Property owners and managers are always looking for ways to keep costs down. But when building the operations and maintenance (O+M) budget, it’s important to be sure that all items are covered. Consider the following tips to assist you as you build your own O+M budget.
A lot of individuals are involved in O+M. Because of this, communication is key.
“Each member of your team will have shared responsibility for these items,” Trent Patterson, the Corporate Facilities Manager at Haverty Furniture Companies, Inc. says, “They can help identify the opportunities for improvements while avoiding any pitfalls that may occur by not having a comprehensive budget.”
Patterson also notes, “You are developing the correct scope of services that meet the property expectations while also providing accurate costs to your owners and shareholders.” Therefore, it’s vital that all items are covered and properly portioned. Communicating with staff, service providers, and contractors will ensure that the budget is comprehensive.
It can be challenging to determine just how much to allocate to various items in the O+M budget. Here are a few tips for several items that may provide some guidance:
Special Equipment. Approximately 10 percent of the budget should be set aside for service contracts, but this should be the maximum amount contributed toward the maintenance of special equipment.
Construction. Take into account how much installation and construction your facility performs. If you have frequent office relocations or equipment installations, for example, then your construction costs will naturally be higher. Be sure to take into account labor costs for these jobs as well.
Materials and Inventory. Most industries have a standard for labor, inventory and materials ratios. Once you identify your industry standard, review your previous annual budgets and compare them to the industry-standard ratios.
Hiring and Labor. You should first calculate how much you are paying your labor excluding any fringes or benefits. After you have this number, determine the fringe benefit costs and add those in. It should be noted that these benefits are often fairly high.
In addition to business-as-usual pieces of the O+M budget, it’s important to also include any upcoming property initiatives in your budget.
“If HVAC equipment is nearing the end of its life cycle but has not been approved in the CapEx for replacement, the addition of preventive maintenance inspections could prevent the equipment from failing until the unit is replaced,” Patterson says. “Although this will increase the operating expenses for that property, it will bridge the gap until a larger capital investment is approved.”
This is true with most projects, services, and equipment in commercial properties. It’s important to constantly weigh the costs and investment decisions to improve operating and financial efficiency.
By looking over your budgets from previous years, you can anticipate your future spending. Notice whether you went over or stayed under your budget, examine your allotment for each item, and evaluate any practices or initiatives that affected your spending. Reviewing these older budgets help ensure that your next O+M budget is more accurate and comprehensive.
When reviewing previous years’ information, you may want to implement analytics. Use prescriptive analytics to evaluate the data from years past. You might discover that you spent much more on a certain project or maintenance issue than you had planned. These data may also alert you to certain O+M issues. You may, for instance, discover that you spent a significant amount of money repairing a piece of equipment. Knowing this may help you in making a decision to repair or replace the machinery.
While it may seem costly to set aside a significant portion for preventative maintenance when there aren’t any immediate issues, it can save you money in the long run. Deferring maintenance can cost an astonishing 30 times more than protective initiatives. Therefore, it’s vital to allocate a significant amount for preventative maintenance. You should still, however, set aside a portion of your budget for reactive maintenance, as emergencies are often unavoidable.
Continually discuss and follow-up on operating budgets. This will ensure that budget items are being managed properly. Without monitoring, expenses may increase without review or approval.
“Slight increases or changes can be explained,” Patterson notes, “but if they are allowed to occur throughout the year without monitoring you will have year-end expenses that negatively affect the property.”
How much money you set aside for addressing emergency issues will in part depend on the age of your building. The cost of operating and maintaining facilities often rises as buildings age seeing as older buildings tend to require more repairs. So if you have an older property, be aware that your O+M budget will likely be higher.
“I live by a simple motto when it comes to managing properties,” Patterson says. “Never sacrifice quality for speed.”
Commercial real estate professionals strive for efficiency but have their days filled with responsibilities, from projects to reporting to budgeting to emails. But you should go slow and steady when developing your budget. “It’s crucial to take your time, perform due diligence, and develop a budget that is accurate and meets the demands of your owners, tenants, and property,” Patterson says. While it’s important to submit your budget on time, it’s just as important to make sure you’ve reviewed the information, historical costs, and future goals. “This way,” Patterson notes, “you can make sure the property maintains or even increases in value.”
If you follow these guidelines, you can be sure to create a comprehensive O+M budget for your property.
Patterson, T. (2019, February 26). Interview with Trent Patterson, Corporate Facilities Manager at Haverty Furniture Companies, Inc. [E-mail interview].
Sessa, L. (2019, February 26). How to Create a Comprehensive 2019 Repair & Maintenance Budget. Retrieved from https://servicechannel.info/blog/how-to-create-2019-repair-maintenance-budget/
Timme, A. G. (2019, December 22). The Real Cost of Deferred Maintenance – Facility Management Maintenance & Operations Quick Read. Retrieved from https://www.facilitiesnet.com/maintenanceoperations/tip/The-Real-Cost-of-Deferred-Maintenance–38366