Tighten The Financial Belt Of Your Management Company

If and how you use a Management Company to help manage your association duties, will be an important area to examine for cost reduction opportunity. This category of expense can run upwards of 30% of an association’s annual budget -- money that you may be able to spend more wisely. Depending on the nature and severity of your financial situation, you may be forced to take on more of those duties even though it may not be your first choice. Elimination of some or all of the services, rebidding/renegotiation of the Management Company contract, innovative use of private contractors or specialty service providers, holding Management Companies more accountable for cost reduction, and/or “partnering” to jointly attack cost reduction, are all within the realm of possibilities.

The reasons for an association using a Management Company can range from “convenience” for some to a “necessity” for others. But, if an association’s BoD is facing a severe financial condition, it may have to take on more of these direct management duties than it would prefer. Since the use of a Management Company can represent a major expense to an association, it is an area of cost reduction opportunity that cannot be ignored.

There are several things that should be highlighted regarding the use a Management Company.

• While management companies can simplify things for a condo or homeowner association BoD, they do not replace the BoD. A Management Company reports to and receives its direction from the BoD and not the other way around. The BoD has hiring/firing authority and can eliminate, replace, revise, or renegotiate a contract with a Management Company.
• Inexperienced BoD’s must guard against a Management Company “dependency” where the Management Company is calling all the shots and the BoD is merely a rubber stamp. A good Management Company can be a real benefit to your company. They do bring experience, an extra set of hands, and usually ideas tried and proven in a condo or homeowner association environment.
• A BoD has a fiduciary responsibility to the association for which it serves. This fiduciary relationship requires the members of the BoD to act in good faith and in the best interests of the members of the association and that they exercise due care and diligence. A fiduciary obligation represents the highest level of responsibility under the law. Unlike a Contractor, a Management Company acts as an agent of the association and is also held to the same fiduciary responsibility as the BoD. Likewise, it has a duty to manage association’s costs in the most effective way possible.
• A Management Company, like any company, is only as good as its people. They may not have the necessary skill sets to attack cost reductions and may have “blind spots” that prevent them from examining new ways to attack cost creep that will eventually come into play. Like the BoD, they too can also fall into the complacency trap of simply meeting cost increases by raising association fees. Today's Management Company must do more than review monthly budget reports, handle violation notices, or perform the daily maintenance activities. They must minimize costs at every opportunity and come up with creative ways for condo and homeowner associations to combat rising costs or economic downturns.
• The relationship between an association BoD and its Management Company is usually a deep one, and one that can last for a long time. The longer a working relationship lasts, the better the two parties understand one another and work together. But, it also may be more difficult for an association BoD to change suppliers or to address a lackadaisical cost reduction performance. A responsible BoD must take any action that is necessary and to set the expectation with its Management Company that cost reduction is one of its primary responsibilities. It is also their job to replace them if they are unable to deliver.
• If an association BoD chooses to use a particular Management Company, it should expect a relentless effort to help them reduce their costs. This is a new concept for many, as they are much more comfortable with just delivering the services outlined in the contract. Take a look at your existing contract or a proposal from a potential Management Company. Do you see a statement that says they will deliver cost savings to the association? Or better yet, do you see a statement that says they will deliver (X) % of cost savings to the association? A Management Company like any other supplier does not like to be pinned down. It often easier to just deliver the service and pass alone any cost increases to association members in the form of increased fees or special assessments. Management Companies should be held accountable for cost performance and a provision should be incorporated into their contract to reinforce that responsibility.

Shown below are some ways to cut your Management Company cost:

• Determine the level of self-management that you will use and that you can afford (Take apart the Management Company contract line-item-by-line item and explore alternative ways to eliminate, revise it, or have the service performed by someone else at a lower cost. Separate the association “needs” from its “wants”. Have the Management Company provide quotes for each line item in the contract. This will allow for an apples-to-apples comparison with self management or other suppliers. Use this eliminated or reduced service level as a basis to renegotiate a lower priced contract.
• Use consultants, freelances or part-time employees, instead of full-time employees.
• Often, one of the largest expenses is bookkeeping. If you have an active volunteer group that is willing to take over some management tasks, you can realize significant savings by hiring an accountant to handle the books and to process payments/receipts.
• Competitively source your small service projects. For small service needs, it is not necessary to have a Management Company or professional contractor perform small maintenance tasks or to fix every little problem. (Handyman Services. For condo or homeowner associations that can't afford a full time maintenance person, contract with a licensed, bonded and insured handyman who can perform a monthly "laundry list" of small repairs. Combine tasks to provide a full day's work. Moonlighters. In most buildings, the building staff moonlights as painters and general repair persons. Talk to your staff and see if they would like to make extra money by doing some of the work that normally a professional would do. The best example of this approach is touch-up painting in halls and stairwells. Develop a closer alliance with subcontractors to perform work in the neighborhood to get small projects done quickly and cost effectively. Volunteers. You may have members who have special skills/hobbies (engineers, contractors, woodworkers, gardeners, skilled trades, etc.) who may be willing to perform small maintenance duties or projects. Do no be afraid to ask for their help. The use of volunteers is an excellent way to help keep your costs down.)
• Jointly explore with the Management Company any changes that the association cold make to reduce the Management Company cost that in turn could be passed along to the association. (Eliminate or reduce the amount of time that a Management Company is required at BoD meetings. Shorten the length of BoD meetings. Hold quarterly meetings versus monthly meetings. Hold daytime meetings during normal business hours to avoid overtime. Move the Board meeting to the management office to save manager time and avoid mileage charges. With an approved budget, proper policies in place and a management planning calendar, the Management Company should be able to handle most issues with only occasional input from the president.)
• Reconfigure how a Management Company handles administration of insurance claims and damage reconstruction. Insurance matters can take many hours of a Management Company’s time. If the contract agreement specifically states that insurance claim work is an extra cost to the association, the Management Company can bill the insurance claim for the time it takes to administrate a claim and renovation work. A similar principle involves time spent on collections or legal action against an owner. This management time should be billed to the delinquent owner.
• Rather than having the association bear the cost for preparing sale disclosure statements to owners who are selling their homes and buyers' lenders, have the Management Company bill owners and buyers separately for this service.
• Scale back on the frequency of services that are offered.
• Limited office hours or lengthened response time
• Offer part-time services for security, gate/door attendance
• Send out association dues on a quarterly basis versus a monthly basis. Allow members to pay dues on a semi-annual or annual basis, if desired.
• Hold minor repair items until enough are accumulated to allow for a more efficient utilization of maintenance contractor’s time
• Conduct less frequent inspections for CC&R violations and batch process related notices.
• Use electronic communications to members and record keeping to eliminate paper, filing, stamps, mail handling, etc. Allow for electronic payment of association fees.
• Eliminate all overtime and transportation expenses for Management Company employees
• Include in the Management Company contract a specific reference to the expected level of cost savings efforts required of the Management Company. This could be in the form of a specific amount or a percentage of operating costs. Then, conduct a performance review with the Management Company on the progress being/not being made. It is not uncommon for companies to demand a 10-15% annual cost savings from their internal departments or outside suppliers.
• Go out and get competitive bids and bring them back to your current Management Company so they have the opportunity to lower their price for you. Large service contracts like a Management Company should be competitively bid every year or two. Even if you are totally satisfied with the service received and have no intention of changing providers, it will demonstrate to the membership that the BoD is practicing due diligence and good stewardship. Also, if a particular Management Company is maneuvering for a contract increase, a competitive proposal will work to the association’s advantage in negotiating or verifying that the current Management Company is entirely justified in the increase. If it is to the advantage of the association, negotiate a long-term contract with the Management Company that states in exchange for a competitive price, the association will not seek competing competitive bids for a certain period of time.
• Confront your Management Company if it announces a price increase and re-bid the order where appropriate.
• Request that your Management Company prepare recommendations on ways for the association to reduce association waste, increase efficiency, or save money.
• Develop a scorecard for keeping track of Management Company service, quality, delivery and pricing. Implement a monitoring program (metrics, customer complaint system) to better understand the service / issues.

