Leveraging your cost data into strategic planning requires sound processes and sharp tools.  Many of the requirements, workflows, and data management methods for capital planning, procurement, and construction make it hard to streamline visibility of your past efforts.  Teams do the best they can with Excel models, but disconnected forms and processes are cumbersome; too often people are comparing apples to oranges when critical questions arise.

Store costs must be in line with the financial plan and sales projections; an isolated real estate and construction department has the potential to undermine an entire company.

To summarize the challenges:

1. Different sources pulling from varying “all-in” numbers to create a single budget. 
2. Accounting, Procurement and most Budgeting systems are not estimating solutions;   
3. System limitations dictate the current depth and level of line items in the budget.
4. Limited ability to quickly analyze budgets in more than two simple dimensions.

These limitations make it hard to:

1. Control project costs and develop performance metrics.
2. Quickly and effectively leverage existing data to make clear decisions.
3. Identify sources of variance between the proforma, funding budgets, and actuals.
4. Identify certain budget owners’ costs within cost categories and cost targets.
5. Determine the impact of a departments’ category spend on the total cost.

Opening a store is a complex process.  It’s essential that a company’s real estate and construction department support Operations and Finance by aligning its costs with the overall business plan.  The integrated processes and tools offered by site|folio will provide the visibility and consistency required.

In a recent ICSC Newsletter (link) best-selling author Paco Underhill was asked what legislative issues will affect the retail landscape in 2011.  His response:

“Retail has the right to ask that depreciation schedules get reviewed. The five-year window for construction and fixture costs has not been reconsidered in the past 20 years. The increased use of pop-up stores and focus on technology suggests that retail can look at the trade show industry and look for shorting the ability to write off their construction and technology expenditures.”

This is good news for companies undertaking construction, renovation, or purchase of a building, as they may be eligible for substantial state and federal tax savings through sound cost segregation.  Cost segregation is the process of identifying personal property assets that often get buried or lumped together with real property assets.  (Read more about cost segregation at - link to Cost Partners.)  

The problem: the data is hard to obtain.  Typically, finance departments don’t have the ‘working knowledge’ of the ‘building systems’ that make up the assets to properly depreciate them; or, construction personnel don’t have an understanding of the requirements to properly segment the costs for the ‘finance tax specialist’ depreciating the assets.  Improperly depreciating assets - however the ‘mistake’ is made - can result in penalties by the IRS and the loss of the anticipated depreciation.

The goal then is to have your ‘project budgets’ accurately inform your finance and tax departments of the asset depreciation for the Proforma calculations proactively.  sitefolio’s Capital Budgeting Edition makes it possible by enabling you to incorporate your tax depreciation strategy into your approval process.  A real-time view into these strategies can reduce the number of mistakes and the amount of post-mortem exercise by the finance department. 

Give us a call today to learn more about contributing to your bottom line.

Note: Special thanks goes out to Steven Spencer for co-authoring this post.

Standard Cost Control Programs

A standard cost control program normally follows the sequential flow of a project; it uses the latest project as the stepping off point for the next.  Such an approach often results in one-off estimates, high level generalities, and inaccurate store to store cost comparisons.  The linear nature of the process makes it difficult to harness lessons learned or leverage existing and historical information in a meaningful way.

As each project presents a unique set of conditions, poorly localized plans and specifications increase costs as omissions are discovered and changes are incurred.  Non-standardized cost documentation for each unique location causes reliance on “tribal” knowledge, which exacerbates the difficulty of effective executive oversight and good long-term decision making. 

Recursive Cost Control Programs

The key to any recursive cost control program is the continual comparison to, and development of, a cost baseline. The baseline is established through the creation of a standardized, exhaustive set of templates, plans, specifications, and estimates. At the completion of every project, the baseline is revisited and changed where appropriate.  Recursive cost control programs rely on expertise, clear processes, a system of checks and balances, and a solution like site|folio to create predictable costs throughout the project lifecycle.

The benefits of a recursive cost control program include:

• Predictable Costs: based on a template, known components, and the integration of “lessons learned” during each project lifecycle.
• Checks and Balances: change and known costs are formally adopted and accepted.
• Focus on Exceptions: ability to focus on cost exceptions, such as location, union, and seasonal factors, instead of a new estimate in its entirety each time.

The transition from a standard to a recursive cost control program is phased as follows:

1. Current state analysis and recommendations.
2. Prototype template & estimate development.
3. Rollout of program standards, processes, and reporting in site|folio.
4. Execution of new program paradigm on projects.
5. Postmortem, audits and refinements.

If cost control is important to your organization, site|folio can help.

This slide compares the ability to influence cost to the level of information known throughout the project life cycle.  Retailers, restaurants, and banks that use a repeatable format are the best candidates for embracing such a concept.  This idea was shared with me by Steven Spencer, a store roll out guru who is a proponent of doing everything possible to “raise the red line” from the outset of the project. He taught me that with a few simple process enhancements and a flexible tool, our clients could influence costs instead of simply scrambling to control them.

Too often when a project starts the ability to influence costs is high, but the level of information about the project is low.  At bidding the amount of information increases, but you are already more than halfway through the project life cycle; the ability to influence project costs has diminished by over 50%. Near the end of project, which is dominated by construction and where plenty of information is available, the ability to influence the costs are marginal. Sadly this is where most people expect the cost savings to emerge.

