6 Key Business Metrics (that every REFM professional should know)

After the U.S. federal government bailed General Motors (GM), then GM CEO and Chairman Ed Whitacre, Jr. told a reporter that he reviews only six metrics to determine the performance of a company or organization. Ed Whitacre, Jr. was the CEO of one of the “Baby Bells” (SBC) when the federal government broke up the old AT&T in the 1980s. He later merged SBC with several other Baby Bells, including Pacific Bell, and eventually acquired AT&T to form the current communications giant that exists today, at&t.[1] After he retired, President Obama tapped him to head up the new GM, which he returned to profitability after years of losses and near bankruptcy.

As a real estate and facilities management (REFM) professional, I have been searching for ways to better communicate performance and impact to executives who rarely understand REFM-speak: the jargon and common ways that we talk to each other and our contractors about space, projects and facilities operations. In order to be successful, we need to speak the language of business and learn how our world affects these six key metrics:

  • Market Share
  • Revenue
  • Operating Profit
  • Cash Flow
  • Quality
  • Customer Satisfaction

Let’s examine each of these metrics and see how they tie into the world of a Real Estate and Facilities Management.

Market Share

Anyone who has read any of Jack Walsh’s books knows what a huge proponent Mr. Walsh is of Market Share. Jack Walsh (and I’m sure many other business leaders) believes that if your product or service is not number one or two in market share, then you have a problem with your business. This is one reason why mergers and acquisitions are so popular because they can be a quick way to gain market share and possibly enable your organization to get to or near the top.

I consulted for a company that had recently consisted of two companies: one was number two in market share and the other was number three. When the number three company announced plans to acquire the number four market share company, the number two company quickly worked out a deal to acquire the number three company (nixing the deal between numbers 3 and 4), which made it the new number one market share company in its industry.

Why is this important? In addition to hopefully gaining some R&D, manufacturing and administrative synergies with the merger, suddenly the company was in the spotlight of the media, Wall Street and its competitors. Instead of being an also-ran company, the expectations for the new number one market share company increased exponentially. This meant that the all organizations, including the REFM group needed to “step it up” a few notches and prove to everyone that it deserved to be number one.

So, look at the market share position of your company’s products and services; are they currently number one or have plans to be? If so, you need to be ready to support them like a top—notch organization or you may become an also-ran.

Revenue

You may think that there’s not much that the REFM organization can do to effect the revenue of the company, but the REFM organization plays a crucial role supporting the organization’s ability to support revenue plans, especially if revenue suddenly increases or decreases. How do you prepare for this? The best way is to know that you have the right amount and the right type of facilities. Are your facility plans in-line with the organization’s revenue plans?

In today’s fast-pace business world, you need tools, such as a CAFM system to be ready for rapid changes. This is your foundation for your strategic facilities plan where you can readily access the data you need to support your plans and how they are aligned with the top goals of the organization.

Operating Profit

Investors look closely at Operating Profit every quarter to evaluate a company’s performance. After deducting the cost of revenue (what did it cost to make or purchase the company’s products), R&D, SG&A and any non-recurring costs, you end up with the operating profit or loss. A small reduction (less than 5%) of the REFM operating budget can have a significant impact on the company’s Income Statement, often improving the EPS by a penny or more. A penny may not sound like much, but it can make a huge impression to investors who can significantly affect your company’s stock price. Therefore, anything that you can do to reduce costs – think sustainability programs – can be quite valuable to your company.

Cash Flow

Cash flow is a financial metric on the company’s balance sheet that indicates the financial health of a company. Obviously, cash is good and if the latest balance sheet shows an increase of “cash and cash equivalents” then generally the company is operating well: revenues may be increasing and / or operations are well-run.

For REFM, continuous improvement in operations, including savings from implementing sustainability initiatives can help improve cash flow. In addition, investing in a CAFM system to better manage space can result in an optimized portfolio and help avoid wasteful investments in excess space. Additionally, managing your vendors well by ensuring that they fully perform their contractual obligations can help you to avoid wasteful spending. While finding ways to improve your company’s cash flow is a worthy objective for every REFM professional, delaying vendor payments beyond the agreed upon terms is not a good or sustainable practice. This is not fair to your vendors, especially small ones that receive a significant amount of their revenue supporting your operations.

