How to Maximize the Value of Your

Furniture Assets (Session 6.05)

Presented by

Garry Brinton, CFM

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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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.

Overview

1. Think Like Your CFO 2. Plan It Right 3. Buy It Right 4. Manage It Right

A Different Perspective

1. Think Like Your CFO

A Different Language “The accounting advantages of furniture purchases”

“Tα πλεονεκτήματα της λογιστικής της αγορές επίπλων”

CFO says: “Do more with less”

You reply: “We should invest strategically in office furniture.”

The financial advantages of this asset class.

1%

21%

6%

26%

1%

45%

Furniture

Initial Costs After 5 Years

4%

72%

24%

Furniture Construction

Design Design Construction

Lease

Operations/ Maintenance

Churn

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

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

Furniture

Minor cost impact Major tax benefit

Now to get the CFO really excited

Let’s talk about taxes

Disclaimer I am NOT a CPA

Furniture is a rapidly depreciable expense

Offset revenue Reduce tax obligations

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)

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

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

2. Plan it right

Furniture enables success

Furniture

Higher Productivity Greater Attractiveness

Better Interactivity Exceptional Experiences

How do you measure the value of your workplace investment?

Develop a formal process

1. Relevant metrics 2. Baseline data 3. Easy and simple reporting 4. Address employee

apprehension

What metrics?

1. Goals of the design investment

2. Financial and behavior outcomes.

Change Management

3. Buy it right

Lowest price Vs

“Best Value”

“As I hurtled through space, one thought kept crossing my mind – every part of this rocket was supplied by the lowest bidder”.

~ John Glenn

Myths of lowest price approach

1.Bidding compares apples-to-apples 2.Bidding ensures the best price 3.Bidding results in the best team

Partner or Adversary?

“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

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

4. Manage it right

Maximize asset productivity and asset life

IWMS Systems

Source: Gartner June 2013

Challengers Leaders

Niche Players Visionaries

Completeness of vision

Abi

lity

To E

xecu

te

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?

Right space Right place Right time

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

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!