Module 9: Managing Costs and Business
Continuity Planning

The importance of cost control in business and effective ways to manage or reduce your costs
Some examples of cost cutting measures that a Facilities Manager might put in place
Compiling budgets, balance sheets and asset registers
The concept of business continuity and how to draw up a robust business continuity plan
Summary/What you will learn:
The importance of cost control in business and effective ways to manage or reduce your costs
Some examples of cost cutting measures that a Facilities Manager might put in place
Compiling budgets, balance sheets and asset registers
The concept of business continuity and how to draw up a robust business continuity plan.

9.1 Managing your costs

Cost management is an important part of any management role,
facilities management included.
Whether you are responsible for managing your own budget or not, identifying areas where cost
savings can be introduced is without doubt an area in which you will need to develop skills to
succeed in a facilities management role, no matter what industry you are working in.
Undertaking an all-encompassing review of all activities across your business is a good way to
identify potential areas in which you can save costs effectively.
Here are some thoughts around the best ways to carry out this exercise:
Involve as many representatives from around the organisation as possible. This will give you
more varied responses to your questions and will ensure that cost saving opportunities across
the business are picked up uniformly.
Think outside of the box. We can all name the well known cost cutting measures, such as
reducing staff overtime or cutting back on non-essential materials, but there are likely to be a
multitude of less obvious factors that you could implement which, added together, could make
a considerable difference to your bottom line. Many of these are likely to be either industry or
business specific, so you will need to be creative in order to find them, as you won't necessary
find them in a book.
Review, review, review. The story does not end once cost cutting measures have been put into
place. As variables constantly shift and change, you should put into place robust measures to
assess the viability of the cost controls at set points, to ensure that you are still getting the
value for money that you expect.
Improve your bargaining skills. We talked in detail about negotiation skills in Module 5 -
Leases, Purchasing and Vendor Management from a procurement perspective and these
principles hold in this area too. Often, getting the best price for something involves some
element of bargaining and this is generally a skill that can be learned and honed, to enable you
to get the best possible deal from your suppliers.

9.2 Examples of cost cutting measures

There are no hard and fast rules when it comes to deciding which
areas to focus your cost cutting exercise on and much will depend on your particular set of
circumstances, as one measure may work for one business and not for another.
Similarly, one measure may have a much smaller impact on the bottom line in one industry or
business than in another and may therefore mean that it is not worth doing, or it may have too big
an impact in either area to cut it.
Weighing up these variables is an important part of your role as a Facilities Manager and solid and
thorough analysis can help you to make the right decisions during these exercises.
Here are some common examples of cost cutting measures:-
Headcount freezes or reductions
A headcount freeze is implemented when the business decides not to recruit any further personnel
for a set period of time, in order to reduce costs. Usually, like for like roles or replacements for
leavers in business-critical roles are permitted, but managers must go through an authorisation
process prior to embarking on recruitment for their team.
A headcount reduction refers to the process of actively reducing the number of employees in an
organisation - this can happen through natural wastage (not replacing leavers), but a quicker
method is to put a voluntary or compulsory redundancy programme in place.
However, redundancies should not be made as a knee jerk reaction - you should undertake a
detailed business case exercise to ensure that it is the right decision for your business. Sometimes,
although reducing your salary bill in the medium term, you can spend more in statutory redundancy
payments to employees and it can also adversely impact the morale of the organisation or leave you
with skills shortages, both of which can have an adverse effect on business.
Reduction in overtime
Management may decide to limit paid overtime, or even stop it altogether for a set period of time, to
reduce staff costs. A thorough analysis of the business needs should be carried out, before taking
this route as, if done without proper consideration, it could have an adverse impact on the ability of
the business to meet customer demand effectively.
Changes to salaries or staff benefits
This area is predominantly handled by the HR team, as it involves consulting with staff and potential
changes to their terms and conditions of employment, although it can have the effect of reducing the
organisation's salary bill.
Re-negotiate your fixed prices
This is a big area to look at and, if handed well, has the potential to result in considerable cost
savings. All areas of fixed costs should be on the table, including leases of premises, equipment,
materials, etc. You may be tied into long term contracts for utilities or the purchase of materials for
example, which do not offer you good value for money and doing some research comparing other
suppliers and negotiation can often pay dividends in cost saving terms.
Cut wastage
Many businesses buy in bulk and, whilst this can achieve good cost savings in some cases through
economies of scale, care should be taken not to over-purchase or tie yourself into high volume
agreements with suppliers on the premise of achieving economies of scale, as it can lead to wastage,
particularly if the product or material is perishable. Keeping excess stock can also increase storage
costs.
Reduce discretionary or non-essential areas and consolidate where possible
This may involve reducing the number of training days per employee that your organisation offers
or, if this is not possible, combining training events with other departments, for example.
Activity 1
Estimated time: 15 minutes
Imagine that the company you work for, or one with which you are familiar, needs to cut its costs by
10% over the forthcoming 12 months, with little or no impact on revenue, quality, or customer care.
Review the list of suggested cost cutting measures in this module, along with your own ideas and
detail the two most appropriate methods that you suggest, giving reasons.