Quality

The quality of a product or service can have a significant impact on the success of the company’s offerings. Just as companies can look to 3rd-party unbiased firms to assess and rate products (think Consumer Reports as an example), the REFM organization has its own means to measure the quality of its products (space and facilities) and services.

Benchmarking is a terrific way to measure quality that is an often-used tool in the REFM toolbox. Virtually any part of your facilities, from space to operations can be measured and benchmarked against past performance and comparable operations. There are several ways to benchmark your operations:

  • Start your own benchmark study and invite colleagues to join
  • Hire a company that performs benchmarking studies or participate in one for free. If you participate in IFMA’s benchmarking studies, for example, you will receive the study report for free
  • Use an on-line tool such as the “Energy Star” benchmarking tool to compare the energy performance of your facilities to industry standards to begin understanding opportunities for energy savings

Surveys are another useful way to measure the quality of your operations, which I will cover in the final key metric.

Customer Satisfaction

Just as your company needs to know what its customers think of its products and services, you should know how your customers think of their facilities and associated services. Surveys are the best way to find out. As with benchmarking, you need to establish a baseline of current performance that can be used to set future performance goals and determine where improvement is needed.

Another way to survey your customers is to provide a link to a simple survey after completing every Facility Work Order (FWO). As you gather data regarding your service levels, you will begin to understand your team’s performance better as well as identify problem areas that you can begin to address by discussing performance concerns with your customers. Again, keep the survey simple: I use a scale from 1 to 5 and anytime that I receive a score less than 3, I want to have a conversation with the person who gave us a low score to find out where the problems are, determine how to improve services and ensure that future work is completed in a satisfactory manner.

Communications – Speak the Language

Understanding and incorporating these six core metrics into your vocabulary and reports to your executives will enable you to communicate more effectively with them when you are proposing new projects and changes to your operating expenses. Your executives may prefer a few other business metrics, but start using these six core metrics. Once you begin to speak the language of your executives they will realize that you understand their world which will lead to greater success for you and your organization.


[1]To differentiate between the old AT&T and the new company, the new company is referred to as at&t, all lower case.

The Four Keys for Successful Facilities Operations

After managing facility operations for several companies over the 15 years or so, I’ve been asked how I know whether a facilities operation is performing well. Some may believe that if you look at the condition of the facility that will tell you how well it is performing. Others may ask the facility staff, believing that a happy or contented staff is an indication of a well performing organization. Lastly, others look solely at financial metrics as a basis of a well-run organization. While a well-maintained facility with happy staff saving the organization money may sound like a well performing group, we need to dig deeper to really see if this is true.

I look at four core items to determine not only how well a facilities operations group is performing, but also to determine what needs to change to improve performance. The core items are:

  1. Functional Alignment with the Organization
  2. Customer Satisfaction
  3. Key Performance Indicators and Service Level Agreements (KPIs & SLAs)
  4. Sustainability Programs

Let’s examine why I choose each of these four items.

Functional Alignment with the Organization

When assessing organizational effectiveness I always want to start at the top, then dig deeper. The best place at the top to start is with the organizational goals and objectives.

Most organizations have a goal around profitability, usually to increase it. This can be done two ways: increase revenue or limit expenses. In the facilities management world, we do not have a direct impact on increasing revenue, but as the second largest expense within the organization we certainly have an impact on the expense side. Therefore, the Real Estate and Facilities Management (REFM) organization must have an expense metric goal and several objectives to achieve the goal.

A second likely goal would involve customer service. While the organization is focused on how it wants to support its external customers, the REFM group needs to understand what these specific objectives are. For example, the company may be considering a new training center or service environment for customers, which will certainly result in a goal for the REFM group as well as several objectives.

More directly, you should be measuring and seeking ways to determine how you support and deliver services to your internal customers. As a support organization, you need to understand and pay as close attention to your internal customers as your service group does to its external ones. We’ll come back to this subject when we discuss Customer Service.

