Article 589 Why Real Estate Developers and Investors Should Have a Comprehensive Cost Breakdown Structure (CBS) that Maps the Complete Project Life Cycle Costs and Revenues for Their Real Estate Investment Projects?

For real estate developers and investors including special purpose vehicles (SPV) created for Public-Private-Partnership (PPP) projects, the cost of delivering a capital construction project is one of the many financial components needed to manage, monitor, evaluate and report on the viability of real estate investments. To have a complete financial model for any type of real estate investment, those developers and investors need to consider the costs associated with the site acquisition, design and construction, refurbishment and renewal, operation, maintenance and end of life or assets disposition as well as the revenues generated from operations, assets sales, leases, etc.

This requires having a cost account or cost breakdown structure (CBS) that maps all those types of costs and revenues. The International Construction Measurement Standards (ICMS) developed by the Royal Institute of Chartered Surveyors (RICS) sets out how to classify, define, measure, record, analyze, present and compare construction project life cycle costs in a structured and logical format. This structure will be also appended with the different types of real estate investment revenues and incomes that can be generated when the project is handed over to operations to go live as well as the revenue that could be generated during the project’s delivery stage such as the revenue from off-plan sales.

This cost breakdown structure (CBS) will become the basis for developing the cost and revenue estimates for the real estate investments for which when approved will be the basis for developing the budget for the real estate investment as well as the commitment and revenue contract agreements. For commitment contracts, the approved cost estimate will also become the basis for managing the procurement process to select the successful bidders for the outsourced scope of work. Those commitment and revenue contracts could be revised depending the approved changes made to those contracts. In addition, invoices for incurred cost and earned revenue will be issued against those contracts as well as capturing the details of payments made or received against approved invoices.

The availability of the total costs and revenues associated with the real estate development or investment including the dates for spending those costs or earning the anticipated revenues will also enable determining the net present value (NPV) and calculating the internal rate of return (IRR) for the investment. This will provide the real estate developer or investor with a better and faster insight needed to make informed decisions on the real estate investment.

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Using a Project Management Information System (PMIS) like PMWeb, the business processes for cost estimates, procurement bid packages, online bidding, commitment and revenue contracts, change orders, progress invoices and requisitions and payments made and received are all readily available out of the box. Nevertheless, the cost breakdown structure (CBS) is what will be used to structure, consolidate and aggregate the financial data captured in those business processes. PMWeb cost account module allows creating up to 16 levels of CBS levels to provide each real estate developer or investor with the level of control they want to implement on their real estate investments.

PMWeb cost estimate module allows creating separate estimate documents to ensure that each estimate is done by those individuals who can best come up with the most estimates for the associated scope of work. For example, separate cost estimate templates could be created for site acquisition, construction, operation, maintenance, leases, sales, operation income, etc. Those estimates which could be done in different currencies must associate their estimated cost line items with the relevant cost breakdown structure (CBS) level.

The approved cost estimates will become the basis for generating the commitment and revenue contracts that will be used to manage the cost of outsourced scope of work as well as revenue generated from sales, leases and operations. The cost or revenue items detailed in those contracts needs to be associated with their relevant cost breakdown structure (CBS) level.

In addition, those contract agreements will be used to manage all approved and pending changes that could affect their value and duration. All those changes to commitment or revenue contracts need to be detailed to the level that enables associating them with their relevant cost breakdown structure (CBS) level.

Further, invoices received against commitments and those issued against revenue contracts as well as payments made and payments received against those will be also captured. As those invoices will be automatically generated from their relevant commitment or revenue contracts, all line items will be automatically associated with their relevant cost breakdown structure (CBS) level.

To provide complete transparency on all business processes required for the cost and revenue management business processes managed in PMWeb, all supportive documents need to be attached to each record. PMWeb attachment tab in those templates will be used to attach all those supportive documents. It is also highly recommended to add comments to each attached document to provide better understanding of what was the document for. The attachment tab also allows the user to link other records for business processes implemented in PMWeb as well as associate URL hyperlinks with websites or documents that are not stored in PMWeb document management repository.

All those supportive documents need also to be uploaded into PMWeb document management repository so they can be stored and used. Those documents could be uploaded into folders or subfolders so they are better organized and secured. PMWeb allows setting access rights to each folder to identify the users who have access rights to view documents stored in a folder. In addition, PMWeb allows setting notifications for individuals to receive emails when new documents are uploaded or existing documents were downloaded or deleted.

To enforce accountability for all business processes required for managing cost and revenue management, PMWeb workflow module will be used to create a workflow to formalize the review and approval tasks of each business process. The workflow will map the sequence of the review and approval tasks along with the role or user assigned to the task, duration allotted for the tasks, rules for returning or resubmitting a document and available for each task. In addition, the workflow could be designed to include conditions to enforce the authority approval levels as defined in the Delegation of Authority (DoA) matrix. It should be noted that those will who be involved in those workflows could include other members of the organization that are not part of the project management team.

When any of those cost or revenue management business processes is initiated, the workflow tab available on the template will capture the planned review and approve workflow tasks for each transaction as well as the actual history of those review and approval tasks. PMWeb will capture the actual action data and time, done by who, action taken, comments made and whether team input was requested.

About the Authorfounder

Bassam Samman, PMP, PSP, EVP, GPM is a Senior Project Management Consultant with 40-year service record providing project management, project controls services and project management information system to over than 200 projects with a total value in excess of US $100 Billion. Those projects included Commercial, Residential, Education and Healthcare Buildings and Infrastructure, Entertainment, Hospitality and shopping malls, Oil and Gas Plants and Refineries, Telecommunication and Information Technology projects. He is thoroughly experienced in complete project management including project management control systems, computerized project control software, claims analysis/prevention, risk analysis/management (contingency planning), design, supervision, training and business development.

Bassam is a frequent speaker in topics relating to Project Management, Strategic Project Management and Project Management Personal Skills. Over the past 40 years he has lectured at more than 350 events and courses at different locations in the Middle East, North Africa, Europe and South America. He has written more than 500 articles on project management and project management information systems that were featured in international and regional magazines and newspapers. He is a co-founder of the Project Management Institute- Arabian Gulf Chapter (PMI-AGC) and has served on its board of directors for more than 6 years. He is a certified Project Management Professional (PMP) from the Project Management Institute (PMI), a certified Planning and Scheduling Professional (PSP) and Earned Value Professional (EVP) from the Association for the Advancement of Cost Engineering (AACE) and Green Project Management (GPM).

Bassam holds a Masters in Engineering Administration (Construction Management) with Faculty Commendation, George Washington University, Washington, D.C., USA, Bachelor in Civil Engineering – Kuwait University, Kuwait and has attended many executive management programs at Harvard Business School, Boston, USA and London Business School, London, UK.


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