How to Calculate the ROI of Your Real Estate Process Improvements

Let’s face it, asset managers, property managers and leasing teams are often overwhelmed by manual processes and underwhelmed with current tools and technologies meant to make them more productive.

From managing leases and maintenance to tracking COIs and creating reports, managing operations across a portfolio of properties can be complex and costly. That’s why CRE process improvements are a focus of attention for many property owners and managers—regardless of portfolio size or property type. But overhauling manual processes can be a costly undertaking. How do you prove to your leadership team that it is a smart business move?

Management wants to see the financial benefits before they approve a big-ticket program. By calculating the program’s ROI, you will help them visualize the impact that current processes are having on the bottom line, and uncover areas where tremendous savings can be found.

Follow these five steps to calculate the ROI of your process improvement program.

 

Step 1: Identify the unnecessary steps in your processes

Whether it’s performing inspections, managing CapEx projects, tracking work orders, or processing leases and contracts, the first step is to determine which processes contain unnecessary steps (aka waste) that are not required to complete the process.

Before waste is removed, processes are often scattered and require manual employee involvement—which increases operating expenses. After waste is removed, processes are more streamlined, resulting in significant cost savings.

Using free process mapping software like draw.io, you can create flowcharts that identify waste in all steps in a process from beginning to end. Mapping your processes will help you put a spotlight on issues like process delays, inventory problems and excessive downtime. It helps pinpoint the cause of the waste so decision-makers can visualize where inefficiencies exist, and determine where cost savings are possible.

Does this sound overwhelming? Don’t worry, the Common Cents Analysis from Common Areas pre-maps more than 30 popular CRE processes to help you get started.

 

Step 2: Define what a better process looks like

After you’ve mapped your current process and identified inefficiencies, it’s time to determine what a more efficient process should look like.

It’s best to focus on both the process as a whole, in addition to one area at a time. This is especially true with processes that involve multiple groups, departments and divisions. Each team tends to only focus on their steps in the process, making it easy to overlook how others play a part toward the ultimate goal—to reduce waste and remove duplication across the entire process.

These questions will help you focus on the entire process:

  • What is the intended outcome of this current process?
  • What areas of the process do I spend the majority of my time on?
  • Who else is involved and how much time do they spend on their part?
  • What aspects of the process currently run well?
  • If I could change anything about this process, what would it be?
  • Is the correct process solving the problem? If not, what is missing?
  • What parts of the current process do we really need?
  • Are the time and effort being expended worth the gain?

 

Step 3: Determine the cost of your process improvement program

Now that you’ve mapped the process, identified inefficiencies and reimagined a better process, it’s time to look at the costs associated with implementing the process improvements. You’ll first need to calculate the external and internal costs associated with your process improvement program.

External and internal costs may include:

  • New hardware and software
  • Development costs
  • Subscription costs
  • External consulting
  • Internal costs for time spent by everyone engaged with the program (i.e. process improvement teams, subject matter experts, the leadership team, etc.).

After defining the associated expenses, you can then determine the conceivable ROI.

 

Step 4: Calculate the direct ROI of your process improvement program

It’s important to remember that any time you reduce wasteful steps or remove duplication from a process, cost savings occur.

These questions will help you calculate the cost of your current processes:

  • What is the average hourly cost per employee involved in the process?
  • How many minutes does each team member spend completing each task?
  • How many minutes will the improved process or technology save each team member?

For example, imagine you’re a real estate company that pays its employees $20 per hour to perform multifamily inspections. Before your process improvement program, each employee has the capacity to inspect 5 units per hour, costing the organization $4 per inspection.

Upon implementing a $25,000 software solution, your team members are able to process 9 inspections per hour, with an average cost of $2.22.

The new technology solution saves your organization $1.78 per inspection. If your organization processes 85,000 inspections per year, that amounts to $151,300 in yearly savings.

This standard ROI formula will help you calculate the immediate return on investment:

ROI = Net profit / net investment *100
ROI = 151,300 / 25,000 *100
ROI = 605%

Better processes make your employees more productive. Increased work output means you can increase your book of business and generate more revenue without having to hire additional employees.

Here are some common benefits of reducing process waste and increasing productivity:

  • Reduce costs and increase profits
  • Faster on-boarding of new personnel and clients
  • Better vendor management
  • More effective governance, portfolio management, time tracking, project management, cost management, and resource allocation
  • Improved service support and service delivery to end-users
  • Remain competitive by quickly managing change
  • Higher volume of work output
  • Less time spent searching for documents and researching how to do things
  • Reduction in day-to-day system failures and downtime
  • Less risk

 

Step 5: Determine the indirect ROI of your process improvement program

Calculating indirect ROI may be more challenging, but the benefits are worth noting.

Risk Reduction. Defined processes and modern technology can offer better security and protect against risk. When your people, properties and processes run smoothly with minimal downtime, end users can enjoy constant access to services they need. This keeps employee and customer satisfaction high.

Regulatory Compliance Improvements. Maintaining regulatory compliance protects your brand’s reputation and reduces the risk of costly penalties, fines and downtime that results in lost productivity or client dissatisfaction.

Quality of Services Improvements. Process and technology improvements can offer your tenants and clients faster and more reliable online services. The improvement in service quality and convenience ensure customers satisfaction. The result is higher customer retention and client acquisition.

 

Start with the Common Cents Assessment

The ability to calculate the ROI of your process improvement program will help you identify waste and quantify opportunities for cost savings.

At Common Areas, we help real estate firms quantify the impact your existing processes have on your bottom line, and uncover areas where tremendous savings can be found. Through our no-cost Common Cents Assessment, we’re able to quickly audit your current processes and provide tailor-made technology solutions that unite the people, properties and processes across your portfolio.

Ready to see how much time and money you could be saving across your portfolio? Schedule a brief discovery call with our knowledgeable experts and get your personalized Common Cents report. To learn more visit: https://commonareas.com/reports/

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