As we said in our last newsletter, Project Management is about the management of people and personalities. Because there are different types of personalities, there are of course different types of project managers and different styles of management.

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Reactive

Otherwise known as crisis management. Lurching from one problem to another with never enough time to get on the front foot. This is caused by not taking the time to set the project basics in motion at the start. It is compounded by a lack of proactive follow up of tasks that require completion by stakeholders.

Force

My way or the highway. The project manager who tries to get what they want by threatening and contractual coercion. Whilst I acknowledge there comes a time when a good bollocking of a stakeholder is well deserved and has the desired effect, it is very rare. Generally this style of Management is a symptom of the Project Manager who has difficulty accepting change. As a Project Manager if you can’t accept and deal with change in such a dynamic industry as property development….then find another career.

Responsibility

This one is my favorite. The old ‘It’s not my problem’ attitude. Sorry to say but as the Project Manager EVERYTHING is your problem because you have been engaged by the client to make sure the project is delivered. I recently was in a meeting where a Project Manager from a national company, working on a very large retail project, said to the builder “I don’t mean to be harsh...but not my problem”. So instead of working with the stakeholders to get an outcome, he just looked to lay blame at the end of the project on who didn't do their jobs. What a waste of time and money.

  Big Picture

It’s important as a project manager to keep your eye on the big picture. It is easy for some to get caught up in a particular area of the project they like or know well and forget about the ‘Big Picture’. However there are also the project managers who take such a ‘helicopter big picture’ view that they are so far above the project they can’t see what is going right and what is going wrong. This then leads to Reactive management.

Proactive

It seems logical to say a good project manager is a proactive one but being proactive to many PMs seems to mean addressing an issue as soon as it arises and getting a resolution quickly.  No, being proactive means understanding the process, understanding the scope of works every member of your Team is required to perform, having a clear and detailed program of critical milestones, and a system of project management that identifies Risks before they become problems, and actioning a system of mitigants that aim to reduce the risk to the overall project before any risk events occur.

As a Project Manager you can’t do all this on your own, you need specialists in each field to bring all this together, but it is your job to manage those consultants in a proactive manner, ensuring that what they are delivering is on Time, within Budget and Scope, and is all aligned with the ultimate goal of the Project outcomes.

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The key to successful project management is to focus on managing people rather than things.

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Back in the good old days prior to the GFC the market was so hot that at one stage, construction prices were rising at 1% per month! There was so much work that it was difficult to get builders to price work let alone get a competitive price. The only way the developer could get the attention they wanted was to form strong relationships with a partner builder.

Since the GFC, and now with the Corona Virus implications, the process has and is changing dramatically and builders are willing to provide cost estimates and help with structuring projects.  But be careful you don’t abuse this willingness to help.

I have a preferred method for dealing with the relationship between builder and developer that divides opinion at times, but the reason it divides opinion is due to the culture and focus of the developer. There are 3 broad avenues to construction procurement –

1. Competitive Tender

2. Design & Construct

3. Relationship Contracting

If, as the developer, your sole focus is on achieving the lowest possible price then a competitive tender is the most appropriate form of engagement, however your risk of variations and increased management time is dependent on the quality of your consultants and the documentation they have produced. I often find that if the developers’ focus is on the lowest construction price then likely they have also taken the same approach to selecting consultants, and as such the documentation can be lacking, thus increasing variation risk.

The Design and Construct approach is a ‘hands off’ approach and involves the builder taking a project that has Planning Approval, engaging all consultants and finalising design based on a scoping document provided by the developer. This reduces the risk of variations and management time for the developer, but it increases the risk of lost specification intent. What the developer intended does not necessarily make it to the final cut and it is difficult to write a scoping document in sufficient detail to completely cover all developer intent.

My approach is to select the builder based on a different priority of selection criteria. My primary criteria is reputation, reliability, expertise, and trust. These can be intangible criteria but are also built up over time and can be judged from marketplace reputation. From this group we may seek a tender prior to the lodgment of Development Approval, on a fixed margin and prelims, and an open book subcontract tender process. The builder then becomes part of the design team and is privy to feasibility, budgets, specification, and intent from day 1, and the project is designed, massaged, and reengineered to achieve all the outcomes by identifying risk early.

