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What price security?

Benchmarking allows security managers to determine total costs, arrive at a cost per square foot, and compare costs within their own facilities or with peer group operations.

Most security managers know what they spend on individual line items, such as their officer force, individual systems, and maintenance. But these figures alone cannot help the department determine whether the cost of security as a whole is reasonable vis-avis other security operations either within the corporation or among comparable businesses.

Benchmarking allows the security department to determine its total costs, arrive at a cost per square foot, and compare costs among facilities within the company or with security departments in other businesses.

The first step is to identify who the benchmarking partners will be and to have representatives from each group meet to agree on the parameters of the study. The next step is to work up a questionnaire - or tailored survey form - to be filled out by each member. Most questions should solicit a dollar-amount response. There is no rule of thumb on survey length, but it should be kept as simple as possible. (A generic template survey can be found on Security Management Online: http://www.securitymanagement.com). The goal is to ensure that data collected will be truly comparable.

When the benchmarking project is undertaken by a large corporation where the units being compared are separate divisions within the same company, defining the services that security comprises may be easier than when the benchmarking is taken to its next level - a comparison of security departments in different organizations. For example, in some companies, the security department is responsible for fire safety or hazardous materials control. In other companies, those issues are handled by a separate life-safety department.

It is probably best to take an inclusive view of services to be benchmarked. Addressing a specific service, however, is not as critical as having all benchmarking partners agree on a consistent list of services that will be used as the basis for measuring total security costs for each department or company participating in the project.

Individual participants can garner items for the group list by reviewing their departmental budgets and operating plans. But those intent on achieving meaningful benchmarking will need to go beyond these documents to ascertain the true cost of the security function.

Unbudgeted costs. Each benchmarking partner must identify security-related costs that are not included in the department's budget. It has been my experience that identifying these costs is the most difficult part of benchmarking for security managers, especially for those at locations or companies that have never benchmarked before.

For example, a company may have an access control system installed at its site and maintained by a contractor whose costs are covered by the maintenance department. Since the access control system is a security tool, it is important to determine how much of the cost is funded by the maintenance department and include that amount in the security department's benchmarking figures. Of course, all benchmarking participants must do the same for the final data if it is to be comparable.

Another example is the cost of maintaining the control center console and its equipment, such as cameras, alarms, and switches. If this expense is included in another department's budget, the security manager must determine the cost of providing this service to the security department. That cost should be included in security's benchmarking data.

Other costs. It is also important to identify costs that are not typically associated with running a security department but without which the service could not be provided. This category may include charges for data lines, telephones, office space and equipment (usually known as occupancy and general works costs), and any other equipment or support services used by the security function.

Line items that indirectly relate to the expenses reported should be included as well. For example, one question on the benchmarking survey developed by participants should ask how many person-years of contract guards are used at the site being benchmarked. A person-year (which should be defined in advance for uniformity's sake) is generally 2,080 hours. Therefore, dividing the total annual hours by 2,080 will yield the total person-years used at the site. (Person-years are normally used only for contracted services. Proprietary staff time is not calculated the same way because vacations, holidays, benefits, and other factors make person-years difficult to calculate.)

The number of person-years reported can be used as a quick comparison and to ensure the accuracy of reported information. For example, let's say that in an internal benchmarking exercise, Location A reports that it has 15.7 person-years of guards costing $489,840 a year, and Location B reports that it has 20.8 person-years at an annual cost of $348,960. A quick spot check shows that Location B is either getting a terrific hourly rate or has made a mathematical error - which is not uncommon - or conversely that Location A overspent or made an error. Thus, it pays to check the input sheets thoroughly and resolve any discrepancies.

In addition, one survey question should ask for the total head count (not person-years) of the proprietary force. This question should be presented just prior to one requesting the total cost of proprietary labor, including salaries and benefits. Sometimes it is beneficial to include overtime (if applicable to the proprietary officers) as a separate line item so that annual salaries can be better averaged out and used as a spot check.

Though not all-inclusive, the following list of items should be considered when assessing the total security costs of a site.

* Salary, overtime, benefits, and uniforms

* Contract guards (including applicable taxes)

* Travel, telephones, stationery

* Data lines (for remote CCTV or remote access control)

* Rent or occupancy cost of security offices/space

* Maintenance contracts for all security equipment

* Locks and keys

* Security patrol car costs (including maintenance, if owned)

* Outside consultants

The more detailed the analysis, the more accurate the assessment of the site's competitiveness will be. For example, if the security manager individually identifies costs such as salary and overtime, rather than combining the two, he or she will have more worthwhile data.

Capital funds. What about benchmarking capital funds? In my opinion, capital should not be included in a benchmarking exercise because it will inflate the total cost of the site. These one-time allotments usually go to system upgrades or purchases, not operating costs, which are what is usually benchmarked. Not all security departments receive capital funds every year, which could skew benchmarking results. Therefore, if all participants agree to include capital funds, they should agree that the cost not be included in the expense total. Rather, a separate capital cost-per-square-foot should be determined and benchmarked as a separate item.

