable.

Smart resource allocation

Costs across facilities are a mix of fixed and variable expenditure. Going forward, making the most of fixed costs is going to be more important.

“Our variable costs are constantly reviewed for optimisation of the ratio of centralisation vs decentralisation of resources as well as service outputs, optimising the fixed costs and variable costs using the critical path methodology”, said Sharma.

One way to do this is using resource allocation reports. Sharma said, “These provide a pan-India high-level view as well as a detailed breakdown of resource availability, helping us avoid schedule delays and going over budget. The better the reporting capabilities at our disposal, the better the transparency and efficiency we have in a project”.

Resource levelling is another tool. By reviewing underused or inefficiently used resources within the organisation, one can exploit their full potential and improve the cost-benefit ratio.

It is one thing to look back, analyse and course-correct, but the past should teach us what to expect in the future. Since FM managers have all the information about a project’s life cycle and objectives as well as organisational resources at hand, they should be able to forecast exactly how many resources will be needed, when and where. Better planning leads to better procurement and deployment, and more rational costs.

“Today, the trend is to bring in portfolio-wide deployments and scale digital platforms across properties, to find the best performing facility and compare others to it, to help them improve.”

-Prabhu Ramachandran

 

Prioritisation

Focus 1“In a crisis, when we prioritise, we will automatically optimise”, quipped Saxena.

Each facility is different, ergo its priorities are different. For example, in a facility that assembles products, operations may be semi-automated and people will still remain at the centerstage of FM, but a production facility may be almost entirely automated and the focus there may be on how to reduce depreciation of assets. By identifying and listing what functions are most important, redundancies in FM processes can be weeded out.

For example, if a corporate park has 40 washrooms but user occupancy is less than 50%, do all washrooms need to be operational? In a factory, can equipment be moved around to reduce interaction between different groups of workers? Are tea/coffee dispensers required on every floor?

“In a crisis, when we prioritise, we will automatically optimise”

-Amit Saxena

 

Focus 2Cost vs benefit

Ray put it bluntly: “Cost tends to be the only thing companies see, but costs are not important or unimportant in isolation. We need to look at the big picture”.

As Tandon says, “If one can look at costs as an investment, it will drive innovation and give long-term savings”. For example, a waterless toilet is either a cost or a means of sustained savings, depending upon which way you look at it.

FM software saves the day

Software has begun to gain acceptance amongst ground level workers and supervisors, but what about top management, who are the decision-makers about cost? Ramachandran said, “We need to empower leadership with technology. People like VP-Operations should have access to the entire portfolio at their fingertips, including real-time information on workforce deployment, energy management etc”.

Some companies have introduced FM software at some facilities, but not at others. Ramachandran said, “Different tools to solve the same problem are sitting in silos. Today, the trend is to bring in portfolio-wide deployments and scale digital platforms across properties, to find the best performing facility and compare others to it, to help them improve”.

“Supplying management with the right data at the right time to improve the decision-making processes is one of the ways we reduce costs by about 7%”, said Sharma, “Because not only does it save time and money, it also protects our business from costly consequences of bad investment decisions.”

“If one can look at costs as an investment, it will drive innovation and give long-term savings.”

-Atin Tandon

 

Smart monitoring and preventive maintenance

To put it simply, for predicting what is going to fail, an online health check is required.

Once, these checks had to be done in person by specialised engineers who needed to be at the site; more the sites, more the number of engineers needed. Now, it is possible for an engineer sitting hundreds of miles away from the site to piggyback on a Smart OEM system and guide an on-site technician to fix the issue. It saves both time and employee costs.

Sharma summarised it: “Integrating preventive maintenance into enterprise management avoids costly repairs and interruptions. Largely eliminating breakdown costs adds to our bottom-line, especially impacting SLA-driven contracts”.

“Supplying management with the right data at the right time to improve the decision-making processes is one of the ways we reduce costs by about 7%.”

-Anurag Sharma

 

Focus 3Smarter investments for better savings

From the manufacturing perspective, anything that improves productivity and efficiency with the right ROI is where the spend is going to be.

“We are also responsible to ensure that our investment in infrastructure is Smart; if we do that, IoT solutions can be implemented”, said Ray. “Everytime we have had to do a life cycle replacement, we choose a product that integrates with digital platforms seamlessly. Hence, even during complete lockdown, we could monitor all functions, including security, from our homes”.

SLA contracts for sustainable savings

Said Ray, “We started off with manpower-based contracts at a couple of sites, but this meant we had to retain expertise. Two years ago, we moved to SLAs that focus on deliverables and quality. The industry is heading towards fixed price-based contracts where the expertise will come from the service provider”.

Such contracts, said Tandon, foster innovation and collaboration. By embracing a total cost of ownership concept where both parties agree on fixed costs and sustainable savings over a period of time — without compromising on deliverables — all FM stakeholders will find that they can cut costs without cutting corners.

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