Project Management in the Real Estate Industry
Project management is the art of setting up all the components of a project together to work in sync. A logical approach to binding the various components together with effective planning improves the chances of a successfully delivered project. A real estate project differs from any other domain in terms of the number of different components it involves.
The complexity of these components if not dealt with maturity with a persistent approach may lead to disastrous results for the project. Though there are various ways of cost estimation for real estate projects, the unit cost for bills of quantities works best. The easiest way to estimate is to break down the project into tasks.
Once tasks are defined and resources are assessed with their respective quantities mapped, it is then time to assign unit costs. The total cost is then determined by summing up the costs incurred in each task. The various types of costs linked to any resource can be in terms of man, material, labour and expenses overheads). In a real estate project, the construction cost is only a fraction of the total cost of the project. These include design costs, bid costs, approval costs and control costs.
Design of a real estate project includes initial design, master design and detailed design plans. Designing is a very critical component of a construction project which gives direction to the scope of work. Based on the detailed designs and specifications, a detailed scope can be defined. Basis the scope, items and quantities of work are
mapped to the scope. Though mathematically often cost estimates are based on physically measuring like the floor area, volume or length, it is observed that costs do not always vary linearly.
Scale economies and diseconomies do have an impact which in turn results in a range applicable to all construction projects. While mapping the basic costs, it is also important for a project manager to take into account the joint costs involved. An allocation factor for cost bifurcation must be taken into account for accurate estimates.
A project manager should also not forget that a construction project has a span of 3-4 years of completion (may vary from area to area). Thus cost indices must be measured and thus aggregated to a price index which may be followed based on historical data. The inflation index is another important aspect to be considered while cost estimation. Since construction costs are incurred over a period of 3-4 years, it is also necessary to determine the cash flows. This helps in determining the amount of money that would be spent over a certain period of time.
Once all estimates are put in place and the project starts, the next challenge for a project manager is to calculate the percentage of work completed. While it is assumed that the cost incurred should be directly proportional to the amount of work done, it does not hold true for construction projects.
The percentage of construction must be calculated by taking into account the work completed to date and the total value of work to be completed. This ratio of the value of work is represented by an S-curve. This concept of calculating the value of work is termed as earned value management. It is a systematic process used to find
variances in projects based on a comparison of work performed and work planned.
It takes into account the cost as well as the schedule thus helping with effective decision-making for the project. This also helps the project manager derive the performance indices for cost and schedule. This prevents scope creep and improves visibility by reducing risk and leading to accurate project forecasting.
Nothing can replace a good project manager who has expertise in the domain of project management for real estate.
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