Pay Attention to Your Management Company Transition

The relationship between an association BoD and its Management Company is usually a deep one, and one that can last for a long time. The longer a working relationship lasts, the better the two parties understand one another and work together. But, when a condo or homeowner association Board of Directors (BoD) decides that its Management Company is not doing the job to its satisfaction and that it should be replaced, it instills a range of uncertainties, hopes, and fears. Even managers who have previously been superior managers may not be the right manager for that association today. Lots of things can contribute to this situation: Board personalities change, the needs of the community change, expectations change, skill requirements change, ---- and for whatever reason and nobody's fault, the manager may simply not be a good "fit". The decision to change is sometimes initiated by the Management Company itself due to internal staffing issues such as; resignation or reassignment of the manager, inability of the Management Company to make a profit, disputes with the Board or association members, etc.

Once the decision has been finalized on who to hire as the new Management Company and the contract has been signed, you enter a very important transition period. Most condo or homeowner association BoD’s woefully underestimated the importance of the transition period, or may not have given it any thought at all. The same is true for Management Companies. Even if either party does pay attention to this transition, it almost always focuses on the technical side of the business (by-laws, past BoD meeting minutes, financial information, delinquency and violation logs, business processes, etc.). It seldom focuses on the people side of the equation (the culture, unwritten rules, key membership influencers, informal communication channels, things to avoid, etc.). Any successful transition is maximized by jointly addressing both areas, simultaneously.

No matter how skilled or competent the new Management Company manager may be, s/he will go through a normal transition period to learn the organization and to get up to speed. These first months on the job are critical to building the foundation for delivery on promises and many believe that a new manager’s success or failure is determined within 90 days on the job.

Although everyone is counting on the new manager to be successful, it won’t just automatically happen. Ensuring a successful transition not only lies with the new Management Company, but also with the association BoD. If the association BoD expects to receive a return on its investment of time, energy, and money in selecting a new Management Company, then it should be actively involved in transition the new manager and invest the necessary time. This is not the time to be supportive from a distance.

Everyone loses when a new Management Company manager fails. Goals aren't met. Members are disenfranchised. Opportunities are missed, and often lost forever. How much does it really cost? The "soft" costs of derailment can be incalculable. The "hard" costs aren't. With so much at stake, you should do whatever you can you do to get the highest possible rate of return on your new Management Company investment? More importantly, why would you leave it to chance?
An important first step is for the BoD to understand how they want to use a Management Company. Then, here are some important steps for the new Management Company manager.

• Prepare for the job – before you start the job
• Learn as much as you can about the association
• Hold a “supervisor” orientation meeting
• Conduct an “administrative” orientation
• Hold preliminary (one-om-one) discussions with each BoD member
• Be visible and talk to association members
• Make contact with professional service providers
• Conduct a Leadership Transition Meeting with key association members
• Finalize your plans with your supervisor and/or BoD
• Secure some early wins
  

It's OK for a Board to Micromanage its Management Company!

We have all heard it before. Micromanagement is mis-management. It is bad for a condo or homeowner association Board to micro manage its operations. Just get out of the way and let the people do their jobs. This cry is particularly loud with Management Companies or property managers. They say, empower your employees and give them the freedom to explore, own the problem, deliver and sometimes, fail. Don’t watch over their shoulders and don’t try to jump in and fix problems as soon as you see them. Hands-off management leads to success.

Ideally, this is a great idea. The problem is that not all Management Companies can handle high levels of independence at all times. There are situations when they need help, oversight, and yes, even someone watching over their shoulder. Too many Boards blindly abdicate their responsibilities to a Management Company. This is wrong! When Board members are elected as the association leaders -- then they should lead the association. Many Boards simply choose not to lead. They believe that if they hire a reputable Management Company then the management of the association will take care of itself. Do not sit back and be the victim of a Management Company’s “standard practices”, lack of cost cutting aggressiveness, poor performance, or profit making motives. It is not in the best interest of your association and you must do more than loosely manage your Management Company. In order to do this, you have to stay “connected” and on top of what is happening in your association.

The universal fear of micromangement comes from stories of almost legendary failures associated with overbearing, in-your-face managers who feel that knowledge and control equate to power. This can be a huge management issue that frequently leads to under-performing organizations; however, it is not the only characteristic of poor Board management. Just as bad is a Board that is too timid to get involved with how a Management Company is managing their operations or with key projects that commit substantial association resources. If a Management Company lacks experience in certain areas or is not delivering the expected performance, then a responsible Board must intervene.

