How to Quantify the ROI of Data-Driven Building Ops

The question of ROI appears like a straightforward way to evaluate technology. This is an easy calculation for things like energy savings, but can get complex when you started talking about productivity, net present value, and opportunity cost.

In this video, Drew Foulkes explains how to quantify the value of data-driven building operations. As importantly, he explores whether that is the right question to be asking in the first place.

Video Transcript

Hello there, I’m Drew Foulkes, an Account Manager here at Enertiv and today we’re going to talk about quantifying the value of data-driven building operations.

My goal in this video is two-fold: to demonstrate the immense value potential of bringing a data-first approach to your building operations and to explain why this question misses the bigger picture.

Okay, first, let’s go through each value stream and how we can quantify that value as dollars and cents.

Five years ago, when data was synonymous with energy management, this was easy. You could simply compare the utility cost savings, which are highly variable and easily calculated, to the cost of the technology or system.

The problem is that energy savings alone do not move the needle for owners or operators. It’s always good to boost NOI, but the efficiency of the building doesn’t necessarily affect the mission-critical work of achieving or maintaining a stabilized asset and making smart investments relative to the hold period.

If we want to understand the full spectrum of value that can be created by transitioning from manual and reactive processes to data-driven and proactive building operations, we need to get comfortable with some more complexity.

First, let’s explore the maintenance and repair line item. Though a similar cost per square foot as utilities, the cost driver here is different, it’s mostly time spent by in-house operators and third-party maintenance vendors.

Now, they say time is money, and it is, but it’s not necessarily cash. If an operator or vendor saves 10 hours a week on activities that add no value, such as searching for documentation, making multiple trips to find the right equipment, or doing tedious root-causes analysis, the owner doesn’t necessarily get to pocket 10 hours of their salary or contract rate in cash.

But that doesn’t mean value hasn’t been created. Those 10 hours can now be spent on more value-add activities, such as finishing the build out of a new tenant space or taking the time necessary to do thorough preventative maintenance instead of simply band-aid solutions. The value is productivity, which in aggregate translates to more revenue per employee.

This leads me into the next value stream, deferring equipment replacement costs with proper maintenance. Studies have found that chillers that are supposed to last 20 years last around 13 without proper maintenance. When calculated, the net present value of delaying this replacement comes out hundreds of thousands of dollars. Again, this isn’t cash; it’s essentially saying spending $350,000 for a new chiller in year 20 equates to only around $220,000 in today’s dollars. Overtime, if the organization gets comfortable with extended equipment useful lifetimes, the CapEx reserves put aside each year could be reduced as well.

Which leads me to how to use data to get ahead of a seismic shift in the real estate industry today: tenant experience. Properly maintaining equipment is your insurance policy against the negative experiences that could influence leasing. Owners are increasingly pressured to offer hospitality-centric experiences combined with expectations for shorter and more flexible lease commitments. We’ve seen more and more owners racing to offer amenities above and beyond the traditional tenant experience. However, the goodwill from those amenities not only disappears but has the opposite effect when the tenant’s basic expectations aren’t met. “Sure there is yoga, but it takes me 20 minutes to get from the lobby to my desk.” Obviously, leasing decisions are not entirely based on the experience, but how can you put time towards building a competitive advantage when your teams are trapped in the weeds? Instead, imagine being able to offer more with less people - that’s the promise of a data driven operation.

Finally, at the end of the day, when it comes time to sell the asset, having a data-driven property condition assessment and ability to empirically demonstrate lower risk to the prospective buyer can compress cap rates. Even if this is by a few basis points, this can translate to millions of dollars. And this time, it is in cold, hard cash.

These aren’t all the potential value streams, but the point is that the return on investment of data-driven building operations is clear, as long as you’re willing to consider some more complexity on top of energy savings.

Now that we’ve gone down the rabbit hole, let’s take a step back. Do you ask the ROI of other forms of technology that clearly enhance your experience and save you time? What’s the ROI of a system like Yardi or MRI that combines financial and property management information in a centralized database? For that matter, what’s the ROI of email?

The answer is that it doesn’t matter, you can’t imagine living without it

In summary, quantifying the value of technology is very important, but value doesn’t have to be in the form of cash, and it’s important to understand that dogmatic fixation on ROI can lead to paralysis by analysis and hamper tech adoption.

Thanks for your time, if you have any questions or comments, feel free to reach out. See you next time.