In the midst of the COVID-19 crisis, operational challenges are among the top sources of pressure for businesses. Unforeseen costs, disruptions in services and, for most organizations, significant material hits to revenue are top of mind as you navigate new issues related to maintaining facilities and business functions. For these reasons, identifying and utilizing operating costs reduction opportunities is imperative.
Now is the time to consider aspects of your operations where you can reduce expenses, as you work through crisis management and to mitigate strain on finances. With the proper resources in place, building a robust cost reduction program to focus on immediate opportunities allows you to address operational priorities.
Below is a checklist of cost reducing strategies to consider for your recovery plan.
Renegotiate Existing Leases
- Prioritize leases for renegotiations based on most impacted territories: facility type (criticality, costs); remaining term; total annual cost; capitalization (invested capital by location)
- Project business cases to track negotiation progress against existing occupancy cost baselines
- Initiate negotiations for scenarios such as temporary and permanent rent reductions, rent holidays, deferred rents, abatements, early lease terminations, and blend and extend
- Identify and eliminate space in the current portfolio that is under-used, ‘dark space’, or no longer profitable
- Implement a lease audit program to reduce pass-through operating expenses
- Complete a footprint optimization analysis to identify locations for consolidation and closure
Reducing Other Occupancy Costs
- Negotiate reduced levels of workplace services due to change in space and facility utilization
- Review contracts and consider janitorial, food service, security and other service needs
- Evaluate number of vendors and vendor management program to generate economies of scale
- Rebid and/or renegotiate contracts to capture savings in changed market conditions
- Reduce procurement of supplies relayed to facilities and operations
- Conduct quick analysis to project demand, updating vendor agreements for flexibility for fixed consumptions and passthroughs
- Review construction and other capital project commitments
- Develop strategy to defer and revisit terms of borrowing with lenders
- Review ramifications of work stoppage to reduce cash outflow
- Implement Construction Audit program
- Implement aggressive MSA/Contract Audit program focusing on operational and financial compliance
- Appeal property taxes for owned properties
Evaluating internal and external organizational structure
- Restructure/Reduce RE/Facility organization to ensure right number of internal versus external resources (proper roles, responsibilities and capabilities)
- Evaluate operating model structure for best use of resources and alignment to enterprise needs
- Consider temporary Staff Augmentation as opposed to permanent hiring, allowing for agility and flexibility in organizational structure
Workplace Disruption Mitigation Strategies (Post Facto):
If COVID-19’s impact on the workplace persists for next few months, you can develop prioritized enterprise strategies to work remote or on reduced scale.
- Link to go-dark strategies at facilities level
- Conduct workforce criticality analysis, P/L and operations impact analysis by workforce segments, equipment and technology usage etc.
You can prepare for a smoother workforce re-integration by developing and updating protocols. Action items may include:
- enhanced cleaning of workplaces
- new guidance and communications related to in-premises disease vector transmission,
- cleanliness and decontamination training for employees and facility staff
Taking proactive measures now will mitigate the inevitable negative impact COVID-19 is having on most businesses. Hope, wait and see is not a plan. Preparedness drives needed results.
This article was written by Ross Forman and originally appeared in BDO USA, LLP’s “Advisory Insights”. Copyright © 2020 BDO USA, LLP. All rights reserved. www.bdo.com
