Deloitte reveals compelling statistics for capital efficiency in new MENA white paper

June 5, 2014 4:25 pm

In the post-downturn economy businesses are looking to deliver more for less, but while most companies place great emphasis on driving efficiency out of their business process and built assets, they tend to avoid the more challenging aspects of people and culture. A new white paper released by Deloitte Middle East, titled ‘Capital Efficiencies: Assessing the optimal solution to your Capex Program’, provides compelling insight and statistics on how employee performance and operational efficiency can make a measurable difference to costs.

“In today’s climate companies recognize the need to become more agile, flexible, resilient and responsive to change, and also recognize the competitive advantages that can arise from working smarter,” said Ben Hughes, director, Infrastructure and Capital Projects at Deloitte Corporate Finance Limited. “However, while most focus on their business processes and built assets when looking to drive efficiency, they are ignoring their most critical asset and cost item: i.e. their people.”

According to the white paper, staff costs generally equate to approximately 80% of corporate expenditure, while process costs equate to 12% and property to 8%, making it clear that the greatest investment impact is to be gained in creating environments that benefit the organization’s people.

Recent research suggests that there are clear links between motivation and productivity, absenteeism due to illness, involvement in the organization and employee satisfaction. Although there are no reliable industry standards as yet to assess productivity and its link to the workplace, some researchers have opted for the measurement of occupier satisfaction within the working environment – the theory being that a more motivated and engaged employee will be more productive and committed.

One of the more reliable indicators of people performance in the workplace relates to productive working hours. An approach that has been developed by Deloitte quantified the average number of productive working days for an employee (excluding holidays, sick leave, training/administration) alongside the real cost to the organization for each productive day (including salary, insurance, car allowance, housing allowance, gratuity payments and other on-costs such as training and office overheads). In this instance, the number of productive days was determined to be 160 per annum and the real cost of each day was AED 3,620 or about $985. Hence a 1% increase in productivity would represent 1.6 additional days per annum with a ‘value’ attributed to that 1% increase of AED 5,790 or around $1,576. When extrapolated across an organization of say 500 people, the metrics become quite compelling – an additional 800 days of work with a value of AED 2.9M or $780,000 for a given year. Although this will obviously vary from organization to organization, the statistics remain compelling.

People performance cannot be considered in isolation, however, and in terms of operational efficiency it is inextricably linked to the measurement of the cost of property, which is arguably more straightforward to calculate. Here, the design of a new building or spatial arrangement that promotes operational efficiency often manifests in savings. This could be in the form of readily accessible light fittings, standardization across the building, use of energy efficient equipment and consumables, or more rudimentary measures such as passive ventilation which reduces maintenance annually. Indeed, simple measures such as the physical location of photocopying stations or stationery stores can often result in improved efficiency from an operational viewpoint.

The Deloitte white paper gives the example of an organization that occupies around 6,250 sqm of leased office space, at a cost of AED 1,500 or circa $400 per sqm per annum, and whose annual rental bill would equate to AED 9.37M or $2.5M. Assuming that, as a result of capital efficiencies being applied to this workspace, there is an area reduction of 25% through improved spatial planning and business process mapping, it could theoretically translate to a reduced annual rental bill of AED 4.34M or $1.9M.

“Worth noting is that while there are clearly tangible savings that can be derived through the application of capital efficiencies in the workplace, these are still likely to be less than a 1% increase in staff productivity and efficiency across the organization,” said Hughes. “Ironically, a 3% increase in productivity would virtually wipe out the entire rental cost of the built asset. All of this, though, provides a compelling argument for any business to undertake a capital efficiencies review, not just of an organization’s expenditure program but also its operational composition and efficiency.”

Nadine El Hassan
Public Relations Regional Leader
Deloitte Middle East
Tel: +961 (01) 748 444