I could write several pages on how this arrangement can be structured to suit different projects, but the intent remains the same. I don’t understand why the component that is approximately 75% of your total development cost, is not part of your team from the earliest possible time.

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Too often in Property Development the relationship between developer and builder is an adversarial one. The Developer wants the cheapest price for the highest specification, and the builder wants the highest price for the lowest specification. Both parties come to the table with suspicion, and a strategy to protect their negotiating position to get the best outcome. Call me stupid (and I know some of you do….) but it doesn't need to be this way.

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Back in the good old days prior to the GFC the market was so hot that at one stage, construction prices were rising at 1% per month! There was so much work that it was difficult to get builders to price work let alone get a competitive price. The only way the developer could get the attention they wanted was to form strong relationships with a partner builder.

Since the GFC, and now with the Corona Virus implications, the process has and is changing dramatically and builders are willing to provide cost estimates and help with structuring projects.  But be careful you don’t abuse this willingness to help.

I have a preferred method for dealing with the relationship between builder and developer that divides opinion at times, but the reason it divides opinion is due to the culture and focus of the developer. There are 3 broad avenues to construction procurement –

1. Competitive Tender

2. Design & Construct

3. Relationship Contracting

If, as the developer, your sole focus is on achieving the lowest possible price then a competitive tender is the most appropriate form of engagement, however your risk of variations and increased management time is dependent on the quality of your consultants and the documentation they have produced. I often find that if the developers’ focus is on the lowest construction price then likely they have also taken the same approach to selecting consultants, and as such the documentation can be lacking, thus increasing variation risk.

The Design and Construct approach is a ‘hands off’ approach and involves the builder taking a project that has Planning Approval, engaging all consultants and finalising design based on a scoping document provided by the developer. This reduces the risk of variations and management time for the developer, but it increases the risk of lost specification intent. What the developer intended does not necessarily make it to the final cut and it is difficult to write a scoping document in sufficient detail to completely cover all developer intent.

My approach is to select the builder based on a different priority of selection criteria. My primary criteria is reputation, reliability, expertise, and trust. These can be intangible criteria but are also built up over time and can be judged from marketplace reputation. From this group we may seek a tender prior to the lodgment of Development Approval, on a fixed margin and prelims, and an open book subcontract tender process. The builder then becomes part of the design team and is privy to feasibility, budgets, specification, and intent from day 1, and the project is designed, massaged, and reengineered to achieve all the outcomes by identifying risk early.

I could write several pages on how this arrangement can be structured to suit different projects, but the intent remains the same. I don’t understand why the component that is approximately 75% of your total development cost, is not part of your team from the earliest possible time.

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At Rosel Sherwood we are driven by our 3 core values of Knowledge, Outcomes and Empowerment.

It is our aim to share our knowledge with our clients to empower them to achieve property outcomes.

Each week we share that knowledge and experience via our Blog. Browse our significant databank of knowledge blogs, and keep informed and hopefully educated.

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For over 30 years, John Rosel and Chris Sherwood have been involved in property development, investment, master planning, due diligence, feasibility, and Project Management across Queensland.

Rosel Sherwood is a boutique and highly experienced property industry expert who takes the experience of its directors and provides Property Solutions & Outcomes to its select group of clients.

Have a look at some of the things we’ve achieved…

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Rosel Sherwood is a boutique and highly experienced property industry expert.

The Directors John Rosel and Chris Sherwood have over 30 years’ experience in the Property Industry and are a provider of Property Solutions & Outcomes.

Meet John & Chris…

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With over 30 years’ experience, John Rosel and Chris Sherwood bring together a unique level of experience and expertise. We are leaders in the provision of Property Solutions and Outcomes.

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That leadership is based on our 3 core value areas –

• Knowledge

• Outcomes

• Empowerment

Why is EMPOWERMENT important?

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With over 30 years’ experience, John Rosel and Chris Sherwood bring together a unique level of experience and expertise. We are leaders in the provision of Property Solutions and Outcomes.

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That leadership is based on our 3 core value areas –

• Knowledge

• Outcomes

• Empowerment

How do we achieve real OUTCOMES?

