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Immobilier  |  21 septembre 2009

Operating Cost Benchmarking: A Great Tool to Identify Red Flags

Many property mangers and real estate owners frequently scratch their heads wondering whether or not their operating costs are reasonable.

There are many tools available, some free and some more costly, that one can utilize to benchmark operating costs. Let us understand what exactly benchmarking is and then we can take a look at one specific tool, the Building Owners and Managers Association (BOMA) Experience Exchange Report (EER) and discuss how you can undertake a meaningful benchmarking exercise.

What is Benchmarking?

Benchmarking is the continuous process of measurement, analysis, implementation and re-measurement. 

While many types of benchmarking exist, almost all methods of benchmarking use some form of comparison. One type of benchmarking is the search for and implementation of best practices. Organizations can also execute internal benchmarking by comparing similar processes at different locations or within different functions. Another type of benchmarking makes use of industry data for the purposes of comparison. 

Not an Exact Science

Firstly, let’s just be clear that benchmarking is not an exact science. It is almost impossible to find a significant sample size by which you can compare your building costs to another. There are just too many variables to overcome: different building ages, different building sizes, different operating hours, different electrical systems…the list goes on.

However, if you embark on your benchmarking exercise with the idea that you are just looking for red flags, you will allow yourself the opportunity to gain a much broader understanding of where your property stacks up. Red flag identification will usually lead to cost savings.

What Kinds of Tools are out There?

The Building Owners and Managers Association (BOMA) offers a tool called the Experience Exchange Report (EER).

BOMA is an international federation of more than 100 local associations and affiliated organizations. Its 18,000+ members own or manage more than 9 billion square feet of commercial properties in North America and abroad.

The EER provides data on 110 North American real estate markets covering 3,703 buildings ranging from Albuquerque to Vancouver. Beginning this year, the EER is completely online and has numerous interesting sorting, exporting and graphing capabilities. For example, I recently logged into my BOMA account to benchmark operating costs for a prominent one million square foot plus Montreal office property for a client. I was able to use the EER sorting capabilities to narrow down my search (although hardly perfectly) to benchmark against other Montreal properties that are 600,000 sq. ft. or more. By doing this, I narrowed my sample size down to 5 buildings. My search yielded the following summary data:

 

There is a more detailed breakdown to the above table that breaks down the above line items into finer categories. For example, ‘Utility’ is broken down into HVAC Electricity, Non-HVAC Electricity, Gas, Fuel Oil, Steam, Chilled Water and Water/Sewer. There are line items for taxes, elevators, repairs, fire/life safety, etc. However, cost data is not necessarily available in all cities for each category. It is solely dependant on what data the BOMA survey respondents provided.

The data does have its drawbacks. Information is frequently missing and the lack of Canadian markets available for benchmarking could present problems. Of the 3,700 buildings in the BOMA database, only 240 are Canadian (6.5%). In fact, quite strangely I might add, BOMA this year offers the opportunity to obtain data from a sample of five buildings in Brandon, Manitoba, yet it offers no data for Toronto, Ontario! I asked an executive at BOMA about this strange quirk and he responded by saying that it just means that very few property managers and/or owners from Toronto filled out the survey this year.

What does one do in the absence of a suitable benchmark? The BOMA 2008 survey had several more Canadian cities available for benchmarking. In the absence of suitable 2009 benchmarks, I have used the 2008 benchmarks and increased them by the provincial Consumer Price Index (CPI) according to Statscan. One can also compare buildings against each other. For example, a client of mine has several properties in Northern Canada. There is very little industry benchmarking data available for properties in the great white north, so we basically compare each Northern location with its peer in an effort to gain a better understanding of the operating costs. 

The cost of the BOMA EER is relatively inexpensive. If you completed the BOMA EER survey, your full subscription to the online EER will only set you back $250 USD. If you did not complete the survey, your subscription will cost you $350 USD. For more information, visit www.bomaeer.com

There are some other benchmarking tools out there as well. The Real Estate Executive Board (REEB) provides customized operating cost benchmarking data. Members have unlimited access to the Board's best practices case studies, on-demand customized research, interactive member networking events, online benchmarking tools, issue-specific resource centers, and diagnostic tools and templates.

While the data provided by the REEB is more customized to the needs of the client than that of the BOMA EER, it still has its drawbacks, most notably its price. While I cannot quote an exact price on the REEB data, it is safe to say that it is in the thousands of dollars.

One final point that I should mention is that BOMA and REEB are but two of the many organizations offering operating cost benchmarking tools for purchase. As a property manager or owner, it is important to think outside of the box and try to identify the most logical and cost efficient way of improving the efficiency of your operations through benchmarking.

William Jegher is President of Wika Consulting, a consulting company specializing in facilities management and real estate benchmarking, communications and consulting. Contact him at wjegher@wikaconsulting.com

 

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