Nowadays, the so‐called management by objectives (MBO) is used as a management instrument of corporate real estate management (CREM), using cost targets as the yardstick of CREM success. In Switzerland, CREM success is increasingly linked to cost reductions, with the cross‐company corporate strategy often requiring CREM to deliver a significant reduction in the level of cost. The cost concept used is material for the agreement or stipulation of cost targets. As the presented analysis shows, CREM has, for the most part, only very limited potential impact on costs. In particular, the use of the occupancy cost concept (sum of all imputed costs as well as costs recognised in the profit and loss account) poses a problem. This comprehensive cost type is determined by the following factors, which are in many cases outside the control of CREM: Book value as per balance sheet; Depreciation period of the basic shell structure; Main objective of the owner; Maintenance strategies; Degree of outsourcing of infrastructure management. Therefore, where the corporate strategy centres around cost reduction, CREM must be given the opportunity to control these drivers. This would require the inclusion of CREM in the development of the cross‐company corporate strategy, as otherwise the cost targets would have to be restricted to individual cost types (costs recognised in the profit and loss account). This is the only way to utilise a management instrument, such as MBO, within CREM.
Journal of Corporate Real Estate – Emerald Publishing
Published: Oct 1, 2004
Keywords: Office buildings; Strategy; Cost control; Occupancy costs; Capital costs; Management by objectives