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With over 30 years’ experience, John Rosel and Chris Sherwood bring together a unique level of experience and expertise. We are leaders in the provision of Property Solutions and Outcomes.

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That leadership is based on our 3 core value areas –

• Knowledge

• Outcomes

• Empowerment

What does it mean to have KNOWLEDGE?

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An assets’ Life Cycle is something that is rarely considered in the property development industry. The value of Life Cycle management only comes into play when an asset becomes a longer term investment and only then do the owners whine about the developer and why they didn’t think about it when they built it.

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Well it’s a simple answer to why they didn't think about it….Capital Cost. It costs money to use better and longer lasting products, or implement measures that will save on operating costs. Of course operating costs are not the domain of the developer, it’s his role to reduce capital costs and bring scope to the minimum requirement so as to maximize return on equity.

Really……????

Whilst I understand the reasoning behind building the cheapest product for the maximum return, I find it extremely short sighted, is a poor image for the development industry, and creates unnecessary operational and especially energy costs in the future. But as an industry we all seem to strive for the lowest common denominator because that’s what our economic system dictates.

The Green Building requirements are the best example. Things like the utilisation of recycled concrete are a great idea but are just not economically viable, and only governments can afford to enforce these requirements because they are the only ones who will pay double the going market rent. But this is not what I’m talking about. I’m referring to just simple things like ..

• Take some time to explore new materials that provide enhanced operating efficiencies

• Technology in Building Management Systems

• Simple structural efficiencies

These simple elements in isolation are often not seen as cost efficient or providing a  sufficient return on the extra investment, but that’s because most of the time the property is not marketed to those elements. I am a firm believer that there is growing evidence of tighter yields and Cap Rates for property that provides energy efficiencies and considers the long term maintenance and operable values in the early concept design phase.

It doesn't work all the time but our society is becoming far more conscious of the impact we have on the future, especially in the areas of energy costs and health related issues, and hence the value of incorporating these elements is growing exponentially.

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With predicted tough economic conditions for the property industry, brought on by the Corona Virus, the days of set and forget assets are gone. Planning, investment strategy, and research are vital ingredients in any property investment or development proposal.

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No one expects something like a Corona Virus to cause the damage to the economy that it does, but what to do? Panic?

As with any investment medium the key is patience. Don’t act irrationally. Take your time, and take a long hard look at the asset. What was the original intention? Why is it underperforming? Is it failing or does it need a change of strategy?

In past blogs I have discussed asset investment strategy, management, and diversity, but it is only now that some of those critical factors have become so relevant.

We have over the years brought together significance experience, investment methodology, and reporting techniques that cater to the assessment of asset fiscal management. This experience combined with the current economic conditions, has brought our Asset Optimization Service to the fore.

The Asset Optimization Service is not about failed assets. The service looks to provide a proactive strategy that prevents the worst case scenario from occurring. It looks to investigate existing and underperforming assets on the following basis –

• Existing asset cash flow analysis

• Existing tenancy assessment

• Potential for improved returns through existing structure

• Future development potential

• Development Feasibility Analysis

• Due Diligence Reporting

• Finance and Cash Flow projections

• Program and Resource Management

The Repositioning of Assets in the current market place may be a critical step for a landlord that sees the survival of the asset value long term, and provides a stronger asset class on which future values can be built.

So if we can assist you with assessing your, or your clients property assets, lets catch up for a coffee and a chat, and see if there is some way we can add value to your business and property portfolio.

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Project programming often becomes a secondary thought for most developers and at best it is considered a construction issue not a development issue.

This article focuses on Development programming not Construction programming.

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There are significant inherent risks in not producing development programming that identifies all the projects key milestones, all project risks, potential variations to timing, and key stakeholder requirements.

The obvious tangible element (and some people think this is the only element) of Time Slip, causing holding costs to increase, is rightfully an important element, but there are several other key elements that cause intangible problems leading to project cost increase and poor long term outcomes.

Programming is intrinsically linked with Targeted Marketing. This is critical in longer term master planned projects that may move through various stages of the property cycle. Product in a Master Planned project may change throughout the life of the project, to reflect what the market is demanding. Poor programming or programming that does not take into account the changing property cycle, may end up providing misleading outcomes for the marketing team, and potentially the wrong product in the market at the wrong time.

