TECH TALK 3: PROJECT PLANNING
By Bill Allen
This is the third article in the nine-part
Tech Talk series.
A working project plan generally assumes one
of four levels of sophistication:
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A simple stand-alone budget that represents
an initial projection and game plan.
A budget that represents a finalized estimate
based on actual bids.
A budget that allows comparison to actual
to-date numbers and
estimated-cost-at-completion projections.
A flexible budget that considers fixed and
variable costs and dynamically "corrects"
itself based on ongoing performance and
absorption.
Sometimes project plans progress throughout
each of these levels. The NAHB Chart of
Accounts is one way to begin mapping out a
project's basic framework of projected costs
and how they will be allocated. (NAHB members
can download a free copy of the Chart of
Accounts, or request a copy by sending an
e-mail to business_management@nahb.com.) From
there, a builder must consider direct costs
likely to be associated with the project.
Software products can provide various levels
of project planning sophistication like those
outlined above. A relatively simple
spreadsheet may suffice for planning and
feasibility purposes. A budgeting system that
incorporates actual bids and to-date numbers
requires integration with an accounting
system. Alternately, users must manually
re-enter data from a separate accounting
system.
The advantage to stand-alone products such as
DealBuilder is their flexibility and relative
simplicity. Users can set up as many project
plans as needed, replicate them, expand or
contract the cost centers or accounts, set up
constants and formulas, and produce a
summarized pro forma for interested parties
like lenders and investors. A large,
integrated system such as that from J.D.
Edwards builds the project plan off the
project database, charts of accounts,
supporting schedules, and company
structure.
Integrated systems offer virtually limitless
flexibility. Unfortunately, they're very
expensive to license and maintain. A product
like DealBuilder can be installed for as
little as a couple thousand dollars. A
product like J.D. Edwards' Project Management
package can run as high as six figures.
Project planning should involve demographic
analysis as well as project overhead
budgeting, and cash flow and warranty reserve
projection. "Industry average" costs of sales
can be found in publications such as NAHB's
Cost of Doing Business Study. In addition,
you need to nail down non-formula related
factors like market potential, absorption,
and product pricing.
Good market research is vital for project
planning, especially if you intend to build a
different product and/or build in a different
location or price range. Companies such as
the Meyers' Group, Metro/Study, and Market
Perspectives Group offer online subscribers
detailed reports on market trends for most
metropolitan areas of the U.S. These firms
also track sales versus existing inventory
for various price ranges. First American Real
Estate, which profiles the resale market, is
another potential resource for market
research.
In addition, municipalities can furnish facts
about future infrastructure for communities,
confirming where growth is planned. Accessing
information and services (electronic
permitting, zoning requests, etc.) on
municipal Web sites and on chamber of
commerce sites can save you lots of time and
trips to city hall.
Thinking through the due diligence steps
required to get a project ready to build and
estimating the associated costs and timing is
crucial to project planning. Not
surprisingly, that upfront work becomes more
complex for projects involving land
acquisition and development and/or phase
development. Simple, stand-alone products
like Microsoft© Project do a fine job of
tracking due diligence tasks. However,
Project is a generalized tool, not an
industry-specific scheduling product.
Primavera Schedule Project Planner, another
stand-alone product, is more adapted to the
construction industry.
Many back-office systems such as the True
Line Homebuilder System, Timberline Office,
Mark Systems Integrated Homebuilder
Management System, and Newstar Real Estate
Management Suite offer budgeting and job
costing capability for land development
contracting. Because they're completely
integrated to purchasing, payables, and
general ledger functions, these systems can
be effective stepping stones from stand-alone
products.
Note: Various software products are
mentioned throughout the Tech Talk series.
The intent is not to recommend these products
as being right for you, but to identify some
fairly known players and to note a few new
ones. My apologies to vendors who aren't
mentioned - the omission was not intentional.
Bill Allen is a member of NAHB's Business
Management & Information Technology Committee
and is president of W.A. Allen Consulting
(www.waallenconsulting.com). The Redmond,
Washington, company provides information
technology consulting services and process
management assistance to the home building
industry. Contact Bill at 425-885-4489 or via
e-mail at skagit@foxinternet.net.
For more information about this item, please
contact William Heslop at 800-368-5242 x8472
or via e-mail at wheslop@nahb.com