Square footage. Once all costs associated with performing security services at the site have been determined, the next step is determining the total square footage of the building or buildings being benchmarked.

Two terms are used in identifying the square footage of a facility. One is gross square feet (GSF), and the other is net rentable square feet (NRSF). Typically, GSF is used in manufacturing facilities while NRSF is used for office buildings. At a manufacturing site, some buildings may be used exclusively for manufacturing while others are used as office space.

The GSF of a facility is usually greater than the NRSF because it includes public areas such as lavatories, cafeterias, lobbies, and hallways. These areas are typically not included in the calculation of NRSF. The difference between GSF and NRSF can be as much as 20 percent of the total square footage, so it is key to use only GSF when benchmarking.

All parties may agree to use NRSF instead, but they should keep in mind that the goal of benchmarking is to determine the cost of security per square foot. And since security is responsible for the entire facility, it is more accurate to use the higher square-footage figure - GSF.

The objective is to make sure that all participants use the same methodology to determine total square footage. Mixing NRSF with GSF will, in most cases, result in higher costs for those using NRSF and negate the validity of comparisons among sites.

One more consideration should be noted at campus-style nonmanufacturing sites containing several buildings. Buildings that are used for electrical substations, equipment storage, and other support functions should be included in the survey.

Calculating costs. After the security manager has checked all figures and is certain that all security costs have been included, it is time to calculate costs. Assume that Facility X is 1,300,000 gross square feet and that the total annual security cost to run it is $2 million. The $2 million is accounted for as follows: $800,000 for proprietary staff and management salaries, $200,000 for benefits packages, $500,000 for contract guards, $400,000 for security equipment maintenance, and $100,000 for supplies. (For this illustration, figures are rounded, which should never be done in an actual benchmarking exercise.)

To arrive at the security cost per GSF (or NRSF), the formula is to divide the total security cost by the GSF (or NRSF). For Facility X, this means dividing $2,000,000 by 1,300,000, which equals $1.539, or $1.54 per square foot. Benchmark figures can be produced for each of the cost items to perform additional comparisons. Dividing the cost of the proprietary staff's salaries ($800,000) by the GSF (1,300,000) yields a total of $0.62 per square foot. The same formula shows that the benefit package costs $0.15 per square foot, contract guards $0.39 per square foot, equipment maintenance $0.31 per square foot, and supplies $0.08 per square foot. The total of these costs (after adjusting for rounding) should equal the total security cost-per-square-foot of $1.54. These separate cost items can now be compared with those of any of the other benchmarked facilities.

By including other items in the survey such as the population of the site being benchmarked and, taking it yet a step further, asking for the population by shift, the security manager can do additional statistical analysis by calculating the cost of security for the total population or per shift.

Results. When all the figures are in, comparisons can begin. Attention usually peaks at this point because no one wants to come in with the highest cost-per-square-foot. Having the lowest costs is not the purpose of benchmarking, however. Factors such as crime rates, location of the facility, and nature of the business can explain why costs need to be higher at a given facility. But benchmarking will help determine whether the costs at a site are in line with comparable sites; if not, the data gathered can help determine whether the differences are justified.

The benchmarking exercise involves more than just the exchange of numbers. Ideas are shared among the participants, who typically agree beforehand (if this is an intercompany project) that the data and related discussions will remain confidential to those involved.

Not only does benchmarking provide a wealth of information, it also provides a network of professionals who can continue to exchange ideas and experiences. The exchange of ideas is one of the most valuable benefits of benchmarking.

Results of benchmarking exercises will vary greatly because of conditions within specific companies, such as a preference for armed (or unarmed) guards, a certain level of security, or the architectural design and location of a facility.

After having successfully completed a benchmarking exercise, the security manager can later benchmark security tasks such as monitoring and dispatching and protecting information. This activity is usually called task-level security benchmarking (as opposed to the general security benchmarking discussed here). The security manager should always do a general benchmarking survey before moving on to the more difficult and detailed task-level survey.

When cost-cutting time comes, security managers often find themselves scrambling to prove to senior management that the security function is cost-effective. Benchmarking shows that the security department is serious about maximizing efficiency and contributing to the profitability of the organization.

Anthony T. Gnolfo, CPP, is project manager, RE/SO Metro Region Security, IBM Corporation, Southbury, Connecticut. He is a member of ASIS. A sample benchmarking survey can be found with this article on Security Management Online.
COPYRIGHT 1997 American Society for Industrial Security
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1997 Gale, Cengage Learning. All rights reserved.

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Title Annotation:benchmarking security costs
Author:Gnolfo, Anthony T.
Publication:Security Management
Date:Oct 1, 1997
Words:2052
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