When managing a space reduction initiative for an entire facility portfolio, using a model that calculates return on investment and prioritizes projects is essential. We discussed the use of this type of model for specific projects in a previous blog. This blog will describe how a model can be used to craft and execute a portfolio-wide space reduction effort.
The process begins with identifying a space reduction strategy, which could include reducing the size of spaces in design standards, transitioning from enclosed offices to open offices, or transitioning from a traditional office setting to an office designed for mobile work.
Space Reduction Analysis
Once a space strategy is selected, the model analyzes key data for the portfolio, such as current space and personnel, design standards, project costs, and rent. The model applies the following logic:
- Current personnel can be multiplied against design standards to produce a space requirement.
- The space requirement can be compared to existing space to see if there is an opportunity to reduce the space footprint.
- If the space requirement is smaller than the existing space, a cost estimate for construction, tenant occupancy, and updated rent is calculated.
- The project costs are compared with the rent savings to determine the break-even point – the point where the cost of the project is offset by the savings in rent.
This logic is the basic framework of a return on investment analysis, which is the key benchmark for determining the viability of a specific space reduction project and for prioritizing multiple projects across a portfolio. By automating this logic, a database of space saved, rent saved, project costs, and break-even points for each facility can be generated. The model can then be used to determine the projects that will potentially provide the most space savings for the least cost and the fastest return on investment.
If an organization applies a space-saving strategy to a portfolio of 500 locations, not all of the locations will save sufficient space or have a reasonable return on investment to warrant funding. Database tools can help identify the projects that are the most feasible or that meet a set of pre-determined criteria (e.g., project costs below $2 million and a return on investment within three years). This allows an organization to focus limited resources on the projects that yield the best overall result and to develop a business case for project funding.
Finally, the model makes a powerful communication tool by displaying meaningful results on the costs, savings, and return on investment of a space reduction strategy. Such a tool is valuable as it helps communicate the estimated savings to managers and funding authorities. Demonstrating the estimated savings of a space reduction strategy through the use of an analytical tool helps managers visualize and support the outcome.