Over the past few years most of the companies that I have worked with have had a CRE Savings Target that we needed to help manage against. Typically it is based on a straight percentage savings without much detail about services and delivery that could/could not be impacted.
The single most frustrating aspect of any CRE Savings Target is figuring out how to measure it.
If you need to save $2M on a global portfolio you can start easily and focus on cutting trash pick-up at desks from 5 days to 3 days and outsourcing more repairs and maintenance to vendors instead of in-house teams. Maybe you cut coffee service to offices as well (often a surprisingly high cost). The next year you need to find another $2M of savings and you focus on renegotiating contracts and maybe further cutting the facilities staff.
But what happens if the business grows at the same time? Suddenly the $2M of benefits are no longer visible in the P&L because growth comes with added costs. How do you prove the savings in this scenario? If you have a smaller facilities staff and you are growing you may have a lot more outsource spend which is more expensive than in-house spend (if it is consistent and above a certain level).
The reality is there should be a single target metric that defines CRE Costs. My recommendation:
Cost per Person
This is still surprisingly controversial. The biggest issue? How to define Cost and how to define Person. I think this is also fairly straightforward:
Cost = All of the costs that belong to the CRE function. This allows for CRE to manage a budget and move costs around. As they reduce the infrastructure (physical space) cost per employee they can reinvest into technology and tools that will allow further future cost improvements. Service Levels can be balanced between services provided to the local offices.
Person = All employees employed or contracted by the organization. This allows CRE to get credit as there are work-from-home employees who do not require space to be provided. Measuring people this way is also easier because it allows the number to be validated by HR instead of needing to be manually maintained by CRE.
These simple definitions give a very straightforward approach to understanding how CRE is performing. If the cost goes from $15,000 per person to $10,000 per person then CRE has reduced costs by 30%. This could be because the business grew by 25% while real estate costs remained neutral or went down slightly. In most businesses this would seem as if CRE did not actually save anything (because their P&L didn’t change) but the reality is they have saved quite a bit.