Open Office Plans Are a Lot Less Cost-Effective Than You May Think

February 16, 2016

According to the New Yorker magazine, approximately 70% of all offices now have an open floor plan rather than traditional private offices. Has this massive redeployment of office space actually saved money?

Why Open Office Plans?

Office designers prefer open plans because such offices 1) consume less floor space and therefore less rental cost, 2) create opportunities for collaboration and social interaction.

That open plans reduce floor space requirements is undeniable. Estimates vary, but the advantage is at least 3 to 1 and perhaps as high as 5 to 1.

In other words, the same rented area that would accommodate five employees in private offices could accommodate anywhere from 15 to 25 employees in an open plan.

In addition, open plan offices "a symbolic sense of organizational mission, making employees feel like part of a more laid-back, innovative enterprise," according to The New Yorker.

Quantifying the financial value of those intangibles is difficult, but conventional wisdom is that they make organizations both more cohesive and more flexible.

What Science Says

Unfortunately, numerous scientific studies have shows that open plan offices have huge drawbacks that counteract whatever positive effect they might be having.

While open plans create more opportunities for interactions, they also increase the number of interruptions, thus reducing attention spans and productivity.

It's been known for decades that interruptions by colleagues reduces productivity, particularly for senior managers. Open plan offices worsen this effect.

Open plan offices also make it more difficult for employees to think creatively or to work on complex tasks like analyzing figures or working on documents.

A recent study found that 95 percent of employees want the ability to work privately, only 41 percent were able to do so, a third need to leave the office to get work completed.

Open plan offices are also a huge health risk. Fully 9 out of 10 employees experience "high levels of stress, conflict, high blood pressure and a high staff turnover."

This health risk plays itself out in further lost productivity. Workers in open plan offices take 62 percent more sick leave than those who work in private offices.

Finding the Hidden Costs

As with "a symbolic sense of organizational mission," the complaints above are a bit difficult to quantify. However, there are two studies that can help with this.

One study showed that, in addition to reducing employee well-being by 32 percent, open plan offices reduce employee productivity by 15 percent.

Another study showed that office workers lose an average of 86 minutes a day due to distractions, which is 17 percent of a standard work day.

In other words, open office plans pay (at least) a 15 percent "productivity tax" on the salaries of the employees who must work in them.

With that figures in mind, let's run some numbers.

Cost Comparison

Let's suppose we're relocating a successful startup of 100 hard-working millennials to Silicon Valley where office space runs a pricey $5 per square foot per month.

Assuming hallways and "open areas" are roughly similar, small (6' by 6') private offices will thus cost $216,000 a year compared to an open office plan which would cost only $43,200 a year.

So that's a non-inconsiderable savings of $172,000 a year.

Let's also suppose that we're running a lean team paying an average of only $50,000 a year per employee, for a total salary expense of $5m a year.

Since the open office plan has a 15 percent "productivity tax," we'll only be getting 85 percent of the potential work from our employees, a $750,000 loss.

Offset that loss with the cost savings of $172,000 and we end up with a net loss of $578,000, roughly enough money to hire eleven more workers.

While the calculation above doesn't count the cost of setting up the offices, the net loss increases in a city where office space is cheaper and a company where salaries are higher.

In short, despite their popularity, open plan offices are not cost-effective, which means that they're probably more of a management fad rather than an actual strategy.

* image by Hand Luggage Only

Learn how you can find and hire the right talent using LinkedIn Talent Solutions. Request a free product demo.