9.3 Get to grips with unknown or miscellaneous spending

Many budgets have a miscellaneous line, to which costs are
assigned which have no other natural place, but they can be great places to start to cut
non-core, non-essential costs, quickly.
Consider your maintenance strategiesWe discussed preventative and risk-based maintenance
approaches in Module 7 - Co-ordinating Maintenance and Repairs. These methods could provide
good opportunities for cost cutting.
As an example, do the air conditioning filters always need to be changed exactly on time? Would it
have a business critical impact if they weren't?
Figuring out which assets to invest in from a maintenance perspective and which not to prioritise
can be a tricky business, but is worth the hard work, as you can sometimes reap rewards in short
term cost reductions. However, make sure that you balance this approach with a longer view too, as
simply stopping preventive maintenance on a system without understanding the consequences can
be a risky and short-termist strategy.
Finding energy savingsBasic interventions such as setting heating and lighting to a lower
consumption setting or ensuring that they are switched off overnight, for example, can help. You can
even find motion-detecting devices that turn off some appliances such as vending machines at night
and thermostats to efficiently control the temperature of a building. Reviewing your utility contracts
is another effective way of making sure that you are paying the right price. It is also a really good
idea to consult employees on what they feel could constitute effective and fair energy reductions, in
order to engage them in the process.
Fact
The biggest challenge that may hold back business
continuity developments is a lack of budget, funds and resources, with 35.6% of respondents citing
this reason.
Source: Community Central Survey into Business Continuity Trends and Challenges, 2015.

9.4 Compiling a Budget

A budget is a set of information relating to the finances of an
organisation, usually covering a set period of time and constitutes the financial plan of the
business during that period.
A budget may include elements such as anticipated sales volumes and revenues, expenses and costs,
assets, liabilities and cash flows.
A budget has a number of uses, as follows:
It serves as the financial plan of a business, setting out in quantifiable terms the financial
targets that it seeks to achieve during its duration.
It serves as a method for measuring the performance of a business, financially and also as a
general health check for its ongoing success. Many internal and external stakeholders look to
the achievement of the budget to assess the performance of the business and it is an important
consideration for shareholders, if your business has any.
It can serve as a method for coping with adverse scenarios which are foreseen.
Basic components of a budget
Budgets can be as simple or complex as you make them, although it is naturally common that larger
organisations have more complicated budgets, using many different variables. However, most
budgets run to a simple formula, as detailed below:-
Revenue forecasting
This is surely one of the most essential elements of the budget process and refers to the prediction
of how much money the business is going to bring in, in the form of revenues. Most businesses have
a core revenue stream constituting sales from its core products and/or services, as well as irregular
or one-off revenues, such as asset sales for example.
There are lots of tools at your disposal, to help you to forecast your revenue as accurately as you
can. Historical sales data, trends in the market, external governmental or monetary policies,
changes in competition and customer surveys are just a few methods that you can use and you
should choose those that fit your business more closely.
Costs and expenses
There are different financial approaches to defining your business costs, but a simple and effective
way is to split your costs into production costs and overhead costs.
Overheads (also known as fixed costs) are the costs that you incur at all times, even when not
producing your product or service to sell, such as the lease on your premises, whereas production
costs are those expenses that are directly related to creating what you sell, such as materials.
Servicing of debtIt is important to remember to include the interest charges of any debt that the
business has, such as business loans, in your budget, as it is a direct cost to the business and, if not
accounted for properly, could adversely impact how much you have available to borrow at a later
date.
Cash flow projections
Whilst the calculation of income (revenues) and outgoings (costs and expenses) is key, care should
be taken to consider the overall cash flow situation of the business - that is, when the payments
either arrive or become due for payment. Failure to factor this is can lead to cash flow problems and
has caused many a small business to fail.
For example
You cannot assume that because you take an order in February, you will receive the revenue from it
in that month. Equally, you may have to pay out for both production costs and overhead costs before
you receive that revenue. Clever cash flow forecasting is imperative to any budget.
General projections
An important part of a budget is the creation of more medium and long term income and expense
predictions, rather than just by month or by budget period. This will help you to see the growth or
decline in your business, analyse like for like results and take reparatory action quickly, where
necessary.
Balance Sheets
A balance sheet is a financial statement which breaks down the assets, liabilities and capital of an
organisation at a specific point in time. Your finance team and other finance professionals will use
the balance sheet to evaluate the financial health of the company.
A standard balance sheet is formatted with two vertical columns, with one detailing the assets of a
company and the other detailing the financing of the company, further split into liabilities and
ownership equity.
If the balance sheet is prepared accurately with all areas correctly listed, the total of the assets on
the left hand side will equal the total of liabilities and owners' equity on the right hand side.
The balance sheet is used to give investors or potential investors information about what a company
owns, as well as the amount invested by shareholders. It can be prepared at any time, but is usually
prepared at the end of the accounting period.

