How to Get Real-Time Financial Transparency When Delivering Real Estate Projects?

For real estate investors and developers, project financial performance reporting goes beyond managing the project budget, commitments, changes and actual costs. They require managing the income or revenue generated from selling, leasing or any other source of income that is needed to calculate the Return on Investment (ROI). Further, they need their project management team to be aware of what has been sold or leased to ensure that those assets are delivered in accordance to the contract terms and conditions signed with the tenant. In addition, they need to have details of the funding available to finance the project and how much funds are still available to finance the remaining project’s scope of work.

Why a Project Management Information System (PMIS) Is Needed?

Project Management Information System (PMIS) like PMWeb comes ready with out-of-the-box modules needed by the real estate investor to achieve all of those reporting requirements in addition to the many other every day processes needed to manage the project. PMWeb allows creating the project budget which could be generated from PMWeb cost estimating module or just added or pasted from MS XLS. The budget request module allows managing all budget transfers, omissions and additions to maintain the project budget. The revenue module allows capturing the details of all sales, leases and income contracts as well as capturing all changes to those contracts, invoices issued and actual payments received against invoices. The commitment module is used to capture all expenses contracts including design, project management, professional services, construction contracts and subcontracts, material supply purchase orders, marketing and any other internal or external contracts. For all those expenses contracts, PMWeb will also capture potential change orders as well as pending, approved and disputed change orders. PMWeb will also capture the actual cost incurred against expenses contracts as well as other miscellaneous invoices and cost of own company resources, labor and non-labor charged against the project using timesheets. PMWeb will also capture the details of actual payments made against approved actual cost invoices. Finally, PMWeb funding module allows capturing details of all available project funding, funding requests and authorized funds released for the project. All those financial transactions are recorded in a cost ledger to allow creating the project financial performance cost worksheet that will provide a single version of the truth of the project financial status.

Setting the Financial Performance Platform

Before proceeding with managing the project financial performance, the organization needs to define and standardize the project cost breakdown structure, financial periods and whether multiple currencies will be allowed in managing the project’s financial transactions or not. Those are also required to enable the organization to reconcile PMWeb financial transactions with the organization’s ERP or accounting system should there be a need to do so.

Usually, there will be a single cost breakdown structure (CBS) or cost account numbers that is used by the organization in reporting their projects’ financial performance across their project investments portfolio. It will consist of multiple levels to detail the level of control that the organization wants to exert in managing their investments and other financial transactions.

In addition, the organization needs to define the project financial periods also known as accounting periods which are an established range of time in which accounting functions are performed, aggregated and analyzed including a calendar year or fiscal year. The accounting period is useful in investing because potential shareholders analyze the company’s performance through its financial statements that are based on a fixed accounting period.

Should the organization want to allow the use of multi-currency in the different project financial transactions, then this option needs to be activated. PMWeb allows multi-currency at line item level for each financial record. The exchange rates can be fixed or linked to a currency exchange portal where the organization can select the frequency for updating the exchange rates.

Setting and Managing the Project Budget

The project budget is the investment that the organization has approved for the project investment. It is usually managed during the design development stages and new versions might be created but there should be only one approved budget version and all other past versions need to be withdrawn. During the early project life cycle stages, it is recommended to link each budget line item to the corresponding project schedule activity. This will enable the organization to have a projection of the budget spending that is mapped to the project financial periods. PMWeb allows selecting different projection curves, linear, bell shaped, front and back loaded, to distribute the allocated budget for each line item.

When the project is confirmed as a go for execution and the start date is fixed, it is recommended to manually distribute the budget of each line item to each financial period to reflect the anticipated planned budget spending. Of course, the distribution curves continue to be available if needed.

After this stage, all changes and adjustments to the approved project budget needs to be managed using the budget request module. Through that module, budget transfers from one cost account to another whether they are for the same project or to other projects, increasing the budget or reducing the budget will be performed. The transfers will be specific to each cost center as well as financial period. The budget adjustment request module will usually have a pre-defined workflow with the different possible conditions and rules to ensure that the right review and approval levels are carried out.

Managing the Project Revenue

PMWeb revenue module will be used to capture the details of each asset that will be either sold or leased. It will be a contract agreement between the investor organization, who is the seller and the buyer. The contract agreement could be a for a single or group of apartments, villas, warehouses, commercial spaces among others. For each contract, line items will be added to match the payment terms of the contract agreement. The organization can pre-define those payment terms in PMWeb to enable selecting and dragging the relevant terms to each contract instead of manually adding them. Each payment line item needs to be linked to its relevant financial period.

Some of the tenants might require changes or modifications to what was included in the original sale or long-lease agreement for which a change order will be created. The change order will detail the cost of all those new requirements which will result in a revised contract agreement. A workflow can be set to the change document to ensure the required approvals and sharing of the change details is transmitted to the right project team members.

When the dates for the payments, as per the approved contract, are due, an invoice will be issued. The invoice will reflect what was already paid in the previous invoices and the balance due. Again, a workflow can be assigned to the invoice to ensure the required reviews and approvals are secured before having the approved invoice.

Managing the Project Commitments

The real estate investor will award commitment contracts for executing the project scope of work. Those could be contracts for marketing, design, project management services, site supervision, construction, material supply among others. The commitment contracts could also include internal company contracts. For example, assume the real estate investor has a department for marketing, the organization could have a contract with the marketing department for delivering this scope of work. Similar approach could have been done for the PMO, real estate development department among others. The commitment contracts usually have terms and conditions that relate to retention, advance payment, advance payment recovery, tax, tax withheld, VAT among others.

