EventMAP’s Vernon Chapman discusses the financial impact and opportunity cost of poor space use.
Previously, we’ve discussed the significant variations in the efficiency of space use in organisations of similar types. We’ve also considered some of the factors that contribute to this variation.
In this piece, we will focus on the implications of the poor use of space, in terms of the financial impact and the opportunity cost. These are outlays that are often overlooked and often considered as the unavoidable cost of operating a business or organisation. In reality, though, while these overheads are often considerable, they are, with the correct analysis, potentially avoidable. In fact, the cost of avoiding unnecessary cost burdens are often much less than maintaining the status-quo.
While the financial impact of poor space use is relatively simple to quantify, the opportunity cost can be more difficult as it deals with assumptions – and assumptions can be somewhat ephemeral. The calculation for understanding the financial impact of under-used space is straightforward: once the cost per square metre or desk space is defined, the level of utilisation may be measured against industry benchmarks to establish the level of overspend your space use is creating. For example:
To understand the implications of the amount of overprovision or under-provision of space, given the operating cost/capital cost of the building, we then need to define our target benchmark. This may be based on the percentage of workstations we aim to provide for our given staff headcount, or the SqM per person we wish to target. To assist in this, we can look at similar space types in other organisations – for example, the British Council for Offices (BCO) provides guidelines that indicate industry standards reached across a broad range of office environments, in terms of SqM per person or desk-to-staff ratios.
Several factors will determine the actual ratio selected for your environment. For example, a very mobile workforce requires less office space per head than a predominantly office-based workforce.
Understanding the actual utilisation of space by means of a space utilisation survey is key in determining the actual requirement of SqM per person or workstation to staff ratios the organisation should target. Experience shows that 80% utilisation of office space in multi-user office spaces is highly achievable (80% utilisation is targeted in a number of public sector environments). Above this level space becomes too tight and adversely impacts staff work efficiency. Below this level, it may indicate space is underused.
Once we have determined the actual utilisation of the space, we can ascertain the ideal ratio of space to full time equivalent staff members.
To illustrate: if our office space has a capacity to accommodate 100 workstation spaces, and we have a full-time staff headcount of 100 people, we will have a desk to staff ratio of 1:1.
If a study of the space demonstrated that our average occupancy of workstation space was 40%, this would mean that 40 staff members were occupying the space at any given time. To achieve a benchmark utilisation rate of 80% we would either need to reduce our space to accommodate 50 workstations (a 50% reduction in space) or increase our occupancy to 80% of available workstations (in our scenario, 40 additional occupants at any given time).Given the fact that in this situation the majority of staff only needed office space for part of the time, it can be observed that, with some caveats, the organisation could double its headcount to achieve the 80% utilisation rate. It should be also be noted that in this example a full understanding of space use, and why the space is used in the manner it is, would need to be gleaned. But once all of this information is gathered and analysed, the organisation will be equipped to establish benchmark targets for space use and allocation that suit its operational needs, and to then make informed decisions about how to achieve more efficient use of its space.
At this stage it is possible to establish the financial implications of poor use of space, and the opportunity cost, based on various options. The opportunity cost will vary depending on whether the decision is to dispose of under-used space, or recruit additional staff to fill under-used space, and expand work capacity accordingly, in addition to other variables.
Such an analysis does require expertise that is often lacking within an organisation. However, help is readily available, based on the latest research. EventMAP has extensive experience in assisting organisations in understanding current levels of space use, and then modelling and planning the use of space in line with organisational aims to ensure efficient and robustly workable targets. With the use of this expertise, organisations can be equipped to realise the cost savings that may be realised, and the additional revenue streams that inappropriate current use of space may be unnecessarily constraining.
A review of the case studies here illustrates some of the benefits such an approach can achieve. For your organisation, it could be the first step in accessing substantial cost savings and increased opportunities.