In a dynamic economy where costs can
change within moments, the challenge of
estimating budgets for real estate projects can seem nearly insurmountable. But precise
budgeting continues to play a critical role in
doing accurate cost-benefit analysis, securing the proper funding and finishing a successful project.
“Everything is variable nowadays, including the availability of labor, supply of materials, location of the project, flexibility of the
schedule, time of the year and the type of
project,” says Todd D. Schmitt, managing
director of project management at CB
Richard Ellis, Atlanta. “There are general
‘estimates’ for certain types of work and projects. But by spending a relatively small
amount of extra time upfront planning and
discussing the specific project requirements,
you can quickly define the cost of the project
and the services much more accurately.”
Smart Business spoke with Schmitt about
how detailed real estate project budgeting
can improve efficiency and reduce costs.
Why is precise real estate project budgeting
so essential?
The budget and the schedule serve as two
key objective benchmarks that you can use
to determine the success of a completed project. By investing in precise real estate budgeting initially, you set up realistic expectations and can conduct a fair evaluation of the
finished project. Planning and strategizing
before you delve into the design and budgeting details allows you to keep your project on
schedule and within budget and meet everyone’s expectations nine out of 10 times.
What prep work should be completed before
budgeting?
The step that often gets skipped or
bypassed altogether is defining the program
requirements. This critical process helps
decision-makers clarify what the project will
look like and should precede all planning and
budgeting efforts. For instance, in an office
environment the parties would discuss:
- space requirements for offices and
cubicles - number of training and conference
rooms - locations of specific people or rooms
- exact square footage
- layout requirements
- exterior and interior finishes
- parking capacity
- window tinting
- blinds and other window treatments
These items are just a sampling of the
extensive list of factors that can have a dramatic impact on a project budget.
What other techniques can improve the accuracy of the process?
First, knowing the roles and responsibilities
of everyone involved facilitates quick, sound
decision-making during all stages of the project. Specifically, you need to clarify upfront
whether the people directly involved in the
process have the authority to act independently or if they will need to go to upper management for approval. Understanding who
needs to give their approval helps with planning for turnaround time for decisions on
critical issues or change orders. Extra time
can be planned into the schedule and an
expedited process for time-sensitive matters
can be developed to reduce time and
expense during a project.
Second, keeping all parties on track with
the schedule and appropriate scope of the
work plays an essential role in staying on
budget. Having a project exceed its original
time frame or require rush orders will inevitably inflate the costs. Also, if detailed definition of requirements occurred before the
start of the project, there should not need to
be ‘extras’ or upgrades added during the process. Sticking to the approved outline of the
work greatly increases the chances of hitting
your initial budget and schedule estimates.
What expenses are commonly overlooked?
Businesses often neglect the specifics of
the price, timing and logistics of the move
until far too late in the process. An organization will expect to have an operational space
by a certain date, but at that time, the furniture will sit in the wrong place, the IT equipment won’t work, the power will be in the
wrong location and the moving trucks won’t
be unloaded for a couple of days or even
weeks. Effective move management completed over many weeks ensures that the
actual move only takes a day or two.
Other often-neglected factors include IT
and security needs. Prior to budgeting and
design, the project plan should outline the
number of systems, their locations and how
they interface with the space. Knowing the
requirements for these systems upfront is
more cost effective and efficient than trying
to add them in after you build out a space.
How can a business reduce real estate costs?
Detailed, aggressive and proactive planning
and design and constant communication not
only can save money during the construction
process but also can reduce operating expenses while the space is occupied. Selecting
the appropriate type of construction materials and design as well as the type of finishes,
lighting, building controls and water usage
can all lead to a more efficient building,
which costs less to maintain and operate. For
instance, LEED-certified projects can include
environmentally friendly solutions that provide cost savings over time.
TODD D. SCHMITT, PE, is managing director of project management at CB Richard Ellis, Atlanta. Reach him at (404) 504-5931 or
[email protected].
