What’s in Your Wallet–and How to Keep It There, Part I
By Phillip Infelise, Chairman & Managing Principal
In my last blog entry, I promised we would have some fun with acronyms. But I thought there was a serious subject we had not yet touched on—Project Budgets—so we will save the frivolity for a while. Related to our last edition, we should consider the overall Project Budget as yet another form of communication between us and our clients. This form of communications is often the most difficult one since no one likes to talk about money. But Project Managers do like to talk about it—exactly how to get the project you want at the cost you can afford.
Typically, we want to begin the money conversation very early, often in a first meeting. Whether a TI build or a build-to-suit, we believe that—given the right initial information on size, character, aesthetic approach, what’s in, and what’s not in—we can provide the client with an appropriate Conceptual Project Budget during the first conversations. The conversation we don’t like to hear—either from our side of the table or theirs—is: “We can build the space out for the TI allowances provided.” Too often, the client hears that comment and thinks the total budget can be covered. Our job is to provide the bad news that such a scenario is rarely true when total project costs are included.
This first budget is generally a conversation about how much the basic items cost and where this particular client wants to spend or conserve its dollars. Generally speaking, we usually have about 50-60 line items divided into the following cost categories (NOTE: Only because I knew you would ask for it, I inserted some typical ranges you might expect on a basic tenant build project. There are caveats galore, too numerous to detail here. Please call me for details.):
-Design Costs ($2.50 – $5.00/SF)
-Construction Costs ($35.00 – $60.00/SF)
-Furniture Fixtures and Equipment ($15.00 – $40.00/SF)
-Voice, Data and Special Power ($6.00 – $15.00/SF)
-Administrative Costs/Contingencies ($5.00 – $15.00/SF)
-Total Cost, Minus Allowances and Offsets (less than $25.00 to $75.00/SF)
Our job is to describe the typical project and the estimated costs to the client and open a dialogue about what should be included or not included in this particular budget. We work on a wide enough range of projects to fully understand the potential costs in each line item and to describe what you get for a low, medium, or high spend in each. For a build-to-suit, land purchase and due diligence around it adds a major component, as does the core and shell construction, but otherwise, the majority of line items remain the same (even if the dollars associated with them are higher). And month-to-month cash flows are usually included in the build-to-suit budget to forecast the big spends for the finance team.
After a little more time with the client and further conversations about wants, needs, and funds devoted to the effort, we refine the budget to the next stage, a Preliminary Project Budget, ready to be tested against early space plans (aka test-fits) in a number of potential sites. This may also be the time to introduce a General Contractor and pre-construction estimates to the table. Accurate budgeting against multiple sites allows the real estate team and the client to thoroughly understand the true cost impacts of the specific site’s building systems and distribution, built environment (if any), allowances provided, and the actual net “cash-out-of-pocket” costs to the client at the end of the day.
In Part II, I will discuss the Project Budget Revision and the three areas that are often the most challenging for Project Managers to control costs. Stay tuned.
Tags: budget, build-to-suit, corporate real estate, cost savings, PM, TI allowance
This entry was posted on Wednesday, February 23rd, 2011 at 7:00 am and is filed under Project Management. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.