how to maximize the value of your furniture assets
DESCRIPTION
This presentation examines the financial, planning, procurement, and asset management issues of office furniture.TRANSCRIPT
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How to Maximize the Value of Your
Furniture Assets (Session 6.05)
Presented by
Garry Brinton, CFM
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MANAGING CEUs AND CFM® MAINTENANCE POINTS
You are eligible to receive Continuing Education Units and Certified Facility Manager® maintenance points for attending sessions at IFMA's World Workplace. To receive 20 CFM maintenance points: Record your attendance on your CFM Recertification Worksheet. At recertification time, submit your completed CFM Recertification Worksheet. To receive CEUs: Pay the US$12 processing fee when you register for the conference. Visit the CEU Kiosks at registration or log on to http://ceu.experient-inc.com/WWC131 and pass a five-question assessment developed by the speaker. CEUs can only be earned upon successful completion of the assessment. Your transcript will be emailed to you. Individuals seeking CEUs or LUs from other organizations must contact those organizations for instructions on self-reporting credit hours.
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Evaluate Sessions
Take Assessments & Log CEUs
(no more CEU codes)
Visit the registration kiosks or go online at
http://ceu.experient-inc.com/WWC131
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Meet Our Presenter
Garry has nearly 30 years of experience in planning, design, and project management. He has been a Certified Facility Manager (CFM) since 2001 and speaks regularly at international conferences such as NEOCON, NFM&T and World Workplace. He has served on the board of the Facility Management Consultants Council of IFMA. Garry is married and has three daughters. He enjoys road biking, travel, backpacking and a good craft beer.
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Overview
1. Think Like Your CFO 2. Plan It Right 3. Buy It Right 4. Manage It Right
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A Different Perspective
1. Think Like Your CFO
A Different Language “The accounting advantages of furniture purchases”
“Tα πλεονεκτήματα της λογιστικής της αγορές επίπλων”
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CFO says: “Do more with less”
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You reply: “We should invest strategically in office furniture.”
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The financial advantages of this asset class.
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1%
21%
6%
26%
1%
45%
Furniture
Initial Costs After 5 Years
4%
72%
24%
Furniture Construction
Design Design Construction
Lease
Operations/ Maintenance
Churn
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Why? COST OF OWNERSHIP FOR FURNITURE ASSETS
Project Overview: Size 25,000 Employees 100 Mix 68/32
Option 1 - Initial cost for furniture Category Year 1 Year 2 Year 3 Year 4 Year 5 Total % of total Design $46,250 $2,313 $2,313 $2,313 $2,313 $55,500 1.1% Construction $875,000 $43,750 $43,750 $43,750 $43,750 $1,050,000 21.1% Furniture $291,808 $0 $0 $0 $291,808 5.9% O&M costs $143,750 $186,875 $242,938 $315,819 $410,564 $1,299,946 26.2% Churn Costs $4,685.26 $4,685 $4,685 $4,685 $4,685 $23,426 0.5% Lease costs $450,000 $450,000 $450,000 $450,000 $450,000 $2,250,000 45.3% TOTAL $1,811,493 $687,623 $743,685 $816,567 $911,312 $4,970,680
Option 2 - 10% higher initial cost for furniture Design $46,250 $2,313 $2,313 $2,313 $2,313 $55,500 1.1% Construction $875,000 $43,750 $43,750 $43,750 $43,750 $1,050,000 21.0% Furniture $320,989 $0 $0 $0 $320,989 6.4% O&M costs $143,750 $186,875 $242,938 $315,819 $410,564 $1,299,946 26.0% Churn Costs $4,685 $4,685 $4,685 $4,685 $4,685 $23,426 0.5% Lease costs $450,000 $450,000 $450,000 $450,000 $450,000 $2,250,000 45.0% TOTAL $1,840,674 $687,623 $743,685 $816,567 $911,312 $4,999,861
Minor difference over 5 years
26% Initially
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Supporting Data IFMA Benchmarks (Space and Project Management - #34)
Industry Type - Insurance
Plannable Gross Mean per occupant 251
Mean cost for furniture move $746
Mean cost for box move $147
Churn rate 32%
Furniture Cost - Private Office $4,427 Reconfigured
Furniture Cost - Private Office $10,283 Newly built
Furniture Cost - Open Office $2,208 Reconfigured
Furniture Cost - Open Office $4,383 Newly built
Other assumptions
Design and PM costs/SF $1.85
Add'l design and PM costs/SF/yr $0.09 5% Yearly change
Construction (TI, vanilla box) $35
