The Rule of 100/10/1 – Learning to Speak Bean
If the facility management industry is to ever move beyond being seen as just a cost center, then they must learn how to see and convey the impact facility departments have on revenue generation and the bottom line. There must be a clear understanding of the organization’s financials and how management perceives value. The facility department has to translate the business of buildings into the business of bean counters – thus the need to learn and “speak bean”.
I first heard of the Rule of 100/10/1 from Dave Beck, a wise, seasoned veteran of the facility industry. He summed up the message that many of us have read and tried to convey in the brilliance of this one, simple rule. I have since ran with this nugget sharing it with all that will listen in hopes of helping them to see and communicate the value of what they and their facility team provide to their organization. Allow me to share this nugget with you…
100 – The largest asset and expense for most organizations are the people. Salaries and benefits consume a lion’s share of an organization’s expenses. However, in most cases, revenue could not be generated nor services & products provided without this large expense. Additionally, the intellectual capital retained by these individuals can be invaluable to the overall success of the organization.
10 – The second largest asset and expense for most organizations are their facilities. Similar to “people”, revenue could not be generated nor services & products provided without facilities. Most organizations are not in the business of having buildings just to have buildings; they have buildings to make money off of them, in them, or through them. Thus facilities are critical to the bottom line. However, facility departments are often the first to be sacrificed when finances get tight and budgets are cut.
1 – The third largest expense for most organizations is utilities. With the growth of sustainability and efficiency, utilities have become more of a focal point, which has provided some benefit and support of facility initiatives; however, we cannot stop at saving a buck (“1”) when we could save “10” – or worse yet, saving the $1 cost us $10 and likely lost us $100 in productivity.
Note the Rule of 100/10/1 is not meant to provide a financial formula; rather, its purpose is to help provide perspective by quantifying the relative magnitude of costs to an organization. In all actuality, the “100” is closer to 300 or 500; but the “100” keeps this rule simple and easy to share.
Unfortunately, this truism is often missed because most facility departments focus solely on the “10” and the “1” – costs. Which, in turn, their respective organizations see facilities predominantly as cost – a place to be cut. Thus it is incumbent upon facility manager’s to discern how they and their department can help drive the “100”. It is the facility manager’s responsibility to maintain context and perspective.
Bridging this gap will be easy for some, and harder for others. For example, most manufacturing companies and other entities that produce a service or product (e.g. data centers, utility industry, etc.) typically know how much downtime or rework impacts revenue. This number should be readily available via the financial or operations department. The facility manager must identify and tabulate how building operations, good and bad, effect the product or service. It is important to consider not just revenue, but the triple bottom line – that is, financial, social, and environmental. Value extends well beyond direct revenue generation, because customer satisfaction and perception in the marketplace and community are key to the continued success and profit of an organization.
Even for those in the product and service industries, they still have office space for which they are responsible. What does accounting, human resources, customer service, etc. have to do with revenue generation – aren’t they overhead too? Yes, many of those departments are support services, just as facilities; thus there is an expense associated with them. What if you could increase the productivity of those support staff, the office personnel? Could that be seen as a potential cost reduction? For example, let’s assume the average burdened costs per employee is $100,000 per year (includes salary & benefits) and that the building holds 500 folks; that equates to $50,000,000 per year in expenses. What if you told management you could reduce costs by 10% (that’s $5,000,000)? Would you get their attention? Granted we are not assuming that 10% of the workforce will be laid-off; rather, this increased worker productivity possibly mitigates the need to hire more personnel. That could be a tougher sale. Let’s flip this around.
Most C-level managers can tell you the average revenue generation per employee. It can usually be calculated by dividing annual revenue by employee headcount. Assume the average revenue per employee is $250,000, which is fairly reasonable. Using the same numbers as above, the total revenue generated by those 500 office personnel is $125,000,000. Now what if you told management you could increase revenue by $12.5 million by making some relatively inexpensive improvements to the facility (e.g. new controls or much needed HVAC upgrades)? Would you have their attention now? This example is not far-fetched. Think about it. Why do companies have cafeterias, on-site daycare, exercise facilities, etc.? To keep people working – to increase employee productivity. Facilities can do the same; see Facilities Not a Profit Center – But Can It Be? for ideas on how operations & maintenance can increase worker productivity.
So what if you don’t work in the private sector (e.g. education or municipality)? Your organization isn’t driven by profit – what do you do then? Doesn’t your organization still need money to operate? In fact, most public sector folks I know are always clamoring for more money. So the above math is still applicable; you just need to understand the drivers behind the finances. Consider the aforementioned triple bottom line, which would include public perception and politics. There are ways to identify those drivers and put forward your business case in value terms that resonate with the controlling body.
For example, while touring a public university, I realized that all the exterior campus lights were LED. When I asked the Facilities Director, how much energy that saved them, he replied that he didn’t know because it was not about the energy. Needless to say, I was intrigued. The director went on to say that on any given night 25% of their campus lights were not working. That’s a big safety issue. If someone gets hurt in one of those dark stretches, mom and dad are going to be less likely to send their precious little child and their money to that university – Rule of 100. Second, he said that he used to have three full-time electricians running around trying to keep the lights working. After switching to LEDs, he only needed one half-time electrician – Rule of 10. So when it came to the Rule of 1, the energy savings were icing on the cake. This director had made the connection and essentially applied the Rule of 100/10/1 to his business case!
There is no reason you cannot do the same. Whether it is improving kids’ test scores and absenteeism (schools get paid for how many days students are in class) or improving the productivity of office staff, facilities has a direct impact on revenue generation. It is now upon you to do some homework and to bridge that gap between expense and revenue. Figure out how your facility team impacts the “100”. Calculate it and preach it!
John Rimer is Founder & President of Facility University (facilityu.com) and FM360 Consulting. John has over 17 years’ facility management experience in a variety of capacities and industries. He uses his breadth of knowledge and diverse expertise to provide a comprehensive perspective to his clients and students.
John is very active in the facility management community. He is the founder, Past President, and current Director of the Northern Rockies Chapter of IFMA. John is a huge proponent for educating the facility management community. He is an IFMA Qualified Instructor and an approved Building Operator Certification (BOC) Instructor. John has taught more than a dozen courses in 2013 and is scheduled to teach over 40 classes in 2014 across the United States. John also speaks and presents at numerous conferences throughout the country and has spoken in front of audiences ranging from 10 to over 200 – plus he will be presenting at this year’s World Workplace Conference hosted by IFMA.