The planning, specification, purchase, and management of office furniture are critical to the success of an organization. Furniture is a significant asset which enhances productivity, reflects corporate culture, enables interactivity and innovation, and contributes to the recruitment and retention of employees. These objectives can be met if furniture is properly planned, designed, and managed as part of a workplace redesign project and on-going facility management practices.
Think Like Your CFO
Furniture is part of the overall accounting classification known as FF&E (furniture, fixtures, and equipment). This classification generally relates to “non-fixed” assets, as opposed to buildings and real estate which are “fixed” assets. Each asset class has its unique accounting considerations. Basic knowledge of asset classification opportunities can enable facility managers to maximize certain tax benefits.
In general, the more corporate assets that can be classified as “non-fixed”, the greater the tax benefits. Accountants who specialize in cost segregation can provide direction in the design process which may not have been initially considered. For example, lighting which is furniture supported can classified as “non-fixed” while lighting in the ceiling may not. There is a good example of how an accountant substantially contributed to the design process and enabled a high performance work space project to actually cost less than using a more conventional approach in “The Commercial Real Estate Revolution’ (by Miller, Strombom, Iammarino, and Black, 2009). The key is understanding that life-cycle costs must be considered along with initial costs.
Simple consideration of costs over a five year period can put furniture costs (and anything else classified as FF&E) in the right perspective. A typical project initially involves design, construction, and furniture. Over time, other cost factors come into play – such as lease costs, operations and maintenance, and churn. Using IFMA benchmarks, the percentage each of these factors represent at the end of a five year period is (ranked high to low):
Lease Costs – 46%
Operations and Maintenance – 25.5%
Construction – 21%
Furniture – 6%
Design – 1%
Churn – .5%
Although furniture was about 24% of the initial costs, over the five year period of ownership it amounts to only 6% of facility related costs. Since other costs are more significant over this time period, cost savings strategies would be better focused on issues such as rent, energy efficiency and service contract management. In fact, even if the initial costs for furniture were 10% higher, there is an insignificant increase in the overall percentage (from 6% to 6.6%) that furniture contributes to the overall cost of ownership.
Consideration of the depreciation tax benefits of furniture further enhances the value of good furniture planning rather than focusing on initial costs. Using a 35% corporate tax rate (and no input for state corporate taxes) and IFMA benchmark data, a taxable organization will realize a $102,000 offset of corporate taxes. If the initial furniture purchase was even 10% higher, the tax benefits would be $10,000 greater. The attached spreadsheet details these cost of ownership considerations.
These financial models enable facility managers to approach furniture procurement from a value standpoint, not from a cost standpoint. Since a cost of ownership model points out the relatively minor role furniture plays in the overall financial picture, then the planning, design, and selection process can rightly focus on the contribution furniture can provide to further the goals of the project and the organization.
Plan it right
One of the primary reasons people buy office furniture is to help employees do their jobs better. The challenge is to prove that the process of planning, design, and furnishing a new office is a good investment. Workplace designers speak of better collaboration, more creativity and innovation, enhanced recruitment, and greater employee engagement. There are numerous tools to audit the workplace which look at behaviors and usage. Major manufacturers and design firms have developed these programming tools, but additional metrics provide an opportunity to gauge ROI and lessons learned.
The project team should develop a formal process to measure the value of their workplace investments. The metrics should be relevant to the goals of the design investment and the organization’s business objectives. These should be high value metrics – information that you can easily measure and apply. Baseline data can be collected through surveys and observation. Some of this data may not be directly related to the workplace, such as HR information on retention rates. This data needs to be collected and reported regularly and in simple, easy to understand formats to facilitate any course corrections in the planning and design process. The biggest challenge is dealing with employee apprehension about the pending changes. That is why there is increasing focus on change management in the FM community.
To facilitate communication and to minimize delays, misunderstandings, and change orders workplace redesign projects should involve initial input from a broad group of stakeholders. This group has generally included owner representation, the architect/designer, facilities, IT and HR. Increasingly contractors are consulted early on for their estimating and scheduling expertise. Because of the key role furniture plays in these projects, manufacturers and dealerships should be brought in early for their research, planning, mock-ups, and budgeting capabilities.
Buy it right
The conventional method of furniture procurement has involved the development of specifications and a bid package based on approved plans and performance criteria. Maybe the specifications are based on specific products because of existing inventory or user preferences. The focus of this procurement model is lowest price. Just as the construction procurement process has developed into “best value” so should the furniture procurement process.
A focus on lowest price has many pitfalls. Here are a few real world examples:
- The specs were mostly block plans and rough typical workstation drawings. The lowest price provided poor performing product which collapsed after the first move.
- The specs did not address quantities or indicate responsibility for accurate “take-offs.” The lowest price omitted several key components which resulted in additional costs and loss of productivity for the owner.
- The specs were based on an old business model (just a sea of high uniform cubicles) because management did not want to change and facilities wanted an easy floor plan for moves. The lowest price resulted in the loss of key employees and the company’s time- to-market advantage.
It is good news and bad news that office furniture is built to last. As organizations seek to improve their work space, the old furniture may not longer be relevant or supportive to new work processes. This old furniture should not be an impediment to progress. But what do you do with it? There are several good companies that liquidate existing inventories. At the least this process can eliminate disposal costs, while in many cases the value can be applied or “banked” toward the purchase of new product. Companies that undertake these liquidations can even work with dealerships to blend existing and new product to provide good values for small installations.
Cost should be only one of several considerations in the furniture procurement process, and maybe not even the most important. More and more organizations are using a form of “best value procurement” because it minimizes risk. Dean Kashiwagi of Arizona State University, an IFMA Fellow, has developed an outstanding best value model which measures performance throughout the project and has resulted in high customer satisfaction (www.pbsrg.com). Even the federal government has regulations which enable performance-based acquisition. It is a more time consuming process than the conventional approach of bidding for lowest price, but one that enables you to tap the creative energies and innovations of your vendors.
Manage it right
Over time the use, condition, and validity of furniture is changed due to normal wear and tear, the evolution of new work processes, and the real estate objectives of the organization. Proper management of these assets enables organizations to maximize their value beyond their depreciable or useful life. Systems should be developed which document location, maintenance protocols, ands other concerns. This is a similar approach to the preventive maintenance procedures and standards established for building heating and cooling systems.
As with any asset management issue, the challenge is to properly set up and manage the data. Several years ago computer aided facility management systems (CAFM) were developed. These have evolved substantially into what is now called integrated workplace management systems (IWMS). All organizations should have some sort of system in place. A good review of the various vendors has been done by Gartner. Space management is one of the hottest areas within the functional areas of an IWMS and this affects the planning and management of furniture assets. Cost pressures are driving organizations to utilize facilities more effectively and dramatically reduce occupancy costs by providing “the right space at the right place”.