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FM Frequency: Rolling With The Facilities Budget

Written by Retired Columnist. Posted in Columnists, Facility Management, FM Frequency, Magazine, Professional Development, Retired Columnists, Topics

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Published on November 19, 2007 with No Comments

By Jeff Crane, P.E., LEED® AP
Published in the November 2007 issue of Today’s Facility Manager

After crafting detailed specifications for politically correct, non-allergenic, carbon neutral holiday decorations that have never been tested on animals, facility managers (fms) get the golden opportunity in the months of November and December to assess their financial performance. While everyone else enjoys time off, fms can take advantage of relatively peaceful days (between holiday parties, fantasy football trades, and leftovers) comparing facilities budgets to actual expenses.

Traditional Budgeting. Organizations with traditional, calendar year budgeting typically launch number crunching merriment between July and November. This process can take 30 to 365 days and requires the sales team to guess—did I say guess? I meant to say precisely project—12 months of revenue data. The organization then determines funding levels to support revenue objectives.

Fms are usually responsible for formulating an intricate facilities budget matrix contemplating sales projections—plus or minus 200% (in 5% increments). Colossal piles of virtual spreadsheets are then shoveled into the belly of an abacus or a turbo charged server rack where profitability calculations churn. Results are only verified after a Sarbanes-Oxley compliance rite in a hermetically sealed, hyperbolic chamber where the chief financial officer sifts through the spreadsheets and smoking a large Cuban cigar while having a chat with his designated legally elected official.

Once the CFO is satisfied, the official executes a legal procedure devised by “authorities” and “a leading university.” This highly scientific procedure is called “The Magic 8-Ball Approval Method.” The official shakes the Magic 8-Ball vigorously and asks, “Are profitability projections correct?” If the response includes “yes” or “no,” the Magic 8-Ball’s decision is final. If the response is, “Ask again later,” “Reply hazy, try again,” “Better not tell you now,” “Cannot predict now,” or “Concentrate and ask again,” the official repeats the procedure.

Obviously, I’m being facetious. But seriously, for fms who follow traditional budgeting methods, a “year to date” review of facilities expenses in November contrasts actual expenses from January through October 2007 to a budget created 12 to 18 months earlier. This analysis should be done when considering operational adjustments in confirmation of 2008 budget assumptions (and if results are good, in preparing for the next performance/salary review).

Prior to this examination, fms should understand if their organization uses accrual or cash based accounting. These methods treat timing of general ledger entries differently (for example, a March invoice paid in May), and reports might be initially confusing. For a complete explanation of nifty accounting terms, please consult your favorite staff accountant.

An Alternative. In today’s rapid-fire, constantly variable business climate, fms know that annual budgets can be quickly rendered useless. Business unit acquisitions, mergers, product recalls, new sales strategies, client demands, stock performance, and even indictments can drive major overhauls in staffing, IT, and facilities budgets.

With the goal of improving financial accountability and predictability for shareholders and corporate strategists, some organizations are abandoning annual budgeting rituals in favor of monthly or quarterly rolling budgets. Rolling budgets are sometimes confused with numbers generated in casinos on green felt tables with dice, roulette wheels, and large quantities of alcohol. But in reality, rolling budgets are more often prepared outside casinos, without green felt tables, dice, roulette wheels and….um, well, I think those are the primary differences.

Instead of 12 month financial forecasts for the new fiscal year, rolling budgets are financial projections adjusted each month or quarter as the prior period’s actual numbers are reconciled with the most recent budget. Rolling budgets allow an organization to use the most recently available information when predicting revenue, expenses, and profitability for the next six, 12, or even 18 months.

I am not recommending one budget method over another, especially since the facilities department is generally not responsible for establishing accounting strategy. However I am making the following suggestion: regardless of an organization’s budget process, fms should frequently compare actual expenses to budgets and proactively communicate significant deviations with reasonable explanations. Options for correcting budget problems are usually appreciated and welcomed by senior management.

If facilities related financial information isn’t readily accessible, a personal visit to accounting with a box of chocolates, flowers, and other treats is a great way to start any day, that is, unless it’s the last business day of the month (then it’s best to leave the chocolate quietly by the door).

When reviewing facilities’ financial performance and crafting future budget projections, fms may want to gather the following valuable tools:

  • Reports of actual facilities expenses versus budget over the past five years with notes about significant changes to facilities operations (mergers and acquisitions, new buildings, downsizing, etc.);
  • Detailed general ledger reports for facilities accounts (prior 12 months) to confirm expenses are being accurately documented and that non-facilities expenses aren’t mistakenly charged to these accounts;
  • Periodic account reviews with major suppliers to audit current quantity and quality of products/services provided, dollars spent, and expectations for adding value over the next review period;
  • Actual staff counts versus projections over the past five years (from HR, accounting, or individual department heads);
  • Ratios or percentages of available furniture and empty space compared to staff projections (by department, floor, or other appropriate metrics);
  • Conversations with department heads and chief financial officer about facilities standards/expectations/policy (i.e. office and cube sizes) for various staff levels;
  • List of pending facilities infrastructure needs and approximate budget (HVAC, roofing, parking lot, landscaping, vehicles, security, food service, mail room, cabling, power distribution, carpet and paint, furniture, etc.);
  • List of green initiatives and approximate budget (lighting upgrades, housekeeping modifications, energy management, water conservation, LEED feasibility studies, etc.); and
  • Education/training intentions for facilities staff.

Past FM Frequency columns have covered this topic and could be helpful. Here is a list (in order of newest to oldest) of articles related to supplier relationships, facility assessments, and budgeting.

Great Suppliers Can be Excellent Business Partners,” August 2006;
Big Swings At Budget Time,” September 2005;
Facility Assessment and Project/Budget Planning,” August 2005;
Get The Most From Vendors Through Value Improvement Planning,” March 2005;
Staying In Touch To Keep Facilities Running Smoothly,” January 2005;
Summer Checklist,” July 2004;
Clean Up Your Act, Then Go And Give Thanks,” November 2003; and
It’s A Special Season,” October 2002.

Enjoy a very happy and safe Thanksgiving. Here’s hoping that our 2008 budgets are accurate and dependable—well, at least plus or minus 200%!

Crane is a mechanical engineer and regional property manager with Childress Klein Properties, a leading real estate developer and property management services provider in the Southeast.

About Retired Columnist

This expert formerly served as regular contributor to Today’s Facility Manager magazine. His vast knowledge of the facility management profession continues to provide a rich resource for facility managers by way of this online archive.

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