On budget, on time Featured

8:00pm EDT June 25, 2008

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 todd.schmitt@cbre.com.