A facility manager’s main responsibility is as clear as the thermostat on the wall, the light fixture in the ceiling, or the carpet on the floor. But that doesn’t mean that the job of facility management is confined to the bricks and mortar of the physical environment. The expertise and skills typically associated with MBAs — like an understanding of financial concepts and the ability to effectively communicate with staff, other departments, and top executives — are becoming increasingly important for facility managers. Why? Ultimately, it’s because a broad skill set can help facility managers use buildings to add value to their organizations, say members of the ProFMI Commission.
There’s one very simple reason for facility managers to acquire financial knowledge. Many facility managers are “responsible for a lot of spend,” says John Hajduk, a member of the ProFMI Commission and vice president, operations and facilities services, Sodexo. Along with their in-house employees, many oversee numerous contract workers. They need to effectively manage both groups to keep their facilities operating safely and reliably.
Most facility managers also help decide in which building systems to invest. To make an informed decision, they need to understand how the return on that investment will be calculated. Moreover, the annual cost to operate a modern building can hit several hundred dollars per square foot, Hajduk says. To succeed, facility managers need to know how to run their buildings efficiently and reliably.
What facility managers need is “financial literacy,” says Lawrence Bick, a ProFMI Commission member and senior director, property and aviation services, with Excel Energy. While it’s not necessary that they become accountants, facility managers should understand key financial concepts, he adds.
One key concept is cash versus accrual accounting. Cash accounting is similar to a using checkbook: Revenue is reported when the cash is received, and expenses recorded when cash is paid out. Conversely, under the accrual method of accounting, revenue is recorded when it’s earned, even if the organization hasn’t been paid. Expenses are likewise recorded when they’re incurred, even if the bill hasn’t yet been paid. More building owners are shifting to accrual accounting, says Dean Mayfield, a member of the ProFMI Commission and managing director with CBRE. Facility managers should have some understanding of how this impacts the financial reports for the building.
Another important concept is the time value of money. This follows from the idea that, all things being equal, a dollar today is worth more than a dollar tomorrow. This concept is used to evaluate investments that may generate a return over time — such as a new HVAC system that promises to lower energy costs — as it allows an organization to compare expected future savings to the amount invested today.
Facility managers should also understand the financial objectives of their organizations and the ways in which those organizations make money. Say the roofing system needs to be either repaired or replaced. The optimal decision likely will vary, depending on whether the organization plans to hold the facility for a year or for several decades.
About the ProFMI Commission
The ProFMI Commission is a governance body that serves as an advisory committee for the Professional Facility Management Institute (ProFMI) activities. The Commission’s mission is to ensure the quality and impartiality of the ProFM certificate program. The Commission oversees all aspects of the ProFM certificate program, including development of the assessment exam scoring, eligibility requirements, and term of validity and renewal requirements. The commission is comprised of volunteers who have extensive facility management expertise from organizations around the world.
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