Proper programing means setting up the project with all relevant links and pre or post required tasks. A program with incorrect Linkage is a recipe for disaster. This does not mean linkage is a ‘set and forget’. When changes to a project occur the impact on the program is seen through linkages.  But this is where a good project manager works to adjust tasks, timing, and resource allocation to mitigate lost time in one area of the project by changing or improving another.

Stakeholder Management is one of the key elements of project management and the program is a tool for not only setting the stakeholders expectations, but also of managing those expectations as changes occur. Correct programming gives you the opportunity to show the impacts of an issue, but more importantly show the stakeholders how those impacts can be mitigated through different approaches as the project progresses. This is the basis of pro-active project management.

Failure to make the program a ‘Living Document’ results in poor time control and poor stakeholder management. Too many people set a program at the inception of a job and it then goes in the bottom draw and a ‘management by reaction’ process takes over. The program must be updated weekly and must be a key tool in reporting to stakeholders and driving participants.

Finally, having said all this, you must apply the KISS principle (Keep It Simple Stupid). The program is important and must be a critical document, but make it a useable document. I have seen so many project managers spend countless hours in detailed programming, with the only subconscious outcome being to show the client how smart they are….but no one else can use the program, and the project manager has lost critical focus off the big picture and from driving the project forward.

Remember the keys to a successful project -

Plan your project…….

Have a clear action plan.….

Don’t be afraid to change the plan

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Rosel Sherwood provides Vertically Integrated Property Delivery Solutions.

But what does this actually mean?

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At Rosel Sherwood we SOURCE, MANAGE, & DELIVER property development and investment SOLUTIONS for our clients. Through our strategic partnerships we are a vertically integrated business group that provides the following property services –

• Source Development & Investment Opportunities

• Feasibility & Due Diligence Analysis

• Source Development Partners & Equity Funding

• Development Management

• Project Management

• Construction Delivery

• Portfolio & Asset Life Cycle Management

Give me a call to chat about what solutions we can bring to your property assets.

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Last week I investigated why working from home is a strong financial option for companies and what the issues and risks are.

This week I look at the problems of working from home from a personal perspective.

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So what are the problems of working from home –

1. Accountability & performance of staff working from home

2. Staff not having a suitable work environment in their own homes i.e. working on your laptop at the dining room table or in front of the TV. Not having suitable infrastructure like printers and desks.

3. Separating home life from work life

4. Human interaction and the lack thereof

These issues are all easily overcome. Now I have run a Project Management company for 16 years out of a home based office, so I feel I am particularly qualified to answer these issues. Let’s go through each of them –

Accountability

The old idea that staff will slack off as soon as they work from home is true if you are not providing clear KPI’s and your staff do not have clear direction on their role and what outcomes are expected. This is a staff management issue, not a staff personal problem. I acknowledge there will always be that 10% who slacken off no matter what you do…get rid of these people, they are weighing your business down whether they work from home or your office.

Work Environment

I own an old Queenslander and my office is built under my house. It is set up as a proper office with desks, printers, filing etc. It has been very important in my 16 years to have a room that is my “office” separate from my “home”. This engenders a sense of work. It can work as easily in a spare bedroom of a single story house.

As an employer, if you are saving $200,000pa on rent and you spent $10k per staff member to set them up with equipment, desk and general environment at home, you’re still coming out ahead financially.

Separating Home from Work

This is partially taken care of by having a separate office environment, it will never happen if you are working from the lounge room. This is also where education comes in. For example there are three key elements I attribute to my success in working from home –

• Getting dressed for work. Don’t work in your pyjamas.

• Compartmentalising my life. Separate work time and home time and ensure your family understand and respect those times

• Separating your workspace from your home space

 

Human Interaction

This is an interesting one. When I started on my own there was limited internet and no Zoom or Skype. Some work environments require close interaction with staff to bounce ideas and discuss outcomes. This issue is being resolved somewhat through Zoom and other video meetings but it doesn’t solve the human interaction issue. That is where compartmentalisation and education again come to the fore. Ensuring there is time when staff can get together, and also ensuring they have the right software and equipment, and most importantly that you have a strong Human Resources strategy.