9.5 Asset Registers

Another document which you will likely be involved with the
preparation and/or monitoring of is an asset register, which is a record of all of the fixed
assets of your organisation.
The term fixed assets is used to refer to the assets (such as equipment, systems, etc) that your
business utilises on a regular basis, in order to produce the products or services that generate its
income. Fixed assets differ from other assets such as stock/inventory, as they are permeant features
of the organisation, not temporary items with the purpose of being sold. A good rule of thumb is that
you can expect to own a fixed asset for more than one year.
Here are some examples of the fixed assets of a business:
Buildings
Land
Furniture
Fittings and fixtures
Vehicles
Manufacturing equipment
Office equipment
Technological equipment
Steps to creating an asset register
Facilities Managers are often responsible for the asset register of their business and there are some
easy steps below for drawing this register up:-
You can identify what the fixed assets of your business are, by checking the balance sheet. Any
assets listed on here are current assets of the organisation, as reflected on their books.
Double check your findings from the balance sheet, by carrying out a physical audit and walking
around your premises to compare what you physically see with what is on the books. If you come
across an asset that is not listed on the balance sheet, you should still include it on the asset
register. The main reason for this situation occurring is if the asset has depreciated and now has a
zero value and hence, has been removed from the balance sheet. However, as it is still a fixed,
usable asset, it should be included in the asset register.
After compiling your findings from the balance sheet and your physical audit, you are ready to
prepare the register itself. You can either use a physical, paper based register or a digital one, most
commonly a spreadsheet.
Create an account record for each fixed asset.
You will need to compile information about each asset, as follows:-
Name and description of the asset
Identification or serial number of the asset
Purchase price
Date the asset was purchased
Any insurance details for the asset
Any warranty information for the asset
Service history summary, including the date of the last service or inspection
Predicted life span of the asset (depreciation) and which method is used to calculate
depreciation
Predicted salvage value
Carry out regular audits to cross check the fixed asset register, by doing an annual physical check of
assets.

