Residential construction and development projects are very complex and offer many challenges. There are numerous opportunities throughout a project for delays, cost overruns, and costly mistakes. As the project manager, you’ll need to figure out ways to avoid these problems and focus on completing the project on time and within budget, and while adhering to the quality standards of the profession. If you are being financed by investors or working with borrowers to facilitate a new residential development, these considerations are key to rewarding investors with a return on investment and borrowers with quick repayment of their loans.
Construction Issues for Residential Development Projects in Hot Markets
While issues in construction can occur in any market, the time when major developmental delays and costly mistakes can happen in residential construction is during a hot market climate. It’s in these times when residential developers are investing in properties, projects are getting started more rapidly, and there is a higher demand for residential properties, that time factors can put additional pressure on the project manager. Great care must be taken to plan each project with as much detail as possible before the project begins.
Some of the more common construction issues residential developers face during this time include:
- Cost overruns
- Delays in the development schedule
- Inefficient coordination between development teams
- Regulatory and compliance issues
So what can residential developers do to mitigate these challenges and ensure projects are completed on time, within budget, and with fewer headaches?
How to Avoid Mistakes, Delays and Cost Overruns
The key to avoiding costly mistakes, delays in project management, and cost overruns in any residential development project are in the planning stage. Long before you begin the development, and even before it is funded, project managers must plan each stage of the development project with as much detail as possible and commit to adhering to the schedule and budget of the project.
How to avoid cost overruns – Cost overruns lead to frustration and disappointment when investors lose money and borrowers run out of funds. The surest way to avoid cost overruns is to over budget for the project. After accounting for material and labor costs, plus regulatory fees and other project expenses, add a “fudge factor” of at least 10%. Many residential developers add 15% or 20% of expected expenses to the budget to account for unexpected expenses or a rise in the cost of materials between the planning stage and the building stage.
Developmental delays – Just as you over budget for expenses, you should over budget for time. Allow for an additional 10% to 15% in time for each stage of the construction project. Also, work out your workflows during the planning stage and make sure the project management team adheres to these workflows throughout the development project.
Coordination between development teams – Engineers, contractors, architects, construction foreman, and other professionals working together on a residential development must be able to coordinate between the phases and make smooth transitions in order for the construction project to be completed on time and within budget. Any delays in communication and coordination can hold a project up unnecessarily. One way to fix this is to assign a coordination liaison to work with each team to ensure a smooth transition from one professional to another throughout the project.
Regulatory compliance – Few things are as frustrating as getting into the middle of a construction project and finding out that your residential development fails to meet some code. When possible, take care of any regulatory compliance requirements prior to the start of your residential project. Otherwise, begin coordinating with the appropriate regulatory body far enough in advance that delays in the inspection are held to a minimum or avoided entirely.
If your residential development project manager is efficient, your project will go more smoothly and borrowers can pay back their loans quickly while investors maximize their returns. Keep these tips in mind when planning your next project.