There are number of other reasons why a Board may feel that it should micromanage their operations, including:

• The board has no clear sense of its role in the organization / Board Members think this is what they should be doing.
• The board has no policies (rules) that delineate appropriate roles for staff vs. the board.
• Management of day-to-day work is what board members know from real life.
• We've elected them on the board to perform a task, not to lead.
• Fear that if they don't do it, no one else will (or no one will do it as well).
  

Shown below is a four-quadrant chart that can help guide when more active management involvement or micromanagement is required on the part of Board members.

Generally speaking, if Management Company has loads of experience and is a high performer, the Board can give that Management Company a lot of freedom, simply checking on progress now and again. This can be done primarily with a variety of periodic management reports along with regular personal contact on how things are going. In this situation, limited micromanagement is a good way to (a) stay on top of some of the details of the business, (b) determine whether a Management Company is doing things that they should be doing, (c) remind the Management Company of how much autonomy they actually have! The idea is to just jump in, ask a bunch of questions, and see if things match up the way they should. If so, jump right back out. If not - time to dig deeper.

If an experienced Management Company is not performing well, however, the Board needs to more closely and actively monitor the Management Company efforts and use that increased attention to try to bolster that Management Company performance. Performance reports should be used to gage performance and to point out any shortfalls that are being experienced. The Board should also make sure that performance expectations are clear, so that there are no misunderstandings.
Inexperienced Management Companies need to be managed in a very different fashion. Those who are high performers need to be given more freedom and room to experiment and, perhaps, experience small failures. The underlying management style should be one of teaching and guiding. These Management Companies don’t enjoy the freedoms of their experienced compatriots, but they still get a lot of freedom. They should rely upon the experience of existing Board members or draw upon industry best practices.

If an inexperienced Management Company is performing poorly, however, the Board needs to virtually remove all freedoms from their environment and micromanage the Management Company by working with them on a task-to-task basis. There is simply too much at risk to abdicate their responsibility. If a Management Company stays too long in this quadrant, then they should be prime candidates for replacement.

Micromanagement, therefore, is needed in the low-experience, low-performance quadrant and, to some extent, even in the high-experience, low-performance, actively monitor quadrant. More importantly, the Board’s style needs to be different for each of the four quadrants. Even Boards that understand the basics of this need often miss that an experienced Management Company may need to be closely managed as a result of poor performance. Similarly, an overwhelmed, inexperienced Management Company can easily slip from being a high-performer to a low-performer, requiring more attention than before. Again, any low performing Management Company for extended periods of time should be prime candidates for replacement.

Condo and homeowner Boards need to be in tune with what is going on with their association and their Management Company, and adjust their style and effort accordingly. Sometimes, micromanagement is absolutely the right management tool for the job at hand. It should, of course, be used sparingly and its primary motivation should be to move the Management Company into a quadrant that gives them more freedom to learn and excel.

If Boards are inappropriately micromanaging because they don't know what else to do, then the obvious solution is to show them a different role. If Boards micromanage because they are concerned and/or scared, then the obvious solution is to allay those fears. Finally, if Board members micromanage because they have been asked to act as staff, then the obvious solution is not to ask them to perform staff functions.

The Board's main focus must be to ensure the organization is aimed at providing the very most benefit possible for the association members that it serves. It must focus on the on-going capacity to provide that benefit and to assure that the proper management and control system is in place and that it is functioning correctly. For a Board to succeed, the number one key ingredient is: Involvement. Boards fail (and, in turn, associations fail) when board members become disengaged from either the mission of the association or their role in the governance of the organization.

An engaged Board does more than simply show up for scheduled meetings and vote to approve minutes and budgets. Engaged boards partake in vigorous discussions that help shape the vision and future direction of their association. Engaged Boards ask questions of their Management Company and becomes educated on the issues their association is involved in. Engaged Boards read and understand monthly financial statements and accept their responsibility for ensuring the association’s short-term stability and long-term sustainability. Engaged boards define expectations for their Management Company and confront any poor performance. And, finally, engaged Boards must learn when it is appropriate to micromanage and when it is not.