Project Management in Real Estate Industry
Project Management is a methodology originally developed for the construction industry for controlling schedules, costs and specifications. Over a period of time it was discovered that the same techniques tweaked a little actually apply to all industries starting from manufacturing to the high technology operations.
Project management is an art of setting up all the components of a project together to work in sync. A logical approach to bind the various components together with effective planning improves the chances for 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 a real estate projects, the unit cost for bill 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 are 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, labor and expenses (overheads). In a real estate project, 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 detail 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 measure 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. Thus cost indices must be measured and thus aggregated to a price index which may be followed based on historical data. 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 taking into account the work completed till date and the total value of work to be completed. This ratio of 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 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.
Real estate projects are thus more likely to come in on time and on budget when effective project management techniques are followed. Strong project management methodologies give teams more flexibility, increasing the likelihood of success. This also improves the maturity level of organizations in terms of the project management and risk management methodologies.
Various tools are available for construction industry for project management but they cannot replace a good project manager who has the expertise in the domain of project management for real estate.
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