So the key issues really come down to two items –

• Accountability

• Human nature

If there is one thing the virus has demonstrated, and I have experienced for 16 years, is that working from home is an achievable outcome especially with todays’ technology, providing you have strong KPI’s and clear expected outcomes, combined with a strong Human Resources strategy.

If I’m right, what does this mean for the office tower of the future?

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The Corona Virus is accelerating change which was always coming to the property market, and we have had a glimpse of what the impacts could be due to Technology, changing work environment, and changing spending habits.

Working from home has been a huge issue that has arisen out of this crisis.

So is that the future of a changing work environment?

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One thing that has become evident is how quickly most jobs could be converted to a work from home arrangement. Of course this does not relate to all jobs, and many issues have surfaced in terms of balancing children, work and accountability. However what the virus has done is to highlight these issues, and how they can all be quite easily fixed.

Imagine for a second that you’re a property business employing 25 staff in an office of 500m2. You’re located on the CBD fringe and rental is costing you $250,000pa.

It’s important you have an office location for various good reasons including –

•  Marketing, visual presentation of your company, perception of substance

• You have clients who visit the office and need to be attended to in person

• Requirement for meeting spaces that are private and provide an image that you want your company to present

These issues can be represented in 50m2 instead of 500m2 at an annual rental of maybe $50,000, with the same effect and no loss of reputation to your business.

You have a reception and front office staff to greet visitors and you have a roster system of staff who may be required to work from a hot desk in the office once a week. This rostering provides an essential personal service to clients who come through the door, but also provides an essential “break of routine” for home based staff (which I explain in my next blog about the problems of working from home). This, when combined with good online software and an education process for your customers, starts to strip away all the old arguments as to why it won’t work…and if nothing else, the saving in the fixed cost of office rental is a strong argument.

But what are the problems of working from home – Well that’s for next week’s Blog

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The economic impact of COVID-19 is quickly becoming equivalent to the Great Depression. So what can we learn from history and what should we ignore from history?

How can property still be an investment force?

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Firstly, people still need to live somewhere, they need to work somewhere, and they need to socialise somewhere. This requires land, space, property on which to conduct these activities. Property as an investment will not disappear and will always be an investment force.

This is in no way suggesting a “she’ll be right” attitude and it will all be rainbows and unicorns once this virus has passed…far from it.

As with all asset classes, if you own an asset at a time like this, then do everything not to have to sell. At the moment you have a balance sheet loss, you only have a cash loss if you sell.

Of course having the ability to hold depends on a multitude of factors including your financial position and the individual assets position, but the simplest way to get yourself into trouble is to be highly geared. Believe me I know! When the GFC hit in 2008 I had significant property assets…but also significant debt. Values went down but of course debt didn’t. Most devastatingly, cash flow dried up through a lack of demand from commercial tenants and residential buyers. I had thought I was risk averse and had always accounted for a 20% drop in values, well that turned out to be far too conservative…but of course I am wise in hindsight.

The old saying “Cash is King” rings ever true and at the end of the day it is not rocket science.

• Minimise gearing and debt

• Have an attitude of holding assets for the longer term

• Short term capital gain is a bonus…not a business strategy

• Asset type and location within that market are critical. Poorly located assets are the first to drop off in an economic decline and the last to come back

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The final stage for discussion is Facilities Management and Lifecycle Considerations.

This stage tends to get overlooked by most “build and sell’ type developers as they have no vested interest in the performance of the asset over the longer term. But if you’re an Investor or a long term holder of the asset, then it becomes essential.

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Facilities Management refers to the day to operation of the asset. This applies particularly to large multi-tenanted assets such as shopping centres or offices where large common costs are apparent such as energy, plant, equipment and common floor areas.

Life Cycle Management refers to the performance of that asset in an overarching portfolio over a period of time. This includes the consideration of such things as – 

• Interest rate risk

• Market movements

• WALE (Weighted Average Lease Expiry)

• Capital improvement cost

• Operating capital

• The strategy of the Portfolio as a whole

Some key items to be clear on when considering Facilities and Lifecycle Management include –

• Understand the clients’ investment intent

• In the development phase consider short term Capital Cost saving measures compared to the impact  on longer term maintenance costs

• Have a great long term Management Team

• Put in place specific and bespoke Reporting protocols

• Provision for Capital sinking fund items

There are many more issues and much more detail that can be entered into, but the above at least gives a very brief overarching guide.