9.6 Business Continuity Planning

Business continuity planning is a management process which is
often jointly owned by the Facilities Manager, along with the senior management of a
company.
It aims to create systems to prevent, mitigate and deal with potential threats or emergency scenarios
which could face an organisation. These threats can be wide ranging and can include anything which
has the potential to severely and/or negatively impact the business operations, safety or reputation
of the business.
Some examples of these events include:-
Natural disasters, such as earthquakes, fires or floods
War, terrorism or civil disorder
Sabotage
Power, IT or telecoms outages
Cyber-attacks or fraud
Theft of business critical information, material, or assets
Epidemic or other medical emergencies
An event which causes a severe impact to the reputation of the organisation
It is important to develop robust plans in the case of disruptive events such as those mentioned
above, to ensure that the organisation can not only ensure the safety and security of its staff and
customers, but can also retain its competitive advantage and reputation in the market.
In times of crises or emergency, a number of things outside of your control can happen to the
business. These include employees not being able to get to work or not being safe doing so,
suppliers being unable to provide you with the materials that you require to make your product or
service, or your business may face a dramatic decline in demand. What's more, in unknown,
challenging or potentially dangerous situations, it is much more difficult for the business to create
new plans or strategies from scratch to deal with the crisis, as it will be caught up with fighting the
various issues that arise from it.
This is one of the main reasons why implementing solid business continuity plans in advance, which
have been tried and tested and which your management team and employees can pick up and have
ready to go, gives a sense of organisation, safety and security, as well as a potential competitive
advantage against other businesses who have not done so.
A business continuity plan can be drawn up using the following steps:-
Business impact analysis
Consult with a range of both internal and external stakeholders, in order to determine the most
likely and most damaging scenarios to your specific business and, specifically, how these threats
could manifest themselves in the given departments or areas. Ask your participants to be as realistic
and as detailed as possible, encouraging them to think of all possible scenarios.
You may also consider taking advice from external sources, such as the government or local council,
as they sometimes have information or intelligence regarding potential threats on a larger scale.
Recovery strategies
Review your business impact analyses and identify the resource requirements arising from them,
focusing on the gaps between what successful recovery would look like in each scenario and what
the current situation or capability is. Ultimately, decide upon the most suitable recovery strategies
for each potential situation.
Plan development
Decide how to make each recovery strategy happen, including the organisation of recovery teams,
developing relocation plans, writing of business continuity procedures and policies.
Testing and evaluation
Develop methods for testing your plans and evaluating them impartially. As part of this, carry out
training for the business continuity team and for general staff. Retain a framework for continuous
review, as external circumstances change.
Activity 2
Estimated time: 20 minutes
If your business already has a business continuity plan, ask to review it and make suggestions for
improvements.
If such a plan does not exist, draw up the summarised areas of focus from scratch, using the
guidelines in this module.

9.7 Contingency planning for IT

As we have already mentioned, often the IT and Facilities teams
work closely together, as some areas of their roles overlap.
Business continuity is one area where you will need to work in tandem with your IT team to ensure
that the necessary contingency plans are in place when required.
IT includes both the software and the hardware of the organisation and is usually a business critical
area when disaster strikes, due to the fact that a) many companies rely on their IT network to carry
out their business, b) IT assets constitute a high proportion of the total assets of an organisation and
c) recent threats to cyber security mean that a business risks its intellectual property and security if
an infiltration to IT systems occurs.
It is for this reason that recovery strategies for IT should be prioritised, in order to restore
technology services to the business as quickly as possible.
What's more, manual workarounds should be included as part of these plans, so that the
organisation can continue running efficiently whilst computer systems are being restored.
The SARS crises - an example of the importance of business continuity planning
A well known example of the importance of business continuity planning was during the course and
the aftermath of the SARS outbreak in China and Hong Kong between November 2002 and July
2003. At its peak, it had spread to 29 countries and three regions, with a cumulative total of 8,422
cases and 916 deaths. Needless to say, the commercial and economic impact of this crisis was
significant, with the biggest impact being felt in demand, particularly local consumption, tourism
and air travel.
However, thanks to the contingency plans that had been put in place both at a governmental and
business level, once the outbreak was brought under control, the economy was able to rebound
quickly, with few long term effects.
The main areas that were prioritised from a business continuity perspective prior to the outbreak
were data protection and recovery and the outbreak served to alert companies around the world of
the impact of potential operational disruption caused by such occurrences and the importance of
business continuity planning. A greater focus on the part of businesses on the protection of human
resources, backup teams and alternative locations for business operations was one of the positive
outcomes of the crisis and has led to an increased focus on business continuity planning in today's
modern businesses.

 Module Summary

Our focus in this penultimate module of our Facilities Management course has been on your role in
controlling and reducing costs in the business that you work in.
We began the module by explaining the universal importance of cost control and gave you some
good starting points regarding how to look for opportunities to save costs in your business. We then
went on to list, in some detail, some of the more usual and tried and tested approaches that
businesses use to reduce their overheads, recognising that the type and needs of your own business
will determine your decisions regarding what sort of cost control activity to take, as one size does
not fit all.
We then continued to take a closer look at some of the financial documents that you may be exposed
to in your role as a Facilities Manager, these being budgets, balance sheets and asset registers - and
how to draw them up. Finally, we undertook a review of business continuity planning and the
advantages that this can offer your organisation. We covered the basic steps of drawing up
contingency plans and also considered a brief case study of how the SARS epidemic affected
businesses in China and Hong Kong.