I hate this question and that’s probably why the marketing folks here asked me to write about it. They’re a cruel bunch at times. It’s not the premise of determining ROI that I take issue with, it’s the generic nature of ‘so what’s the payback for your software?’ It bothers me because the honest (and appropriate) answer really depends on you and your company’s current situation. There really isn’t a simple stock answer (but I’ll give you one at the end anyway!). So in this post, I’ll walk you through how I try and help current and prospective clients determine the ROI from their implementation of our property operations platform.
In fact, strike that. You can apply these to any property operations platform such as Angus Anywhere™, Workspeed™, 360Facility™, AwareManager™, etc. (You’re welcome guys – send the checks/gifts to our corporate HQ. I like British beer, ProV1 golf balls, and anything related to Manchester United.)
I’ll warn you in advance, this is a lengthy post. Grab a coffee and, if you make it to the end, please retweet, share, forward to friends.
Here we go…
Step 1 – What systems to you have today?
First compare and contrast the capabilities of your proposed platform with your current providers today. Commonly I’ll encounter opportunities for vendor consolidation and cost reduction. Here’s a simple table that covers the most frequently encountered areas of overlap:
Once you’ve completed the table above and obtained a proposal from your ‘new’ provider for the equivalent functionality, any immediate cost-saving ought to be apparent. Similarly, for any gaps you have in the ‘Current Expense’ column in the table above, it’s time to dig a little deeper into how you’re performing those functions, if at all…
Step 2 – How are you doing it today?
There’s really two main tasks related to the ‘how’ questions:
1) First, assess whether you are actually performing the activity today at all. If not, then the ROI isn’t just from the platform, it’s from the activity that the platform is enabling.
For example if a new platform is providing support for a new Preventative Maintenance (PM) program, the ROI for the platform is in addition to the ROI affiliated to the PM activity. JLL conducted a study many years ago detailing a compelling ROI of PM activities by as much as 2400% for certain equipment types, while a more recent perspective summarized PM’s ROI as follows:
“The bulk of the ROI (about 50 percent over 25 years) came from extending the useful life of the equipment and delaying large capital outlays for replacement. Obviously, the longer we can delay the replacement of a large asset the better the rate of return. Repairs/ corrections were also found to be delayed or less frequent when a PM was in place, which would lead us to our component failure pattern analysis we discussed earlier in the article. And lastly, a fairly substantial rate of return came from energy savings, around 7 percent.”
2) Once you have established that you’ve an existing equivalent program/activity in place today, the next crucial action is to document how long it takes with the current approach verses the amount of time it will take when using the new platform. This can be expressed as pure time or as a capacity metric.
For example, we see tenant coordinators for large properties with multiple vendors spending a significant and disproportionate amount of their time maintaining COIs, often at the expense of other tenant-facing and revenue-generating activities. We will often measure engineers in terms of completed work orders (WO) per day/week alongside the time spent performing WO versus performing PM and/or administrative tasks. (Layering on top of this WO data the proportion of billable work versus non-billable often provides another compelling financial metric that improves with a system deployment.)
Another commonly assessed benchmark is the PM completion rate (what percentage of PM tasks are actually completed on schedule), because PM is usually the first casualty of an over-burdened engineer with too many tenant requests.
With these data points established for the status quo, we’ve got the core building blocks for a basic ‘hard dollar savings’ ROI analysis.
Here’s data from a Class A, downtown, tower of 450k RSF:
In this simple analysis you’re able to see the common ROI experience for a property that transitioned from COI management using spreadsheets to an automated, self-service COI administration model. The engineer transitioned from a PC and printed WO to a mobile device; completing work in the field and moving directly from WO to WO.
As a result, the tenant coordinator was able to spend more time working directly with tenants, improving tenant relations or supporting more properties, while the engineer was able to more rapidly complete more WO and devote greater time to PM activities. With an investment in a platform, hardware, and cell phone data plans, the total annual new investment equaled just under $10k with a total saving/increased capacity of approx. $32k in year one (or just a 4-month payback period).
ROIs of this type are fairly common and, increasingly, we’re seeing third party managers better leverage technology to increase the RSF supported by Property Managers, Tenant Coordinators and Engineers alike. In doing so, they’re able to offer greater tenant service to suburban real estate that otherwise wouldn’t have merited the same level of Property Manager attention.
Step 3 – What’s the cost of not doing it?
Typically the last part of any ROI analysis involves a look at potential and/or risk (soft savings or gains). At Building Engines, we typically discuss these topics relating to Tenant Satisfaction assessment, Incident Management programs, Emergency Preparedness, and Vendor Compliance.
The deployment of an ongoing tenant satisfaction program, for example, likely yields little ROI in and of itself. But by providing that real-time window into how your tenants feel about your property, the service you have just provided and the quality of work delivered, you’re able to act immediately to remediate. Happy tenants = greater tenant retention and knowing when you need to step in to take corrective action is a crucial part of any tenant retention program.
Likewise with Incident Management programs: On the one hand, a robust incident response and notification program can yield tremendous financial benefits as Beacon Capital Partners, a property owner and Building Engines client, found when they scored a 96% on Liberty Mutual’ s High-Cost Study for Property Managers. This led to being granted the prestigious Gold Star Award and a substantial reduction in its insurance premiums. In the absence of such a program, more cases are settled and insurance premiums increase annually.
With respect to Emergency Preparedness, this topic runs the gamut from properly documented evacuation plans, fire and life safety training records, properly documented inspections, and the ability to communicate effectively in emergency situations. Quantifying a concrete ROI for this expenditure is difficult but in the event of a scenario where you need to call upon your emergency notification system or demonstrate that you’d done everything possible to mitigate risk after a disaster, they’re critical in minimizing your liability.
More commonly, I do hear Vendor Compliance horror stories. The vendor called in on a Friday evening to fix a leak by a Property Manager who couldn’t locate the preferred plumbing contractor. What was a small three hundred dollar repair was done poorly and caused hundreds of thousands of dollars in damages during the weekend the property was closed. All due to a plumber that wasn’t adequately bonded and insured. A platform that informs your property staff when assigning work as to a vendor’s status is an integral component of any vendor compliance program.
Don’t trust what any vendor tells you the ROI is going to be for you. The best you can do is ask them to prove it: Just be clear about your current metrics and be explicit about your goals. If the vendor feels that their solution can deliver, they’ll be happy to.
At the beginning of this post (a loooong time ago), I said that I’d answer the question, “What’s the ROI of Property Operations Software?” Well, here’s the short version:
It depends. But if pushed, and you’re coming from paper, pencil, radios and spreadsheets, you should expect a payback in less than 6 months (often much sooner). If you’re transitioning from another platform to Building Engines, we really do need to talk some more, but I’ll hedge and say that it’s usually less than 18 months.