Real Estate Development Project - Better way to Envisage Your Project's Future. How? 4 Graphs are Enough to Illustrate!
Keywords
Real Estate, Real Estate Development Project, Cost Estimates, Schedule, Construction, Skilled Labor, Construction Equipment, Site Development, House Construction, Bricks, Facilities Development, Landscape, occupational HSE, Camp Site, Bulk Material, Decision Making Under Uncertainty, time-phased cost, Cost breakdown, Direct Cost, Owner Cost, Freight, Fixed Cost, Schedule constraint, Calendar, Activity Sequence, Risk Identification, Uncertainty, Risk Register, Risk Mapping
Summary
While there are many reasons why you might plan to develop a real estate development project, it’s important to understand the many pitfalls that can lead to failure.
The Risk identification is important and crucial for mega complex construction projects. In this project (case study) the top three (3) risks are:
1- Unavailability of the Skilled labor.
2- Unavailability of Construction Equipment.
3- Delay in Delivery of Bulk Material
Additionally, occupational HSE can be a showstopper. Estimate at Completion (EAC) and Estimate to Complete (ETC) are crucial to know not only for Project Sponsor, but also for the Investors. Each penny counts!
Introduction
For real estate development project, construction processes are a complex interplay of multiple sub-projects that must be carefully coordinated to ensure successful completion. Fortunately, there are planning steps you can take to streamline the mega complex construction project. This article will give you some tips and tricks for real estate construction project.
How much will the new construction of your new real estate development project cost? This is probably one of the most common questions that you’ll be asked by the client or investors. The answer will vary based on several circumstances, such as location, size, complexity, development area and whether you are doing any custom work.
The number-one problem for new real estate development projects is that they fail to achieve their financial goals. With this article, we’ll give you the planning tips you need to succeed when it comes to real estate development project.
Case Study
While there are many reasons why you might plan to develop a real estate development project, it’s important to understand the many pitfalls that can lead to failure.
Project is to develop villas in two (2) phases. Project duration is 1102 days; project completion date is 26-5-2025. Cost estimates are $1.12 B. Schedule is:
Cost Elements are:
1- Direct Cost
2- Other Direct Costs
3- Services
4- Owner Cost
Top Risks
- External communication issues
- Internal communication issues
- Design specification change
- Subcontractor enters liquidation
- Delayed LLI
- Frequent Change Request
- Unavailability of Construction Equipment
- Unavailability of Skilled Labor
- Delay in Delivery of Bulk Material
- Occupational HSE Issues on Site
Risks and uncertainties were mapped to the activities before performing Monte Carlo Simulation.
The question is how risks were identified? Answer: The Risk identification is an iterative process. Mostly, Risks are identified in an Interactive way by facilitating Workshop, i.e., Risk workshop.
Visit Following link for Workshop Facilitation:
Workshop Facilitation
Decision Making Under Uncertainty
Q1 – What are the chances that the real estate development project will complete on deterministic schedule and time?
The deterministic project completion date is 26-05-2025. There is only 1% chance to meet the deterministic completion date. There is a 50% (Mean) chance that the project will complete on 11-03-2026 i.e., there will be an additional 257 days more required to complete the project. However, there is 80% chance that the project will be completed on 17-11-26 i.e., 251 days more.
The deterministic project cost estimate is $ 1.12 B. There is only 2% chance to meet the deterministic project cost. There is a 50% (Mean) chance that the project cost will be $ 222.3 M extra. However, there is 80% chance that the project cost will be an additional $ 228.5 M required to complete the project.
Q2 – What will be the probabilistic cash flow (PCF) for a Real Estate Development Project?
The PCF is a Time-phased Cash Flow. The Probabilistic Cash Flow (PCF) is helpful to understand the project expense during each specified period. Cash flow curves encompassing optimistic and pessimistic values. The given below graph is self-explanatory:
Q3 – Why Time-phased cost estimate is important?
The Time-phased cost estimate is providing cash flow visibility. Under services (Cost WBS), the deterministic Project Management Team (PMT) cost is estimated $ 65 M. The Project Management team (PMT) cost, usually falls under “Owners Cost”, is responsible for managing a project throughout the project life cycle.
Question: What if the cost of PMT in case of project delay?
There is 50% (Mean) chance that the PMT cost will be $10.99 M more. However, the 80% chance that the PMT cost will be additional $ 12.92 M. Remember every Penny counts!
Conclusion
The Real Estate Development mega complex projects delayed in general. It is beneficial to plan well and forecast probabilistic project schedule and cost estimates for decision making under uncertainty, i.e., Risk-based Decision Making.
Note: Weather Risk was not considered in this case study.
