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Capital Planning, Cost Tracking, Project Management

Sweat the Small Stuff: Capital Planning and Small Projects

Capital Projects are intended to maintain or improve asset value.

Owners routinely optimize operational efficiencies on large-scale, multi-million dollar jobs like lobby renovations, landscape upgrades, or full remodels. Projects of that scale require considerable time and resources, and their success or failure greatly impacts the value of the entire portfolio.

What about smaller projects, interior corridor renovations, demo and white box jobs for tenants, or the myriad smaller undertakings like painting, signage, sidewalk repairs, and security camera installations? Far more common, these projects occur more regularly with budgets under $1 million. Small jobs considered separately do not move the needle but taken in the aggregate, they are more impactful to the portfolio than most owners appreciate.

95% OF PROJECTS ARE “SMALL JOBS”

CRE owners in the US using our platform have taught us 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 the 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*

Sample Project Breakdown for 10MM SF office portfolio

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

Big-ticket renovations get more attention and focus. However, nearly 50% of the total capital project spend across the portfolio is on projects with budgets of less than $1 million, proving their impact.

WHY LARGE JOBS GET THE MOST ATTENTION

Marquee projects are closely tracked and monitored. This does not mean that these jobs will always be on time or on budget, but attention positively benefits performance; what is measured is managed. Even the largest owners and developers only manage a handful of large-scale projects at a given time, ensure that their resources are not get spread too thinly.

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

Large jobs justify investment in complex construction and project management technology. Owners find that big budgets, long timelines, and large teams justify the expense, in time and resources, new systems. Not only do larger jobs have the most focus from their team, they also have technology supporting and tracking the team to ensure efficiencies.

THE LARGE RISK OF SMALL JOBS

It’s not common practice to aggregate them, but it should be. Considering the sheer number of small jobs occurring annually, successfully monitoring and managing them becomes considerably more important to property management and project management teams.

Full-time project managers are not hired to manage “small jobs."

Typically, these jobs are assigned to property management or project management teams. Managers may find themselves juggling as few as 5 to as many as 20 small projects at any given time. No single project receives their full attention. With so much to manage, their ability to proactively monitor and control costs and schedules decreases. The number one complaint from project management teams focused on these types of projects to our team at Honest Buildings is how understaffed and overworked they are, draining their ability to maximize their performance on every project.

Small jobs are assigned to vendors with less sophisticated management and oversight.

This results in a greater management and coordination burden falling upon owners and their internal team to ensure the entire team of consultants and contractors works together effectively.

Small jobs are almost entirely managed via Excel and email.

Project managers 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, the number of projects, lack of efficiency, and manual tracking, small projects are 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 multiple small projects, many real estate owners have come to realize that there is tremendous opportunity to improve their cost-effectiveness.

While the dollar amount of each of these projects may be small for an owner of a 10 million square foot + portfolio, our analysis reflects an average savings of 6.3% for Honest Buildings' customers. Considering that there may be an average of 150 small projects across that portfolio over a year, found savings, added together with operational efficiencies stack up. 

CAPTURING BIG DATA FROM SMALL PROJECTS IMPROVES CURRENT AND FUTURE PERFORMANCE

Finally, 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 each day and hundreds of times per year. By creating systems and processes to capture all this data, commercial real estate owners and executives can use the information to analyze current operations and identify organizational project management performance improvement opportunities. Some of the country’s largest owners are using historical data to help them understand which types of projects tend to get delayed or go over budget most often, which vendors are most reliable, and what future jobs might cost.

Ultimately, real estate is an information game, and using historical insights to make better decisions going forward will be game-changing for owners.  

Rochelle A. Carter-Wilson

Written by Rochelle A. Carter-Wilson

Rochelle is the Content Marketing Manager for Honest Buildings. She creates stories and other on-brand content to inform and engage owners and other members of the Commercial Real Estate industry.