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How do you develop financial justification for workplace transformation?
Even though office space is such a large chunk of the budget for just about every large corporation, until a few years ago companies didn’t seem to expect much of a return on that investment in space. It was simply considered a necessary cost of doing business. Today that’s changing in a hurry. Workplaces need to become business enablers that improve employee experience, attract talent, and boost productivity to help companies compete in the knowledge economy.
That’s why every day we see more companies embarking on the journey to implementing modern workplaces that help them meet their business goals. That process often starts small with pilot programs and small projects impacting a floor or a few teams at a time. Positive results at this stage encourage CRE teams to push for more of a good thing. However, gaining approval for a workplace redesign on a larger scale typically requires proving the financial payback for the workplace transformation with a business case.
How do you quantify what your business can expect to gain as a result of the workplace redesign? Here at Serraview, we work with large, global companies in all stages of workplace transformation, and these are the strategies we see them using to establish a solid business case.
3 Steps to building your business case for workplace redesign
Step 1: Calculate COST SAVINGS
Reducing your current expenses is the first place to look for the cost justification you need for your workplace redesign plans.
It’s no secret that office space is a big-ticket item, so reducing space by optimizing your property portfolio is where you’ll find the biggest cost savings with workplace redesign. Modern workplaces reduce property costs by eliminating assigned seating and implementing agile shared spaces instead. Think about how much space you could take back that’s currently under-utilized by mobile workers. A traditional office is commonly only 40 percent occupied at any given time. With an agile working strategy, you can eliminate that all wasted space by consolidating and exiting leases or subletting extra space, increasing utilization to 90 percent or more.
If you know your approximate space usage, you can make a ballpark estimate about how much you stand to save. Here’s an example: if your space is 40 percent utilized each day, how many workpoints (or desks) are being used each day on average? If your target is 90 percent utilization, how many workpoints can you eliminate? Most companies spend between $10,000 and $15,000 per workpoint on space. If you can eliminate 1000 workpoints, you can potentially save $10 million to $15 million per year in space costs.
This is just a starting point; with modern space utilization technology and analytics you can gather actual utilization data for each business team and each area you plan to transform. Having hard evidence from sensors, heatmaps and usage analysis allows you to plan your workplace redesign correctly so you have enough space (and the right types of space) to support each business team. That maximizes your cost savings while also ensuring you’re providing the best employee experience.
With workplace redesign, eliminating unnecessary space also allows you to eliminate the operations costs associated with that space, including:
- Energy costs for lighting, HVAC and plumbing
- Facilities maintenance
STAFF REPLACEMENT COSTS
According to the Society for Human Resource Management, every time a business needs to replace an employee, the cost is between 6 and 9 months’ salary. And that’s for mid-level workers. For a top executive, the cost can be double their annual salary. That’s just one reason why companies are looking to the modern workplace to help retain talent.
What’s the current attrition rates for the teams in your traditional workspaces? Comparing those figures to attrition rates in modern spaces with a better employee experience can be eye-opening. How many people can you save from leaving the company with your workplace redesign and how much in recruitment costs when you don’t need to replace them?
Step 2: Calculate COST AVOIDANCE
In some parts of your property portfolio, you may find that you’re not in a position to eliminate space with your workplace redesign. That’s because certain parts of your business may be growing very quickly and adding to the workforce faster than you can provide adequate space. That’s good news for your business. And it doesn’t mean you should skip over that property in your plans for workplace redesign.
Avoiding leasing or purchasing new space can save you just as much money as eliminating space in other parts of the business. When your business is growing and changing rapidly, you often find yourself having to pay top dollar for more space in the right location to meet an immediate need.
By implementing modern, agile workspaces in locations like this, you can accommodate more people in less space, and build in the flexibility needed to accommodate growing teams and changing business structures with short notice.
How much space do you expect to add in growing regions? How much could you save by accommodating that growth in your existing space with a workplace redesign? Also don’t forget to account for the operations costs you’ll forego when you don’t need that new space.
Step 3: Project TOP-LINE GROWTH
This may be the toughest part of building a business case for workplace redesign, but one you should not leave out, since it addresses the essential goals of your business.
Ultimately your company is looking to grow and be more competitive by increasing productivity and innovation. A well designed knowledge-based workplace clearly improves productivity levels, which can have a significant impact on the bottom line.
Here’s a recommendation from Peter Affleck, formerly head of real estate for Suncorp, a banking and insurance company that’s well ahead of the pack in implementing modern workplaces.
“Bank the space and operational costs as a first start, but then be bold and focus the conversation on the real value-add: the revenue side. Without even considering the extent to which a smart workplace redesign could ignite revenue growth, productivity improvement alone will significantly bulge enterprise profits. Even a very small 3% productivity improvement will expand profits per employee by ~$4,500 in most financial services companies, and significantly higher in the IT giants such as Google and Amazon. It becomes a no-brainer!”
That means quantifying the productivity impact of the modern workplace, using metrics like these:
OUTPUT: Each group within your company measures the efficiency and effectiveness of its team members according to their job functions.
ABSENTEEISM: How much work time are employees missing due to illness, family obligations, “mental health” days and the like? Those figures have a measurable impact on productivity.
ABILITY TO ATTRACT TALENT: This is the other half of the talent equation: how much time and money are you spending trying to recruit new talent, and what’s the impact on productivity when you can’t find people with the skills you need?
If you already have some modern work spaces in your portfolio, look at the differences in the above metrics for your modern vs. traditional workplaces. What differences are you seeing in levels of output, absenteeism, and recruitment efforts? Those numbers can help you project expected gains in productivity following your workplace redesign.