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Cost Reduction vs. Cost Savings: There's a Big Difference

Rick Sung View Rick Sung

November 15, 2022     6 minute read

Facility maintenance has been and remains one of the costliest aspects of running a business, regardless of industry—especially if that business has multiple locations. In the endless quest to save money while still ensuring your facilities are well maintained, you might look to make cost reductions by searching for the FM service provider with the lowest hourly rate.  

However, that hourly charge doesn’t tell the whole story. In fact, you might end up spending more money by focusing on cost reductions rather than cost savings.  

What's the difference? The confusion for many within the industry arises when those terms are conflated when describing tactics utilized to reduce facilities maintenance expenditures.  

Fully understanding the true cost of maintenance above and beyond just the hourly rate will help you reduce overall expenses while still hitting KPIs. How so? Let’s take a closer look. 

Comparing Cost Reduction & Cost Savings 


Cost reduction
 is a raw dollar-savings approach with the primary objective of cutting necessary expenses by changing the scope of maintenance services without negatively impacting the end result. For example: a retail store might reduce its monthly floor cleaning service to quarterly during the down season. 

That methodology, however, does not account for the non-hourly expenditures associated with maintenance, such as additional service trip costs, emergency repair fees, and overtime charges. This translates to significantly greater true costs when all is said and done. 

Cost savings is a holistic approach to maintenance budgeting that looks at more than just the upfront dollar amount of services. Rather than cutting those monthly floor cleaning services, for example, a retailer would consider alternative measures to compress service costs—such as leveraging a service provider network instead of standalone contractors—while still fulfilling their objectives. This is also known as a total cost approach. 

Hourly Rates: Not the Whole Picture 

Legacy thinking in facilities management focuses on the hourly rates that service providers charge. But this is short-sighted: It doesn’t account for the aforementioned service trip costs, emergency fees, and overtime charges that can and often will occur. Even by cutting services and choosing the provider with the lowest hourly rates, you’re still not maximizing your savings—and could potentially be neglecting important maintenance. 

Take preventive maintenance, as an example. When you use a cost reduction model that relies on the cheapest hourly rate and maintenance cutbacks, you could end up spending more money in the long run. Deferred maintenance is expensive. According facility and maintenance management news and research site FacilitiesNet, studies show that on average, for every dollar “saved” from deferred maintenance, future capital renewal costs increase by four dollars一that’s direct costs per asset. Again, there may be additional indirect costs with even more impact.

These aren't the only ways cost reduction can result in lost funds. Take the earlier example of cutting back on regular floor cleanings during the down season. This is a competitive, customer-driven market; if a potential customer walks in and sees floor scuffs, dust bunnies, and other signs of neglect, they can easily walk away and give their business to the competition. 

Moving from Hourly Rates to a Total Cost Approach 

You can no longer look at your expense categories the same way you once did. Transitioning from an hourly rate to a total cost approach recognizes not only the dollar amount you’re spending, but the maintenance strategies and once-hidden costs that affect your bottom line. This means investing in the right FM provider—one that completes work orders on time, communicates effectively, and prioritizes preventive maintenance. 

If transitioning to a total cost approach seems like a logistical headache, don't worry. The best way to make the leap is to find an Integrated Facilities Management (IFM) solutions partner. 

Doing so will grant you access to an entire network of service providers, all vetted and contracted through your IFM partner—so you’re getting the best services without having to rely on individual contractors from location to location. You also gain access to technological solutions that reinvents your approach FM. 

Optimizing Operations with a Technology-Driven Framework 

Switching to an IFM solution means adopting a completely new facilities maintenance framework that tracks work orders, hours, preventive and reactive maintenance, and other key metrics. Such a transition to a total cost approach will also be seamless. 

Take NEST IFM, for example. We tap into our extensive network of service providers and manage vetting and logistics for you. Our software verifies contractors are accurately logging hours, tracks KPIs to measure and enhance performance, and shares information with everyone from the C-suite to service providers—so everyone stays aligned and you hit your budget goals.  

In the long term, greater efficiencies create meaningful cost savings. 

NEST offers a total cost approach to facilities maintenance that keeps in mind your bottom line and service needs. Our technology solution combines consulting and Independent Service Providers to streamline processes and achieve significant cost savings. 

If you’re ready to move away from hourly overcharges or would like to learn more about NEST’s total cost methodology and IFM solution, contact us today. 

 

Originally published August, 2017. Updated November, 2022. 

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