Employee retention is an important organizational metric that the REFM group can have an impact. There’s currently a lot of debate and discussion going on right now about remote working vs. the workplace as a preferred place for work. You can view my take on this on my blog, titled, “The ‘Workplace’ – Who Needs It” (www.ednovak99.wordpress.com). The point is this: the workplace is important, maybe not the top two or three items with workers, but still important enough that if the REFM group needs to be a part of this conversation with HR and the business unit leaders to make sure that the workplace supports and not deters from employee retention

Efficiency is another common high-level metric that generally helps the organization. Anything that you can do to improve your operational effectiveness should be evaluated. Often times, this requires a significant amount of money and a return on investment (ROI) should be performed to determine whether such an improvement will pass the financial requirements. Some efficiency improvements could be implemented with little or no cost and should be pursued vigorously and recognized well.

Customer Satisfaction

This is pretty fundamental – what do the people who use your facilities and associated services think of you and your organization? Surveys are the best way to find out. I’m a firm believer of keeping surveys simple, as a tool to open the discussion topic and then spend lots of time with your customers to find out more. Let’s face it, we may like to tell others what we think, but my experience is that you are lucky if 25% of your target survey audience responds, so you need to make your surveys as simple and fast as possible; be sure to let participants know that you will share the results. I recently did this for a client to produce a baseline of current performance that we used to set future performance goals and determine where improvement was needed.

Another way to survey your customers is to provide a link to a simple survey after completing every Facility Work Order (FWO). As you gather data regarding your service levels, you will begin to understand your team’s performance better as well as identify problem areas that you can begin to address by discussing performance concerns with your customers. Again, keep the survey simple: I use a scale from 1 to 5 and anytime that I receive a score less than 3, I want to have a conversation with the person who gave us a low score to find out where the problems are, determine how to improve services and ensure that future work is completed in a satisfactory manner. This leads us to the next item.

Key Performance Indicators and Service Level Agreements

What you are measuring is at least as important as how well you are evaluated. Like goals and objectives, the facilities operation Key Performance Indicators (KPIs) must be aligned to the overall organizational needs and measure the key or top organizational facility priorities. Usually these include:

  • Critical life-safety systems
  • Critical equipment that support the most important operations, including measuring uptime and timely completion of certain preventative maintenance activities
  • Emergencies, including response time, mitigation and communication
  • Urgent Requests, including acknowledgement time and time to completion or mitigation
  • Routine Request completion time

Each KPI is coupled with an approved Service Level Agreement (SLA). If the facilities operations group is staffed with direct employees (“In-House”), then the agreement process can be fairly straightforward and easier to change. If, on the other hand, the facilities operations group is staffed by another company (“Out-Source”) then the agreement process and the ability to change SLAs can be more challenging as often times these are included in a Master Service Agreement (MSA) that must be signed at the appropriate authority level.

It’s been my experience that introducing KPIs that the customer understands and SLAs that they will agree to takes quite a bit of time and a great deal of communication to both the customers as well as the staff. You may need to introduce a new work order process or system to adequately track performance, but, if implemented well, will result in higher customer satisfaction levels.

Sustainability Programs

Since earning my Sustainable Facilities Professional (SFP) credential from IFMA in 2012, I have gained a greater understanding and appreciation for the need for sustainability programs within facility operations. The reason is simple – it’s a win, win, win, win for everyone. The winners are usually two, three or even all four of the following:

  • The financial bean-counters (economic)
  • The environmentally conscience
  • The employees and staff who work in or near your facilities (social)
  • Your boss who is always asking you to do more with less

Shortly after I passed the final exam for the SFP, I developed a tool that I use to assess opportunities for individual facilities. This comprehensive tool covers eleven facility aspects, which not only identifies sustainable elements within the facility, but also the sustainable programs and practices that have been implemented by the operations group. The result of this analysis is a report that documents sustainability gaps or areas for improvement. Each opportunity is prioritized and rated as either: No-Cost, Low-Cost; Moderate Cost (requires additional unbudgeted resources); or High Cost, beyond an operating expense and usually requiring capital funding approval.

So by thinking sustainably, you not only find opportunities to improve our environment and your customer’s workplace, but you should be able to implement improvements that will eliminate waste, resulting to in cost savings. Who can argue with that?

In conclusion, by digging deeper to these four core items you will be maintaining your facilities at a level that is aligned and acceptable to the key stakeholders of your facilities that simply reducing costs cannot do. Of course, once you have mapped out the road ahead, you still need to successfully implement the changes required. This is where your two key skills – communication and leadership – will be needed.