Short answer: Controllable operating expenses are the property costs the on-site or management team can directly influence. Typical examples are payroll, repairs and maintenance, turnover, contract services, marketing and administrative costs. Uncontrollable expenses are set mainly by outside parties: real estate taxes, insurance premiums and, often, utility rates. There's no single industry definition, so each owner or operator sets the split by policy. The point of the split is accountability. A property can be 7% over budget in total while its controllable costs are only 2% over, because an insurance renewal or tax reassessment caused the rest. Reporting the two separately shows owners where a variance came from, and who could have done something about it.

When a property's operating expenses come in over budget, the first question is usually "what happened?" The second, often unspoken, is "whose fault is it?" A single total can't answer either.

This post is about controllable expenses in operating budgets and performance reporting. If you're looking for how commercial leases cap controllable CAM charges, see CAM caps, exclusions and controllable expenses.

Table of Contents

1. Two Meanings of "Controllable"

2. What Usually Falls on Each Side

3. The Grey Areas

4. Worked Example: 7% Over, or 2% Over?

5. Splitting Utilities Into Rate and Usage

6. Uncontrollable Isn't Unmanageable

7. Metrics That Use the Split

8. Setting It Up

9. Reporting It to Owners

10. Checklist

11. Common Mistakes

12. FAQs

13. Conclusion

Two Meanings of "Controllable"

The lists overlap but aren't the same. A lease defines its controllable categories in the lease. An operating budget defines them by internal policy. This post covers the second.

What Usually Falls on Each Side

Both columns are typical, not universal. What counts depends on the property, the management agreement and the owner's policy.

The Grey Areas

Whatever you decide, write it down and apply it the same way across properties and years. Otherwise comparisons don't mean anything.

Worked Example: 7% Over, or 2% Over?

An illustrative 200-unit property, full-year results (utilities shown separately below):

The total says the property ran 7% over. The split says the team's controllable costs were 2.2% over, mostly repairs. A tax reassessment and an insurance renewal caused about four-fifths of the variance.

Both facts matter to an owner. They lead to different conversations: one about maintenance spending, the other about tax appeals and insurance strategy.

Controllable expense per unit here is $828,000 ÷ 200 = $4,140 per unit per year. Tracked over time, that number reflects the team's operations far better than total expense per unit, which moves with tax and insurance cycles.

Splitting Utilities Into Rate and Usage

Utilities sit on the line between the two groups. Splitting the variance into rate and usage shows which part the team could influence.

Illustrative water and sewer, full year:

• Rate effect: ($16.00 − $15.00) × 12,375 = $12,375, mostly uncontrollable

• Usage effect: (12,375 − 12,000) × $15.00 = $5,625, often controllable (leaks, irrigation, fixtures)

• Total variance: $18,000

The same method works for electricity and gas, where meter data allows.

Uncontrollable Isn't Unmanageable

"Uncontrollable" means the site team can't set the price. It doesn't mean nobody can act:

• Real estate taxes: assessments can often be reviewed and appealed. See the commercial property tax assessment appeal playbook.

• Insurance: marketing the policy, deductible levels, loss history and risk improvements can all affect premiums.

• Utility rates: procurement contracts, rate-class reviews and, in some markets, energy supply choices.

These actions usually sit with the owner, asset manager or a specialist, not the site team. That's another reason to report them separately.

Metrics That Use the Split

NAA's financial terms and formulas guide gives the operating expense ratio as operating expenses ÷ effective gross income. A controllable version applies the same formula to controllable lines only. For benchmarking against similar properties, category-level income and expense data, such as IREM's Income/Expense IQ reports, can provide useful context. Compare properties of similar type and location, and map expense categories to your own consistently before drawing conclusions.

Setting It Up

1. Write the policy. List which GL accounts are controllable, uncontrollable or shown separately, with grey areas decided.

2. Map the chart of accounts. Group accounts into the two subtotals in reporting, using account groupings or a reporting dimension rather than manual spreadsheets.

3. Budget the two groups differently. Controllable lines are usually built bottom-up from staffing, contracts and work plans. Uncontrollable lines come from assessments, insurance quotes and rate notices. See building an annual property budget across multiple properties and entities.

4. Apply it consistently across properties and years, and note any reclassification.

5. Report both subtotals monthly, with variance notes on the controllable lines.

When expense coding, account groupings and budgets sit in one system, the split comes out of standard reports rather than a separate spreadsheet each month. For example, operating expense tracking tied to the general ledger can show controllable and uncontrollable subtotals by property without manual regrouping.

Reporting It to Owners

A simple owner-facing structure:

This fits inside a standard property-level P&L. See setting up property-level P&L reporting for asset managers. Some operators also use controllable-expense performance in site team incentive plans. If so, the policy on what counts needs to be agreed before the year starts, not argued about after.

Checklist

• Written policy listing controllable, uncontrollable and separately shown accounts

• Grey areas decided (utilities, management fee, deductibles, weather)

• Chart of accounts mapped to the two groups

• Controllable and uncontrollable lines budgeted on their own basis

• Both subtotals shown in monthly reporting

• Variance notes on controllable lines

• Causes noted on uncontrollable variances

• Utilities split into rate and usage where data allows

• Controllable expense per unit or per sq ft tracked over time

• Same classification applied across properties and years

• Owner-level actions on taxes, insurance and rates assigned

Common Mistakes

• Judging the team on total expenses. Tax and insurance swings dominate the result.

• Calling something uncontrollable to avoid explaining it. Grey areas need a policy, not a case-by-case argument.

• Reclassifying mid-year. Variance comparisons break.

• Different splits at different properties. Portfolio comparisons stop meaning anything.

• Ignoring uncontrollable lines because they're "uncontrollable". Appeals, insurance marketing and rate reviews still need an owner.

• Treating utilities as all one or all the other. Rate and usage behave differently.

• Confusing operating "controllable" with CAM "controllable". A lease's definition governs tenant billing; your policy governs internal reporting.

FAQs

1. What are controllable operating expenses?
Property costs the on-site or management team can directly influence, such as payroll, repairs and maintenance, turnover, contract services, marketing and administrative costs.

2. What are uncontrollable expenses in real estate?
Costs set mainly by outside parties, such as real estate taxes, insurance premiums and, often, utility rates.

3. Is there a standard list of controllable expenses?
No single industry definition applies everywhere. Owners and operators usually set the split by policy and apply it consistently.

4. Are utilities controllable or uncontrollable?
Partly both. Rates are usually outside the team's control, while usage can be influenced. Many teams split the variance into rate and usage.

5. Is the management fee a controllable expense?
It's usually a percentage of revenue set by the management agreement, so many reports show it separately from both groups.

6. How is this different from controllable CAM expenses?
In commercial leases, "controllable" defines which CAM costs are subject to a cap on tenant charges, as set by each lease. In operating reporting, it describes which costs the team can influence, as set by internal policy.

7. Why does the split matter to owners?
It shows whether a budget variance came from operations or from outside factors like tax reassessments and insurance renewals, which call for different actions.

8. What metrics use controllable expenses?
Common ones include controllable expense per unit or per square foot, controllable variance to budget, and a controllable version of the operating expense ratio.

Conclusion

A total operating expense number tells an owner how much was spent. Splitting it into controllable and uncontrollable shows why, and who could have changed it. Define the split once, map it in the chart of accounts, report both subtotals every month, and budget reviews become a conversation about decisions rather than about blame.

Note: This article is for general information only and isn't legal, financial or accounting advice. Expense classification, reporting and incentive arrangements vary by owner, agreement and property. Confirm your approach with a qualified professional.