How to Drive Down Operational Costs

By
Wednesday, April 15th, 2015
liked this article
Embed
RMS (Expires January 30 2017) – new advert
advertisement
Operational Costs
FavoriteLoadingsave article

As an industry, we have been refining our approach to construction and capital costs for aeons. Unfortunately, this focus has traditionally failed to consider the longer term operational cost. One aspect of operational cost analysis is Life Cycle Costing (LCC).

The principles of LCC have been around for some time, but it is rarely applied in a comprehensive manner, and when it is used, it is often to simply justify a predetermined outcome (for example the decision to “up-spec” a piece of equipment).

So in this imperfect world, accepting that LCC may not have been applied, how can we better manage operating costs? Facilities management expert Adam Adkin (WT Partnership) offers us some key areas of focus:

Managing third party suppliers

Trusting specialists to provide maintenance services is an essential aspect of property management. However, the term ‘specialist’ should not mean ‘exempt from justification.’ Regardless of the specialist that you are engaging with, their cost for services will be calculated by labour rates, plant costs and material costs, with overheads and profit built into the charge out rates or identified separately.

As the client, you are fully justified in requesting this breakdown. Your own accountability for approving this expenditure may be scrutinised by others and you should be able to produce this backup when requested to do so, thus reducing your own exposure to risk.

Third party contracts will usually include three elements of work:

  • Planned Preventative Maintenance (PPM)
  • Reactive Maintenance (RM)
  • Emergency Call Outs

Planned Preventative Maintenance

When negotiating contracts for planned maintenance works, you should list the equipment that is to be maintained and specify your requirements for maintenance, usually by issuing a copy of your maintenance specification to the specialist supplier. The specialist supplier should demonstrate to you where the maintenance service that they are proposing to provide will meet your maintenance needs and comply with your maintenance specification. This will allow you to complete a comprehensive compliance and risk review of the service that is being offered.

To review the cost of any proposed service, split the work down into a cost for each day that the supplier will spend on site, factoring in a cost for plant and materials. This will allow you to ascertain whether the costs for the work are reasonable and assess the service in terms of value for money.

Reactive Maintenance

The hourly labour rates and percentage mark-ups on plant and materials for reactive works should be agreed upon with your suppliers as part of the wider package of works (including PPM and emergency call outs). Approaching the service contract this way may increase the chances of the supplier agreeing to discounted reactive rates when they are procured as part of a comprehensive maintenance service.

A client should also take this opportunity to agree the format for reactive work order claims, including the completion of time sheets to support times on site, the provision of invoices for materials and plant items and an agreed format for measured work submissions (sketches, photographs, dimension set outs, etc.)

This will greatly improve the level of audit that a client will be able to complete on any future claims and encourage an open, transparent approach to reactive work claims from the supplier, allowing the client to ensure best value for money and reduce the risk of any over-payment for reactive works.

Emergency Call Outs

Emergency call outs have two main factors which will need to be agreed and documented prior to an agreement being signed and accepted. The first is the response time frame. This will need to be in line with your business objectives and the importance of each asset that is being maintained. Any call out to H&S or business critical items should preferably be one hour or less, with less critical faults or equipment failures on a longer call out response (at a lower premium).

The second item to be agreed for call outs is the cost of each emergency attendance. Agreeing on these costs upfront will save time in the event of an emergency and also assist with any budgeting forecasts that you are required to produce. It is also advisable to agree that the supplier will act on a verbal instruction from nominated individuals in the event of a true emergency. This will assist you to keep a level of control over expenditure for emergency works.

In summary, the best contracts will find a balance between the level of service that is being provided for planned works to a set scope of services, the cost for unplanned works and the auditability of these ad-hoc costs, and coverage for works of an emergency nature that will not break the bank. Always consider the level of accountability and ownership that you have over the operational costs for your facility and this will ultimately protect your personal interests whilst driving best value from your operational maintenance contracts.

Embed
FavoriteLoadingsave article

Comments

 characters available
*Please refer to our comment policy before submitting
Discussions