Add'l construction/SF/yr $1.75 5% Yearly change
O&M Costs/SF $5.75 3% inflation
Lease costs $18
Churn costs churn rate x employees x box move costs
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Furniture
Minor cost impact Major tax benefit
Now to get the CFO really excited
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Let’s talk about taxes
Disclaimer I am NOT a CPA
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Furniture is a rapidly depreciable expense
Offset revenue Reduce tax obligations
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How? Operating Cost Year 1 Year 2 Year 3 Year 4 Year 5
1. Depreciation ($85,437) ($85,437) ($85,437) ($85,437) ($85,437)
2. O&M costs ($143,750) ($186,875) ($242,938) ($315,819) ($410,564)
3. Churn Costs ($4,685) ($4,685) ($4,685) ($4,685) ($4,685)
4. Lease costs ($450,000) ($450,000) ($450,000) ($450,000) ($450,000)
TOTAL OPERATING COST (1+2+3+4) ($683,872) ($726,997) ($783,060) ($855,941) ($950,686)
Tax 39% (Estimate) $266,710 $283,529 $305,393 $333,817 $370,768
Add Back Depreciation $85,437 $85,437 $85,437 $85,437 $85,437
After Tax Cash Flow ($331,725) ($358,031) ($392,230) ($436,687) ($494,482)
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It Gets Even Better! Furniture Cost
Difference
After Tax Cash Flow, After 5 Years
Difference
$291,808 $2,013,155 $8,129
$320,989 $29, 181
$2,005,026
Higher initial furniture costs BUT
Actual difference is less
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Project enhanced, in advance, by tax planning
“…you could reduce your cost by about 6 percent for the core and shell and up to 17 percent on the interiors.”
Page 228
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2. Plan it right
Furniture enables success
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Furniture
Higher Productivity Greater Attractiveness
Better Interactivity Exceptional Experiences
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How do you measure the value of your workplace investment?
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Develop a formal process
1. Relevant metrics 2. Baseline data 3. Easy and simple reporting 4. Address employee
apprehension
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What metrics?
1. Goals of the design investment
2. Financial and behavior outcomes.
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Change Management
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3. Buy it right
Lowest price Vs
“Best Value”
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“As I hurtled through space, one thought kept crossing my mind – every part of this rocket was supplied by the lowest bidder”.
~ John Glenn
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Myths of lowest price approach
1.Bidding compares apples-to-apples 2.Bidding ensures the best price 3.Bidding results in the best team
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Partner or Adversary?
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“Best Value” procurement
Tools and processes by Dean Kashiwagi Arizona State University
1. Selection 2. Pre-Planning and Quality Control 3. Management by Risk Minimization
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What can be key selection factors? •Established communication and accountability processes. •Accuracy of initial specifications. •Similar project experience. •Customer satisfaction •Damages and mis-shipments. •Project delays and disruptions. •Extent and impact of punch list items
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4. Manage it right
Maximize asset productivity and asset life
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IWMS Systems
Source: Gartner June 2013
Challengers Leaders
Niche Players Visionaries
Completeness of vision
Abi
lity
To E
xecu
te
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1. Strategic objectives 2. Baseline data 3. Focused applications 4. Interoperability 5. User proficiency 6. Data-to-decision link
What system works best for you?
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Right space Right place Right time
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Recap:
1. Furniture has great financial leverage. 2. Furniture projects need continuous improvement 3. Furniture procurement should be a best value process 4. Furniture should be managed to respond to corporate
objectives and inevitable change
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For attending this educational offering at
IFMA’s World Workplace.
Be sure to evaluate the session at the registration kiosk or online at http://ceu.experient-inc.com/WWC131
Thank You!