Uncovering your hidden occupancy costs

Senior managers at large companies may not believe that they can have much impact on the "bricks and mortar" of their cost structure. They may even think that occupancy costs are too insignificant to worry about, too technical to analyze, and too fixed to control. But as real estate consultant Mahlon Apgar argues, occupancy costs can hurt a company's earnings, share value, and overall performance. On the other hand, every dollar saved drops straight to the bottom line. Shearson Lehman Brothers, for example, has found that it can save as much as $20 million annually by reducing occupancy costs in its branch offices and headquarters. Managing occupancy costs isn't easy. But it is timely. As companies strive to improve productivity by consolidating functions and downsizing staff, they are saddled with excess office space. Expansions abroad present completely different market conditions that put a premium on reducing occupancy costs. At the same time, the changing nature of work is challenging deeply held beliefs about the workplace, and, consequently, traditional expectations of office space are giving way to innovations that are less costly and more productive. To manage occupancy costs, managers must be able to identify their components, measure their impact, understand what drives them, and develop options to change them. Four basic tools help diagnose problems: a cost history, a loss analysis, a component analysis, and a lease aging profile. Understanding cost drivers like leasing, location, and layout can give executives the insights they need to reduce occupancy costs while improving the effectiveness of facilities to support day-to-day operations.