1. CAPITAL PLANNING, OPERATING EFFICIENCIES AND LONG-TERM
PROFITABILITY: ARE YOU PREPARED FOR WHEN THE RECESSION ENDS?
Corporations and institutions are facing an economic downturn that started in late
2007 and the financial recovery could be a year away. All industries whether for
profit or not for profit are focusing on the expense side of the balance sheet during
this difficult economic climate and are looking to reduce costs. The cost reduction
initiatives almost all organization’s engage in during a recession include:
Scaling back service
Reducing head count
Reducing employee compensation and benefits
Eliminating or dramatically scaling back capital expenditures
It is important to remember that the best organizations do not succeed in the
current environment by cutting costs indiscriminately. They succeed by
thoughtfully decreasing operating expenses while maximizing their opportunities
to increase profits when conditions improve. An economic downturn is an
excellent opportunity to implement strategies that will maximize future profit
potential.
There have been numerous articles written about the unintended costs of scaling
back service and employee morale being negatively affected through reductions in
force and reduced benefits. Little has been written about the costs associated with
reducing or eliminating long term capital planning, delaying capital expenditures
and the importance of standardizing and optimizing operating procedures.
Scaling back capital planning initiatives and delaying its implementation obviously
has an immediate effect on capital costs but in the long run the organization may be
negatively affecting long term profitability.
While competitors are cutting costs and shrinking services it is the ideal time to
examine improvements in efficiencies and develop a multi year capital plan.
Completing the evaluation and planning during a recession will position the
organization to execute its strategies when the recovery occurs be ahead of
competition.
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CAPITAL PLANNING, OPERATING EFFICIENCIES AND LONG-TERM
PROFITABILITY: ARE YOU PREPARED FOR WHEN THE RECESSION ENDS?
A progressive organization will focus on the following areas:
Developing a comprehensive capital plan focusing on infrastructure and
strategic vision support
Improving facility operating efficiency
Developing multi-year capital plan focusing on infrastructure and supporting
the strategic vision
A comprehensive capital plan will forecast an organization’s immediate and long
term needs. This plan should include a 1, 3 and 10-year capital forecast. These
forecasts should focus on anticipated capital requirements that will maximize a
return on investment (ROI). A primary consideration of any capital plan is to
review existing infrastructure and the condition of the facilities.
Now is the time to develop a capital plan or reevaluate and update an
organization’s existing capital plan so that when the economy turns around the
plan can be executed more quickly and more efficiently. During a recession the
progressive organization should take time to evaluate options, analyze data and vet
options to minimize the implementation cost.
To develop a comprehensive capital plan the organization should be asking the
following questions:
Has the organization reviewed its strategic vision and if so what
modifications to existing facilities will be required to meet the vision?
o Complete a SWOT (strengths, weaknesses, opportunities and threats)
analysis to assist in developing and refining the strategic vision.
Has a facilities condition assessment been completed to understand the
existing building infrastructure?
O Understanding the systems and equipment of the existing facilities is
crucial to fully understand what will be necessary to support the
strategic plan.
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CAPITAL PLANNING, OPERATING EFFICIENCIES AND LONG-TERM
ARE YOU PREPARED FOR WHEN THE RECESSION ENDS?
PROFITABILITY: ARE YOU PREPARED FOR WHEN THE RECESSION ENDS?
Has a capital plan to upgrade the infrastructure based upon a building
assessment been developed?
o The current condition assessment, maintenance records, age and useful
life of the equipment and systems should be evaluated to develop an
effective and efficient long term equipment replacement plan
Has space inventory been completed?
o The Look at allocation of assets. Understand how assigned space is
being utilized and investigate how to maximize the efficiency of the
current space in order to support the strategic vision by reducing future
construction costs.
Immediate and long term advantage to the organization: These activities provide the
organization an opportunity to recognize the cost associated with implementing the
strategic plan and prepare for the future. It will also give the organization a
competitive advantage in being prepared and having plans in place when the
economy turns. Relatively small amounts of money and resources are required to
complete these steps and the long term impact will maximize the return on
investment (ROI).
Improving facility operating efficiency
The second area to evaluate during an economic downturn is maximizing the
facilities operating efficiency. A progressive organization will be asking the
following questions:
Are operating procedures (SOP’s) in place to standardize the delivery of
services?
o Standardize the “how” and “what” of services being provided. This
will provide employees with a better understanding of their role and
how to succeed. The organization’s brand will also be reinforced as
service expectations are delineated.
o Investigate training deficiencies or cross training opportunities. This
will promote employee satisfaction and improve efficiency of the
facilities operations.
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CAPITAL PLANNING, OPERATING EFFICIENCIES AND LONG-TERM
PROFITABILITY: ARE YOU PREPARED FOR WHEN THE RECESSION ENDS?
o Policies, procedures and reporting mechanisms should be up-to-date
and meet regulatory criteria. Updated policies and procedures will
reduce liability and ensure a safe work environment.
