Did you think that the price of an office space could be calculated by multiplying the price per square meter by the number of square meters? So do a lot of people before they start unbundling the overall expenses.
Workspaces generate a surprisingly large number of hidden costs that are often difficult to identify. Such costs mostly result from opaque charges and the inefficient use of space.
What Do Work Environment Costs Actually Entail?
Do you know how much your company pays in work environment-related fixed costs per employee? If yes, congratulations are in order – you are one of the very few.
According to Henri Rantalainen, Director of Technopolis Tampere, only a small number of companies know how to take into account all costs associated with their work environment. The majority of hidden costs result from:
- Incorrect indicators that conceal part of the expenses
- Hidden work that does not appear in cost calculations
- Inefficient use of office floor area
- Office solutions which do not promote efficient work practices
1. Incorrect Indicators Conceal Part of the Expenses
An average company typically concludes 5-15 agreements in addition to the lease: electricity, Internet, cleaning, property maintenance, mail services, security, restaurant services, key management agreements, furniture and greenery, printers, monitors, data projectors and so forth. Each of these contracts adds to the total cost of the company’s work environment.
Many compare office spaces based on their price per square meter, but if the comparison were to take into account the actual total expenses (lease and service contracts), many seemingly cheaper options would drop to the bottom of the list. Service agreements are often excluded from the total, however – a practice which conceals the actual total costs of the different options.
2. Hidden Work Does Not Appear in Cost Calculations
The management of contract portfolio and different service packages involves a lot of immeasurable invisible labor, which distorts cost calculations. Oversized portfolios and service management eat up a lot of resources in daily work. Such resources are often difficult to identify and, therefore, include in overall costs.
“The tendering and renewal of contracts alone consumes a huge amount of resources. If a company has 20 offices and each office concludes 12 service agreements with a 3-year contract period, this means that each year 80 contracts come up for renewal,” Rantalainen calculates.
Larger companies tend to have several full-time employees managing their service packages. On top of that comes other contract-related administrative work carried out across the organization. In smaller firms, such administrative tasks are typically dumped on those whose time would be better used to develop the company’s core business.
3. Inefficient Use of Office Square Meters
The inefficient use of space is one of the biggest sources of unnecessary expenses incurred by companies. A poorly designed office is typically not only impractical, but also too large in size. With proper design, extra square meters can be reduced to a minimum, which results in savings in lease costs.
Inefficiency often stems from the acquisition process, which is initiated by determining the maximum price per square meter. Other criteria – location, comfort and the functionality of the floor plan – come into the picture after the price-based pre-qualification round. This type of strategy often results in offices which are spacious in terms of floor area but are also outdated and inefficient.
4. Workspace Does Not Promote Efficient Work Practices
Redundant square meters are not the only source of additional costs. Many premises fail to promote efficient work practices or adapt to the varying needs of their staff. According to Leesman’s recent study, only 57% of employees feel that their work environment contributes to their work efficiency – in some workplaces, this figure is a mere 15%.
Studies show that a dysfunctional workspace has a reducing effect on labor efficiency, motivation and – at worst – employee commitment. This means that a comfortable and functional office is an important competitive factor and instrumental in attracting the best talent. Business premises planning is thus particularly important in fields where skilled workers are in short supply.
Make Smarter Workspace Choices
Hidden costs are difficult to pinpoint if you do not know what you are looking for. This pushes companies to cut costs in the wrong places, such as m² price or individual services, even though the elimination of hidden costs would yield better results. Furthermore, the likelihood of achieving an efficient work environment increases if the premises and services are not seen as expenses, but rather as an investment in the company’s success and employee well-being.
Read more on our guide: How to control workspace expenses – CFO’s short guide to smarter workspace selection