Having a repeatable program increases the level of influence you have over the cost of a project. Unfortunately most companies are unable to quickly and easily leverage the wealth of information they have due to complex processes managing multiple tools and workflows. They have the information; they just can’t easily access it.

Our focus at site|folio is to help clients leverage the knowledge within their portfolio to influence costs.  In short, we want to help you raise the red line by simplifying processes and offering a powerful tool that does all of the heavy lifting, allowing your team to follow industry standards and best practices while organizing and reporting your cost data per your organizations requirements in real-time.

Let’s raise the red line and increase our influence.

Good budgeting assumptions come from great visibility.  Imagine leveraging your budget views to develop meaningful KPIs that provide early warning trends and analysis of all stakeholders and contributors. Imagine a scoreboard that displays what’s on track and what isn’t.  Imagine being able to present these KPIs the way you, your team, VP, accounting, or other departments need to see them.  Imagine having the visibility to reconcile and publish accurate numbers for use in future projects.  Imagine instantly knowing from multiple vantage points exactly where costs have gone.

Imagine doing all of this much faster than you are now.  Results: time saved, and good numbers that lead to a virtuous budgeting cycle.  

Pretty revolutionary.

Learn More: www.sitefolio.com/editions/capital-budgets.aspx

In this example the user views the capital budget pro-forma (how thier budgets are provded for capital approval) then instantly reviews (in one click) that breakdown by FFE & LHI. The user then pivots their master CSI by store location (in another click) providing a detailed breakdown of costs by building component.

Imagine the time savings by simply managing a budget through all versions, approvals, execution, and reconciliation -- laid out in a format that makes sense to all stakeholders. Imagine doing this while keeping the bottom line the same across all views. What used to be nearly impossible can now be an everyday occurrence.

This ability to create relevant views into your budgets from a detailed CSI ( language, grouping, sorts, and levels) will allow your team to quickly produce Proformas or reconcile against the General Ledger. Our clients have saved hundreds of hours and produced more accurate budgets by instantly changing their views between:

• CSI
• Schedule of Values
• Proforma
• Finance (General Ledger)
• Assets (LHI & FFE)
• Depreciation Schedules
• Departmental or Budget Owner Views
• Location or Component(s)

Leveraging your data into a capital budget is a daunting task.  Each department has its own formats, requirements, and languages that must be squared to produce an all-in budget.  But who gets stuck with the tedious task of translating between all of these departmental requirements?  Popular answer: “Hopefully not me!”

The problem: it’s hard enough to keep your team managing and reconciling their budgets to your requirements, while also asking them to manually reconcile different budget formats.  This double duty leads to excess workloads, inaccuracies, and headaches with business partners.  It doesn’t need to be this way.  

site|folio’s revolutionary Capital Budgets instantly makes your team’s budget relevant within and outside your department.  Your team members will save time interacting around and editing a standardized budget through all versions – from approvals to execution to reconciliation -- and be able to instantly render those numbers relevant to the person that needs an answer quickly.

The time has come and gone for the extra workload involved in developing budgets to be “someone else’s problem.”  Join sitefolio’s Budgeting Revolution today.

Learn More: www.sitefolio.com/editions/capital-budgets.aspx

I’ve been chomping at the bit to blog about sitefolio’s Capital Budgets 2.0.  It’s Friday afternoon, and I’ve found a few minutes.  Here goes.

Not all budgeting tools are created equal.  The focus of our recent update was to get our budgeting solution just right, to create the most powerful underlying framework, one that could quickly address our customers’ most painful problems. 

Okay, close your eyes for a moment and imagine being able to consolidate all of your numbers in one place, across all stakeholders.  Imagine, in a single stroke, being able to blend integration, estimating, execution, and reporting into a single tool.  Imagine having your budgets instantly transformed into any relevant format – for accounting, for pro-forma, for a department, or by store component.  Imagine immediate relevancy.  Imagine accurate budgets, and how much time they will save you. 

Okay, open your eyes.  Nope, you weren’t dreaming.

Let's take a look at Capital Budgets 2.0 in action by considering the following scenario: being stranded in the middle of a vast data grid desert. This is a common problem when working on budgets infinite in vertical and horizontal dimensions.  Our clients like to instantly transform their Master CSI into any conceivable (and meaningful) format.  They also like to pivot – to see, for example, a CSI on the vertical axis -- by store components or by responsible party.  This was doable with our previous Capital Budgets edition.  But with only so much screen real estate available, it was still too easy to get lost in the data grid desert.

After wrapping our heads around the complexity of these vertical and horizontal budget items we were able to come up with a simple solution: floating header columns and rows.  Now, no matter where you are in your Capital Budgets 2.0 view, your column headers and left columns follow you around – just like a puppy – and just like in Excel.

Take a look at the budget screen shot below.  The view shows a company’s CSI vertically pivoted in real-time against its custom defined store locations (or components).  Notice the column header is floating over the grid as the user scrolls.  It follows you down the page, ensuring you don’t get lost in a data grid desert.  Pretty simple, but pretty great.

Check back in this forum regularly, as I’ll spend more time over the course of the year highlighting different parts of Capital Budgets 2.0 and how it was designed with your specific problems in mind – problems you may have tossed into the “impossible to solve" bin.  Dig them out and see if we can help.