One of the good practices that is being adopted in most capital projects today, is to require the contractor to provide the anticipated payment schedule for the work included in their contract agreement. This is more specific to what is known for many as the “cost loaded schedule”. Unlike the cost loaded schedule where the distribution for payments is projected over the activity duration using one of the available projection curves, PMWeb allows the organization to exactly specify the amount of anticipated cost that will be invoiced for each financial period. This will help the real estate investor to better anticipate the payments to be made to better manage the project cashflow and funding requirements.

Similar to all contracts, changes could happen. Those could be as a result of new scope of work, unforeseen site conditions, new laws and compliance requirements, non-availability of specified materials, weather conditions among many others. One of the recommended practices is to capture all potential changes that might impact the project’s final cost at completion as soon as they are identified by the contractors and other project team members.

This will allow the project management team to review those potential changes and decide if they represent actual changes to the project scope of work or needs to be rejected. If those potential change orders have some kind of merit, the project management team will initiate the change management process using the change request template. The reviews and approvals needed for a change request might require going into different iterations which will be identified in the workflow steps and actions. The workflow will also include conditions to enforce the approval authorities level which is usually linked to the change request value. Adding the approved change request values to the original commitment contract value will provide the revised contract value while adding all pending potential change orders and change requests as well as disputed change requests to the revised contract value will calculate the projected commitment contract value.

Actual Cost

The actual cost reporting will include the approved progress invoices for all commitment contracts, miscellaneous invoices and the cost of the real estate investor own resources, labor and non-labor in managing the project delivery. At the end of each progress period, all consultants, contractors and suppliers need to submit their invoice for the work completed during the past financial period. The percent complete assessment for the completed work can be manually added or imported from the project schedule if the contract line items are associated with schedule activities. In addition, PMWeb provide the option to use the actual quantities of work completed if this will be the method to be used to assess the monthly progress invoice.

In addition to progress invoices against commitment contracts, the real estate investor would need to capture all miscellaneous invoices that could be needed to pay for the land purchase and fees, local authorities’ permits, site offices and supplies among others.

The real estate investor will usually have his own resources involved in managing the project delivery. Those are the resources that are not part of the internal company contracts explained above as otherwise the real estate investor will end charging the cost of those resources twice. For those resources, labor and non-labor, the real estate investor will have a charge rate for each resource that is inclusive of resource direct and indirect cost. Usually there will be rates for work performed during regular working hours, weekends and holidays. On weekly basis, timesheets will be completed for all those resources reporting the actual hours spent by each resource and against which task. The hours spent could be reported as regular, weekend or holidays as this will impact the actual cost charged against the project for those resource hours.

Some real estate investors might have the requirement to import the actual cost of their corporate involvement in the project delivery from the head office ERP or accounting system. PMWeb integration module and API integration module provides those organization with different options to import and export cost data to and from PMWeb. The integration module provides easy way to build the integration while the API integration provides more advanced integration but requires system integration knowledge to build it.

Managing Project Funding

The real estate investor needs to keep track of all possible sources for project funding. Those could be internal funding, private funding, funding by banks, public funding among others. For each funding source, the real estate investor can detail what project investments will be funded by that source and the amount of funding available for each project. The funding source could be available to projects, programs or for the complete project investments portfolio for the real estate developer.

Should there be a need for funding the project, a funding request needs to be formally submitted listing the amount of funds needed and from which fund source. A workflow will be usually added to the funding request to ensure that all necessary reviews and approvals are in place.

When the funding request is approved, funds will be released using the funding authorization template. The funding authorization would require detailing the authorized funds along with the source of those funds. A workflow will be usually added to the funding authorization to ensure that all necessary reviews and approvals for releasing the funds had been secured.

Putting All the Pieces Together

The different processes detailed above are usually done by different project team members from the different entities involved in delivering the project. Those processes have different type of financial records and data that will affect the project’s financial performance. PMWeb cost ledger provides an automated single repository that will capture the details for all those transactions. The user can drilldown to the source of the reported financial transaction by just clicking on the record itself.

The financial transactions will become the real-time data source for creating the project cost worksheets. The real estate developer can have unlimited number of cost worksheets created for which each could have different type of financial values displayed. For example, a cost worksheet can be created to compare project budget with income revenue. In addition, each cost worksheet could have calculated fields based on the data captured from the different financial records.

The cost worksheet will provide the real estate investor with real time visualization of how the project investment is performing. The reported data are based on the actual financial transactions carried out on the project. The cost worksheet reader can drilldown to the data source by just clicking on any cell itself when there is a need to have more details on the reported value.

The real estate investor can produce different variety of tabular and graphical reports from the cost worksheet. Those reports can be for a specific project investment or for a portfolio projects investment. The report can be for all cost accounts or cost breakdown structure (CBS) centers or for selected centers. The report can display the cost data at detailed or summary level and can group cost data by project, program or portfolio.

Project Financial Performance Report for Executives

For executives and other stakeholders who are not involved in everyday projects financial transactions as well as those who are keen in having a bird eye view on how the project investments are performing, the data captured in PMWeb can be extracted, transferred and loaded into a business intelligence and data visualization tool like MS Power BI, Tableau, Qlik, iDashbaords among others. This will provide those stakeholders with real-time interactive dashboards that are based on trust worthy data source. In addition, those applications allow the user to associate, blend and visualize data from multiple data sources such as ERP, accounting, CRM and other type of applications with PMWeb data source. This will provide the reader with a more comprehensive status of their project investments performance.