Are the organization’s departments arranged efficiently?
o In most instances efficiency is reviewed on a department by
department basis and not from a big picture perspective. The result is
usually a quick solution involving reducing staff and/or hours of
work. Instead, staffing levels should be examined involving an
organization wide evaluation to maximize the efficiency of the
organization.
o Often an efficiency recommendation is to outsource functional areas.
This tactic frequently overlooks the benefits and cost efficiencies of in
house experience. Loss of intellectual knowledge cannot be replaced
so when evaluating outsourcing functional areas there must be
careful consideration of the gain from short term cuts vs. the expense
associated with long term productivity and efficiency losses.
Is a preventative maintenance plan established and is the plan being
executed to ensure the assets are properly maintained?
o An efficient method for providing preventative maintenance is by
utilizing a Computerized Maintenance Management System (CMMS).
There are many providers which offer a variety of functions and
modules. The most important factor when choosing a provider is that
the system is adaptable to meet the immediate and long term needs of
the organization.
Does the organization have the opportunity to decrease the cost to purchase
its energy?
o State laws should be researched to determine if competitive energy
purchasing is available to the organization through deregulation.
Analysis of competitive energy suppliers, spot market energy
purchases and/or long term future contracts are strategies to
minimize the cost of purchasing energy in the immediate and long
term.
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CAPITAL PLANNING, OPERATING EFFICIENCIES AND LONG-TERM
PROFITABILITY: ARE YOU PREPARED FOR WHEN THE RECESSION ENDS?
Has an analysis of the building systems and infrastructure been reviewed
from an engineering and environmental perspective?
o A review of existing systems and equipment can uncover
opportunities to reduce energy consumption. These opportunities can
include new technologies and engineering solutions. These solutions
do not only reduce capital and operating cost but also can assist the
organization in reducing their impact on the environment. Green
building initiatives allow the organization to promote their
environmental awareness while holding a line on cost.
Immediate and long term advantage to the organization: Standardizing operating
procedures, processes and policies will help to ensure operating efficiencies and
keep staff engaged. SOP’s are an integral part in the success of the organization as
they improve service and increase customer satisfaction.
Evaluating department efficiency will ensure the organization is operating in the
most efficient manner and help avoid reactive staff reductions that could negatively
affect the ability to maintain customer satisfaction. Optimizing efficiency could still
very well include staff reductions; however the reductions will be based upon
strategic decisions instead of indiscriminate slash and burn tactics.
A preventative maintenance plan will prevent a reactive approach to systems
management and extend the life of the equipment. A CMMS will automate the
process so that manpower resources can be directed to perform the needed
maintenance. It will also reduce the operating cost by maintaining the equipment
so it runs in the most efficient manner.
Minimizing the cost of an organization’s energy consumption by obtaining energy
from reliable and cost effective sources has a beneficial effect on the bottom line.
The organization should take advantage of the economic downturn to lock in
energy cost. Applying green building principles to renovations and new
construction will not only produce cost reductions but will market the organization
as environmentally friendly.
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CAPITAL PLANNING, OPERATING EFFICIENCIES AND LONG-TERM
PROFITABILITY: ARE YOU PREPARED FOR WHEN THE RECESSION ENDS?
Summary
An economic recession is the ideal time for an organization to take a proactive
approach to operations and capital planning. When times are good, strong
organizations strive to keep up with accelerating growth, expanding products/
services and starting new initiatives. Many of these decisions are made quickly
and without strategic focus since actions are most important. Most executives
would agree though that the best decisions they have made are well thought out,
planned and strategic. The more prepared an organization is for the next economic
expansion the better it will be at gaining customers and improving products and
services while at the same time decreasing operating expenses and maximizing
profit.
One tool an organization can use to evaluate all of these areas is by using Six Sigma
principles. These principles provide a framework to define problems, gather
data ,uncover inefficiencies, analyze information, develop new processes, maximize
operating efficiency and put in place specific controls to ensure planning and
implementation are based upon sound business decisions.
The question every organization needs to be asking today is: Will I be ready for the
next positive economic climate or will my competition be better prepared?
About the Author
Gregory L. Bruns has managed multi-site facility operations and developed and
oversee the implementation of short and long term capital plans for major medical
institutions and corporations. Mr. Bruns has had great success in developing
strong multi discipline teams who are dedicated to uncovering the opportunities to
optimize operations and maximize efficiencies while minimizing operating and
capital cost.
Mr. Bruns list of credentials include:
Licensed Professional Engineer Contact Information:
LEED Accredited Professional Gregory Bruns, PE
Certified Healthcare Facilities Manager (CHFM) 2221 Pinehurst Drive
Six Sigma – Black Certified Glenview, IL 60025
Project Manager Certified 847-904-8123