Benchmarking: a tool for property managers.

Benchmarking, a standard reference in measuring and judging cost and value in order to make sound decisions, is a practice well utilized by Advance Realty Group in our everyday business operations. The use of benchmarking allows us to continue to ensure we are operating our properties in the most efficient manner possible and meeting the day-to-day needs of our tenants as well.

While the technique is a very common strategy used in every type of business worldwide, it is often underutilized in the property management sector. However, it has proved a worthy tool at Advance, and has allowed our team to effectively control operating costs and expenses and effectively measure tenant satisfaction on the property level.

The first step in benchmarking a property is to get a sense of what is spent on operating a facility or portfolio and then to compare it to industry standards. Gathering of fiscal information and details can seem overwhelming, but a detailed accounting of a company's fixed and variable costs can start you in the right direction.

Fixed costs are those that you have little control over, such as municipal fees, personal property taxes, insurance and real estate taxes, while variable costs are those expenses that through aggressive management, you can control to some extent. Examples of variable costs are landscaping, utilities, facility staff payroll, janitorial contract and supplies, to name a few.

Some of the best ways to benchmark your operating costs include: Record your building data and operating expense information using "Pro Forma Worksheet," a specialized software spreadsheet that helps calculate and analyze a number of expense-related statistics; Calculate "per square foot" costs; Select comparative data; Calculate dollar and percentage variances; Compare data and determine reasons/ justifications for variances; Set goals, prioritize and implement expense reduction efforts; Monitor and document results.

From here, comparisons, priorities and expense reduction in regard to operation costs and management can be set. When collecting data and making comparisons, it is important to garner information that is reflective of the nature of the product itself, as well as the market in which the asset is located. For example, if you're striving to be more economically prudent in the medical buildings within your portfolio, then collect data that is medical building-specific. City analyses and demographics are also crucial to consider when benchmarking.

Where you do business is a big factor in how expensive it is to manage a building. According to BOMA International's 2003 Experience Exchange Report, the most costly U.S. markets include New York City, Boston and San Francisco, with average expenses per square foot totaling $19.74, $16.13 and $13.80, respectively.

A variety of tools and practices can be implemented to reduce operating expenses, which include negotiating lower costs for the service or product you're after; revising or reducing the scope of service or quality of product to be utilized; using volume purchasing; sharing resources and services; and implementing energy aggregation.

A good starting point is to increase energy efficiency.

Do some research and gather facts from the Environmental Protection Agency's Energy Star Program (www.energystar.com), the U.S. Green Building Councils LEED Program (www.usgbc.org) and Energy Solve (www.energysolve.com).

For additional information visit www.boma.org, www.irem.org and www.whitestone research.com. In today's economy it's not only smart to have an understanding of costs and to set up a benchmarking strategy, it is imperative.

By understanding exactly where your costs lie and how you can manage them most effectively, you can streamline your corporate infrastructure, reducing costs and ensure your tenants' needs are met. This allows for a platform for future growth as well.