MS Project & Profitability in Real Estate Development

MS Project is widely used in construction projects, but few manage to utilize it effectively. The main issue is that this software is primarily used for scheduling, whereas it should actually be employed for managing project profitability.

Firstly, in addition to creating a timeline, it is essential to integrate the project cost estimation. The table below shows part of the resource integration, displaying the costs of construction materials and labor hours. This is not as difficult to do as it might seem.

It is not necessary to detail expenses with accounting precision. However, the level of detail should be sufficient to allow the software to show, for instance, how a $100 increase in the cost of rebar affects the planned budget.

Information provided by the software includes:

Expected Overrun Due to Delays

When creating a timeline, all activities need to be interconnected to make the critical path visible. The “critical path” clearly shows the relationship between current delays and the final deadlines of the project. Additionally, in case of delays, project costs increase, and the software shows the expected overrun amount.

Earned Value Report with Old Prices

This report allows us to see the volume of completed work in numerical terms, not in terms of time but in terms of the volume of work done. For example, if we planned to complete $300,000 worth of work over three months, how much did we actually complete, assuming the planned prices did not change? This is the most critical indicator that realistically shows budget/work completion:

Let’s assume we planned to lay 300 blocks, paying $2 per block, and $2 for laying each block. However, we laid 200 blocks and paid $3 per block – the budget might seem fulfilled, but the work completion is only 67%, regardless of how much we spent.

The Earned Value Report is convenient for translating all types of work into a single dimension.

Budget Deviation Impact on Profitability

How well does the budget for completed work align with the financial plan for the same work? What did it actually cost to lay 200 blocks, and how much was allocated in the budget for this work? Did we spend more or less per block? Did we spend more or less on labor? If the work became more expensive, what impact will this cost increase have on profitability? By what percentage do we need to increase the price to maintain the planned profit?

P.S.

Implementing and updating this software monthly allows us to see the connection between current actual performance and the planned profit at the end of the project. When the connection between today’s small deviations and the expected severe outcomes is well understood, timely and effective responses can be made.