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By Barry McBeth, Director, Cost Management | 11 December, 2019

This article originally appeared in The Urban Developer

Property development projects are risky by nature. They can transform and expand at almost every stage of planning.

Delivering a project that is built to budget is a clear way to maintain cashflow while meeting quality standards. Budgets are a crucial part of all developments, and the budgeting approach needs to be tailored to suit each project stage.

Even the most experienced developers can struggle with sticking to financial parameters, given potential design changes and unforeseen circumstances that often occur.

Altus Group Cost Management director Barry McBeth says that his team is seeing competitive pricing in various sectors of the construction industry, which is evident from recent tender returns and a result of market appetite.

“We’re seeing competitive pricing in various sectors of the construction industry which is evident from recent tender returns.”

McBeth says the availability of work has fallen about 10 per cent in the last year.

“Some traditionally residential contractors are pivoting away from the originally safe ‘go to’ residential apartment sector.”

“Being able to understand costs and what the market is doing is a key component in achieving the most cost effective solution for a project.”

“Understanding construction trends, methodologies, technologies, material and labour costs along with contractor selection and capacity in order to achieve the best possible outcome.”

Here are some simple ways to create a project budget, and stick to it despite the common hurdles.

Be prepared from the start

Planning an accurate budget from day one is a substantial challenge when you don’t yet know all variables. Cost will always be a vital factor in the early decision-making processes, no matter the size or scale of the project.

Seeking early and accurate cost advice is key. Once you have an initial estimate, based on current benchmarking data, everything else—from contract tenders to final costs—can follow. This approach ultimately helps avoid budget overruns and unnecessary variations.

Many developers can establish and create a budget, but not all know how to manage it throughout the design process. Projects become vulnerable when changes go unnoticed, ultimately adding strain to the feasibility of a project and finances.

The impact will be felt even more as the project progresses, which is why expert advice is key in this phase.

The stages in between drawing up an initial budget and receiving tenders from a builder must be monitored carefully.

By proactively managing any potential modifications or additional provisions, project budgets allow effective use of capital and can identify whether funds are being utilised logically.

Start the process by assembling your team. If market and project conditions change, developers will need a meticulous cost consultant to help manage the design and cost scheme.

An understanding of your company’s overall cost structure is essential, as is proven experience in project management. Building to budget requires expert cost control during the design process and throughout procurement and construction.

Understand the definition of your area

Development budgets should be set early to determine what is feasible for a project, based on evidence such as projected income and comparison with similar projects.

A key detail that can be overlooked at this early stage of planning is a defined building area.

Communicate the definition of area clearly throughout your project, as this understanding can vary widely between stakeholders. Understanding the purpose of area measurement and leaving no room for interpretation is crucial.

Misinterpretation of area measurement wastes time and costs money. Make sure to provide adequate annotations of the measurement within documented plans so that everyone fully understands the extent of the project.

Know your alternative costs

From a project’s inception to completion, developers should be able to assess its resources and limitations. Researching the goals and requirements of a project should also incorporate knowing your alternatives and defining efficiencies

Knowing alternative costs or alternative finishes for different methods of construction is crucial. Your team needs to understand the most cost-effective building methodology to deliver the desired project and to stay on budget.

Efficiencies around unit sizes, façade finishes and car parking are all early items to consider that can make a big difference to your bottom line.

Identifying as many potential cost escalators as possible in the early stages of a project will ultimately save you time and money in the more advanced stages of development, and keep your project moving on schedule and on budget.

Altus Group leverages the largest database of construction costs, key metrics and schedules to support developers in making decisions with confidence at every phase of the development and infrastructure lifecycle.

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