How RMP Conducts Its Budget Planning Amid Shifting Marketplace Variables

For many reasons, this is the busiest time of year. Beyond its usual cadence, the oversight demanded by commercial and residential real estate is no different. One recurring year-end task is planning the next year's budget. It’s one thing for a business owner to plan ahead; it’s another for an asset management company to give this kind of exacting attention to several leasing clients across both property types.

A subtle but recurring theme in our blogs is successfully managing several moving parts, from solidifying contract terms with multiple third parties to scheduling maintenance and construction initiatives for large capital improvements, securing labor availability, and monitoring projected delivery dates for required materials.

To start, a look at past preventative maintenance activities shows how variables could have jeopardized project completion without careful planning. Winter inspections include testing that a heating system works properly, especially after it’s been shut off during the summer months. One area of failed testing includes cracked heat exchangers. This is an expensive repair, costing approximately $4,000.00, one that is not automatically budgeted for. A challenge like this can’t even be contemplated during New England winters, and it has a ripple effect. If a situation like that presents itself and the needed unit is unavailable, a landlord would have to review the previous months' electric heat use and what would have been spent on natural gas. In such cases, a higher price tag is a secondary consideration, but the lesson is that it affects the current budget and stands out as an example of what to factor into budget planning.

Another example of preventive maintenance as a budget-planning measure is ensuring all local certificate requirements are up to date for specific equipment. This could become an issue if the equipment owner minimizes its importance, shifting the responsibility to asset management to procure the necessary paperwork—often with a narrow timeframe to remedy it. “The important thing is to get in front of it as soon as possible. Taking a proactive approach and letting the local authorities know that it’s at the top of our ‘to-do’ list goes a long way in getting what we need from them in a timely manner and with their cooperation,” states Mr. Chuck Thibedeau, President of RMP.

Preventative maintenance underpins budget planning. Conversely, situations occasionally arise when third parties sign a contract and renege with little or no warning. “We had a signed contract with one of our partners where they supply a vendor with specific dates and values,” Chuck explains. “A week before the project was scheduled to begin, we were told that the vendor had accepted another job…and did we want to buy the supplies? I'm not in the business of owning materials. To get the job started on time, I suggested that the other contractor might want to buy the materials at a discount.” Crisis averted, and done so effortlessly, because Chuck is adept at finessing situations like this, providing solutions to everyone’s mutual satisfaction.

Inflation is on everyone’s mind and must be factored into budget planning. “Material items and fuel costs are going to increase. What used to cost $100.00 will likely increase to $150.00 or slightly higher,” Chuck guestimates. He cautions that good budget planning will allow for that, so a project won’t catch anyone off guard by going over budget.

This also relates to labor costs. Sometimes broaching the subject with clients about this particular job cost can be uncomfortable. However, Chuck says astute clients know this will happen and that it’s better to stay loyal to and work with existing facilities management rather than look elsewhere. “If the relationship is five years on, obviously the client loves doing business with you. The value increase is not just about the dollar amount of what they’re paying for our services. It encompasses the overall business relationship, because so much becomes transparent to us about how the client likes things done and the client relies on that from us,” he articulates.

While budget planning is an arduous task, it must be done. With ever-shifting variables in the marketplace, such as unanticipated preventative maintenance, increasing material and labor costs, keeping an eye on procuring timely approval requirements, and offering solutions to keep job completion on track, these must be accounted for, all of which factor heavily into producing a solid budget plan that is effective, credible, and one that RMP’s clients can depend on.

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