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I have always kept the period from completion of construction to final handover, as a separate definable stage. This stage tends to get treated a little loosely by many Project Managers but it has two critical elements –

1. Ensuring a defect free completion and satisfaction of all statutory approvals and conditions is essential…but I think even more importantly for the Project Manager is….

2.  Marketing! This is the last impression you leave with your client. You may have done a great job for 12 or 18 months, but if you don’t finish well then, a poor finish is all they will remember

What are the key elements of this stage?

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The following is a brief checklist of items to be satisfied during the Handover Stage. Remember this stage doesn’t start on completion - it starts at least 6-8 weeks prior. Be proactive! 

• Aesthetic Defects

• Functional Defects

• Quality measured against the criteria set in your Project Plan

• Scope measured against plans and variation documentation

• Final statutory approvals –

  • Form 16’s

  • Compliance Approval

  • Referral Agencies sign off

  • On Maintenance Approval

  • Certificate of Classification

• Stakeholder Approvals

  • Tenancy use approvals (What approvals does the incoming tenant need)

  • Financier Investment Conditions Precedent

  • Equity partners requirements

  • Principals final approval

Next week the final part in this series… Lifecycle and Facilities Management

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Part 2 of the Construction Phase is primarily based around managing the relationship, reporting, and measuring performance against Time, Cost, Scope, and Intent.

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Now that you have the contractor engaged in an agreement that suits all stakeholders and works for the best outcomes for all parties, the process of delivery commences. It is critical that whilst you may have a great relationship with the contractor, and this partnership thing is working a treat…remember everyone is friends until something goes wrong. The best way to avoid conflicts is to be very clear on roles, scopes and reporting requirements.

Some of the key items to consider are –

• Establish a clear decision hierarchy

• Establish clear baselines on what is critical to the project. Is Time, Cost or Scope the most important?

• Ensure the contractor has a clear understanding of the clients’ vision

• Establish fixed reporting timeframes

• Establish clear reporting subjects

• Establish mutually agreed methodology for recording  and measuring –

  • Request For Information (RFI)

  • Extensions of Time (EOT)

  • Variations

  • Measuring Quality

  • Budget control

  • Claims procedures

• Detailed project programme is maintained at the absolute minimum weekly

• A clear expectation of handover quality including defects and their rectification

There is obviously much more that goes into this, but these highlighted items will at least get you on the right path.

Next week… The Handover Phase

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So you have your planning approvals and your building approval and you’re ready to construct. Be very aware of what the construction phase entails. As the rule goes, always know enough to know what you don’t know. 

The information on this first stage is split into 2 separate Blogs to keep it short and sweet. 

So what don’t you know?

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The construction phase does not start when work commences on site. The construction phase commences when you decide how and who you are going to partner with to deliver the constriction of your project.

Note I said “Partner”. For too long the relationship between principal and builder was an adversarial one. Since the GFC there has been a distinct change. As work has slowed and jobs have become harder to come by, the builders who have survived have moved away from hard dollar tendering and into partnership arrangements such as Early Contractor Involvement (ECI) style contracts.

The first decision you need to make is what method should you use to engage with your contractor. The type that is best for you depends on many factors including but not limited to -

• Your risk profile

• Your relationship with the contractor

• The type of project

• Your funding structure

Following are some of the forms of procurement that are common to the market. Remember there are many ways to skin a cat and many agreements become variants or a merging of some of these methods. 

• Early Contractor Involvement (ECI)

• Design & Construct (D&C)

• Construction Management

• Full Design Tender

• Cost Plus

• Fixed Price Contract

• Guaranteed Maximum Price (GMP)

• Incentive Contract (Time, Cost, Performance)

• Managing Contractor

• Build Own Operate Transfer (BOOT)

• Public Private Partnership (PPP)

• Turnkey

Next week Part 2 of the Construction Phase…

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