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Capital Planning

The Risk of Your Capital Plans Is in the Smaller Projects

When it comes to capital projects, it’s easy for owners to see the benefits of optimizing operational efficiency on large-scale, multi-million dollar jobs like lobby renovations and other major repositioning projects. Big projects require a large concentration of resources and efforts, and their success or failure greatly impacts the bottom line of an entire portfolio.

But what about the smaller projects like renovating interior corridors, tenant jobs like demo and white boxes, or the myriad smaller capital projects like painting, signage, sidewalk repairs and security camera installations? These jobs are undertaken far more frequently and often have price points of less than $1 million. Taken individually, small projects will not move the needle much in an entire portfolio, but taken in the aggregate, small projects are more impactful than most owners appreciate.

95% of projects are “small jobs”

Based on data from top office owners in the country using our project management and procurement platform, we’ve found the following:

• Owners with an average of 10 million square feet in office portfolios spend anywhere from $50 million to $100 million annually on capital expenses and tenant improvements.

The average number of projects across that size of portfolio is around 150 jobs annually.

95% of all projects are less than $1 million in value.

Sample project breakdown for 10mm SF office portfolio*

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*Based on Honest Buildings data from nearly half a billion square feet of commercial assets

 

While big ticket lobby renovations might get more attention and focus, these “small” jobs are just as important in the aggregate. In fact, about 50% of the total capital project spend across the portfolio is on projects less than $1 million, proving that these smaller projects really add up to big dollars.

Why large jobs get the most attention

It’s natural for real estate owners to invest in having full-time dedicated project managers to manage costs and ensure that larger capital projects are proceeding on schedule and on budget. In the case of mega ground-up developments, this may even be a full team of trained project managers and analysts working around the clock at a job site to manage costs.

Here is the special treatment that large jobs get:

Marquee projects are intensely tracked and monitored. This does not mean that these jobs will always be completed on time or on budget, but this attention ultimately positively benefits performance. After all, typically what is measured is managed. Even the largest owners and developers will only have a handful of these types of mega projects occurring at a given time, allowing them to ensure their resources are not spread too thin.

Large jobs typically have the largest and most capable architects and contractors staffed. Using more sophisticated vendors means that the project management burden can be shared more widely, with less reliance on the owner and their internal team.

Large jobs often justify investment in complex construction management software. Owners can find that big budgets, long timelines and large teams make setting up and learning new systems worthwhile. Thus, not only do the big jobs usually have the most focus from their team, they also sometimes have technology helping the team become even more efficient.

The large Risk of small jobs

With the sheer number of small jobs that take place annually across a portfolio, the burden of monitoring and management becomes significant on the property management and project management teams.

Here is how small jobs are undervalued: 

Small jobs are deemed economically unreasonable to staff a full time project manager. The typical model is to assign a large number of these jobs to the property management or project management teams. This may result in managers having anywhere from 5 to 20 small projects ongoing at any given time. Translation: no single project can get their full attention. Because these professionals have so much to manage, their ability to proactively monitor and control costs and schedules decreases. The number one complaint we hear from project management teams focused on these types of projects is how understaffed and overworked they are, draining their ability to get maximum performance from each and every job.

Small jobs are typically being completed by smaller vendors who have less sophisticated management and oversight capabilities. Therefore, the management and coordination burden falls even heavier on the owner and their internal team to project manage and to ensure the entire team of consultants and contractors works together effectively.

Small jobs are almost entirely managed via Excel and email. Project managers are required to take on the demanding administrative task of keeping the information on these projects up to date and accurate with limited tools to help them beyond spreadsheets and emails

Small projects are not tracked in detail. Given the dearth of resources, number of projects, lack of efficiency, and manual tracking, the management of small projects is often the source of significant leakage of value for owners, through issues like unchecked cost overruns through change orders or delays from missed milestones.

Improving small project performance can lead to major gains in asset value 

Because of the inherent difficulties of managing small projects, many real estate owners have come to realize that there is major opportunity to improve the cost-effectiveness of these projects.

While the dollar amount of each of these projects individually may be small for an owner of a 10 million square foot + portfolio, there may be an average of 150 of them across that portfolio over a year. Due to those large numbers, these savings found through improved efficiency and tracking stack up.

Capturing big data from small projects improves current and future performance

Further, these small jobs are a data goldmine. While there might be one or two major ground up developments of lobby repositionings per cycle, smaller jobs happen every single day and hundreds of times per year. By creating a smart system to capture all of this data, real estate owners and executives can use it to analyze their current operations and identify opportunities for improvement in their overall project management performance. Some of the largest owners in the country have started to use their historical data to help them understand which types of projects tend to get delayed or go over budget most often, which vendors they use are the most reliable, and what future jobs might cost.

Ultimately, real estate is an information game, and being able to use historical insights to make better decisions going forward will be game changing for forward thinking owners.  

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Geoff Lewis

Written by Geoff Lewis

As head of the Sales Success Team, Geoff is an advocate for Honest Buildings customers and prospects. As the former head of Product and a technology enthusiast, he has ensured that the Honest Buildings platform is intuitive, intelligent and easy to use for today’s commercial real estate owners and managers.