Finance is predisposed to focus on quantifiable data, continually judging company performance by percentage gains and losses. However, when it comes to office real estate spending, making financial decisions based solely on hard numbers to maximize seemingly clear-cut cost savings can backfire. In fact, it can actually have a negative impact on employee productivity and your bottom line.
The challenge for finance is quantifying the ROI when making a facilities upgrade. It’s much easier to calculate the cost per square foot to determine the productivity of space than it is to forecast the impact employee productivity can have on corporate profitability.
A recent Leesman Index Review highlights this point. The review explains why nearly half of employees across 1,600+ companies do not believe that their workplace supports them working productively. It also looks at how the appropriate design can enhance employee productivity and turn your workplace from a liability to an asset .
“Too often we hear that more people in less space equaled higher productivity and that since measuring employee productivity was difficult, we must concentrate on making places more productive.”
“Workplaces have many reasons for being: to help build a sense of collective endeavor, reinforce brand values, or facilitate greater knowledge transfer. But underlining this all must surely be a fundamental basic of enabling an employee to do the job they are employed to do…productively? Executive boards have lost sight on this, in the main because their advisors have seen that it’s easier to manage the cost or occupant efficiency of space, than it is to face up to a workplace failing in its key reason for being.”
How can finance teams look beyond the hard numbers to make a sound decision that will impact employee productivity and business performance?
Commercial real estate investment company, Jones Lang LaSalle (JLL) shares a formula – the 3-30-300 rule – that considers both the hard costs and the impact on the employees working in your facility. While actual figures will vary, this formula is a solid rule of thumb to illustrate a company’s costs for utilities, rent, and payroll to determine the total cost of occupancy (TCO) and the impact on employee productivity.
- $3 for utilities
- $30 for rent
- $300 for payroll
All per square foot, per year.
Three JLL real estate brokers used the 3-30-300 formula to calculate their client’s savings and impact on employee performance. The formula looked at things like square footage, rent rates, employee salaries, average sick days and employee retention. This then spits out a true calculation of TCO.
For instance, “a company with a TCO of just over $60 million per year and a human capital cost of $54 million can save:
- $1.50 p.s.f./year with a reduced absenteeism of 10%
- $11 p.s.f./year with 10% improvement in employee retention
- $65 p.s.f./year with a 10% improvement in productivity”
Finance teams can also work in close collaboration with workspace experts, whether in-house or an outside agency, to achieve workplace productivity goals.
A Polycom eBook entitled, The New Facility: A Guide to Creating Workspaces that Work shares how many enterprises have designed their environments to achieve greater employee productivity, collaboration, and innovation. The book also shares how modern communication platforms, such as video conferencing, are helping firms like AOL (acquired by Verizon), Prologis, and MBlox transform collaboration and innovation from within.
The key is to collaborate with workspace experts to create an environment that best suits the diverse needs of your workforce, and implement the right communication tools that stimulate effective collaboration among employees spread across the globe.
Look for a proposal from the facilities team that includes the right mix of culture, technology, and intelligent workspaces that can help transform your office into an asset. With these three key components working well together, you can significantly enhance employee productivity and drive faster innovation.
Finance leaders should look beyond the hard numbers when making decisions on real estate investments. Cost per square foot is an important number to keep an eye on, but the more important metric is determining how your real estate investment will increase employee productivity and transform your workplace into an asset.
JLL’s 3-30-300 formula is a useful tool to leverage. And so is working with facilities teams or an outside agency to optimize your workplace with the right balance of culture, collaboration technology and intelligent workspaces to enhance employee productivity, which, in turn, leads to greater corporate profitability.