Keep a Close Eye on the Bottom Line
These strategies and tactics can help managers handle the financial challenges created by COVID-19.
The COVID-19 pandemic has changed nearly everything. People continue to struggle with an array of evolving family dynamics, work pressures, and health concerns; none of which show signs of slowing down. Within institutional and commercial facilities, the pace of change is much the same. Maintenance and engineering managers face a host of challenges related to improving HVAC (heating, ventilation, air conditioning) system efficiency and ensuring proper sanitation to protect the health of their department's technicians as well as building occupants returning to work.
In both cases, the coronavirus has created unprecedented problems at the heart of the issue:
- U.S. bankruptcies are on track to hit a 10-year high as the pandemic recession continues to slam businesses
- By early August, 424 companies have gone bankrupt, surpassing the number of filings during any period since 2010
- Consumer-focused companies such as retail have been hit particularly hard; 100 companies in the sector have filed for bankruptcy this year
On the other hand, some sectors have been thriving:
- Pharmaceutical and healthcare industry is growing and will benefit from increasing investments related to the development of a COVID-19 vaccine
- Consumer goods, particularlly grocery store chains with consumers in panic-buying mode, are growing. Despite broader trends of economic decline and global recession, certain consumer goods businesses are enjoying a greater share of the market.
- Home entertainment, social media, and e-commerce sectors are seeing a surge in services. Some companies are seeing a 15-50 percent increase in their revenues. The price of Amazon stock has increased 55 percent since March 1.
Contractors are among those benefiting as demand grows for their services. Earlier this year, my wife and I were interested in finding a contractor for several home improvements. I contacted seven contractors. Four never responded, and one responded that it would be back in touch within 8-10 weeks. I received proposals from the other two contractors. One proposed charging significantly more than the other for the same work and design.
When I asked the high bidder about the quote discrepancy, I was told the market is such that the company can essentially charge what it wants, and the customer can take it or leave it. We went with the other contractor, and the earliest the work can be scheduled is early February 2021.
During the Coronavirus Pandemic, Look to Efficiency
Don't rush to rash decisions like budget and staff cuts — look first for internal opportunities for improvement.
Many organizations are confronting unprecedented issues related to their bottom lines due to the impact of COVID-19. Companies across all sectors face a severe cash crunch with respect to running their daily operations due to the global pandemic.
Reacting to the drop in revenues, many organizations out of necessity began trying to reduce overall costs. They looked at expenses to determine where reductions could be made without impacting the business too much.
The next option was salary reductions and, in many cases, a reduction in headcount. The resulting rise in unemployment has led to massive reduction in demand for many non-essential necessities. Offices and facilities are being affected, especially in commercial and private businesses.
Some years ago, the oil and gas industry had a substantial downturn. Companies responded by offering early retirement packages and layoffs to reduce headcount. But when the market rebounded, they found themselves with a resource and skills deficit. As a result, they had to scramble to find qualified skilled labor to fill the void. I’m afraid history will repeat itself in many maintenance and engineering departments when the COVID-19 pandemic subsides.
In an article from June 2020, I wrote “as if outsourcing wasn’t tough enough, the COVID-19 pandemic has further complicated the decisions maintenance and engineering managers must make.” The article advised managers that significant skills gaps could be looming. Well, things have gotten even more complex.
And the skills gap will only exacerbate an already huge problem for many facilities, especially those that rely on taxpayer dollars – deferred maintenance. Employing this strategy in order to reduce costs, meet budget funding levels, or reallocate budget funds is a recipe for disaster.
The failure to perform needed repairs can lead to asset deterioration and ultimately asset impairment. Generally, a policy of continued deferred maintenance results in higher costs, higher failure rates, and in some cases, health and safety problems.
Looking Inside for Efficiency
My first and most important recommendation for managers looking to find greater efficiency and avoid coronavirus-driven budget and staff cuts, is to look internally for improvement opportunities. I worked with a commercial and private building sector client during the 2007 housing crisis that was spending funds on internal issues that needed to be addressed and improved.
As one senior member told me, “It’s easy to hide the rocks in the stream in the spring, but in the late summer, they sure do rear their ugly heads.” He meant that when life is good, you can hide a lot of systemic issues, but when things slow down, that’s when they come up and bite you.
The company had a strategic mandate related to maintenance and engineering from the CEO to clean house, which included several activities:
And they did. The company didn’t furlough employees. They didn’t offer early retirement or reduce headcount. They simply repositioned employees to make small improvements so that when better times returned, not only did it thrive, but it was in a much stronger position to achieve success.
Meeting Maintenance Demands with Reduced Budgets
Managers should consider a strategy that many organizations overlook entirely: Technician Utilization.
What other measures can managers implement to meet the many department demands while dealing with tighter budgets? There are several ways to manage expectations without a loss of headcount – and one caveat.
Here’s the caveat: Headcount reduction should be the last option. Before taking this drastic step, managers should consider a strategy that many organizations overlook entirely – technician utilization. Several years ago, I spoke at the annual NFMT Baltimore conference about this very topic. The average technician’s utilization or direct labor is only 17-24 percent.
Think about that range. If a technician’s average time with tools is 25 percent, that means a department needs four FTEs doing the same amount of work to achieve 100 percent. World class technician utilization is around 65 percent. So at the lower utilization level, a manager would need an extra person and a half to achieve the world class standard. What would that staffing level translate to in salaries and benefits?
I’m not suggesting departments are plagued by poor performance. Rather, they suffer from poor work-management processes.
To remedy this, managers can consider performing an exercise called brown paper/white paper value-stream mapping. The exercise involves creating workflows in business processes and the graphical representation of those workflows and shows the way various processes and activities work together or against each other based on their relative dependencies. This exercise can help managers locate non-value-added activities in their departments and re-engineer the processes in order to put technicians in positions to succeed.
Managers also can look for savings by outsourcing the maintenance activities. Outsourcing work to a contractor that specializes in facility maintenance or a highly specialized skill can be an attractive strategy for managers. The process removes the responsibility of many activities that departments are accountable for and ensures that the contractor provides qualified, competent technicians, resources and services.
COVID-19 will continue to affect managers and their facilities, not to mention building occupants and the general public, for the foreseeable future with even more impacts that change our daily routines. Washing hands, wearing masks, and social distancing are parts of the new reality. Dealing with the changes while maintaining a resemblance of normalcy is the challenge of every manager. Before managers make significant changes that will affect people’s lives, the first and most important step is to look inside.
