Posted about 7 years ago

Introduction to Rehab Project Management

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Project Management is an art form mastered by few in the world of real estate investing. By its nature, real estate investing is quick, dynamic and often hectic. This leaves very little appetite for the tried and true methods of project management.

Many investors feel they don’t have the time to execute the proper project management practices before, during and after their rehab projects. There is also a strong distaste for evolving technology within the real estate industry. Even with growing adoption of various real estate applications and web services, many investors still prefer pen and paper as a means to plan a project. It doesn’t make matters any easier that very few investors have a strong understanding of the basic project management fundamentals.

Residential rehab projects are complex. A project manager is tasked with keeping track of budgets, timelines, scope, measurements, sub-contractors, material purchases, deliveries, etc. When you consider all complex aspects of a rehab project, it is maddening to imagine keeping track of everything in your head. Even if you were able to keep track of all of these variables using pen and paper, the dynamic nature of rehab projects quickly makes any paper plans obsolete.

As a real estate investor, it is essential that you build and execute comprehensive project management systems and techniques. A failure to embrace project management systems will surely result in missed timelines, additions to scope and added project cost.

To begin, you must become familiar with a high level view of what project management is all about. When simplified, project management is nothing more than the coordination of three inter-dependent levers: Time, Scope, Budget

Let’s define these three levers in detail:

Time/ Schedule

Time or “timeline” is rather simple to understand. Time is the number of hours, days, weeks, months and years that each aspect of your project consumes. Timeline is to be considered both at a high level (“Interior”) and at a detailed level (“Paint Bathroom Baseboard”). Your timeline is often referred to as your schedule. Therefore, timelines are typically displayed as a calendar or as a gantt chart. A typical rehab project will speak in terms of weeks…but days, hours and months are not uncommon.

Cost/ Resources

This constraint relates directly to your project budget. The cost of labor and materials is probably the most apparent constraint for any rehab project. There are countless strategies and tools to help you estimate rehab costs.

Scope

Scope refers to the actual work you plan to perform on your rehab. Scope is broken down to the stages, categories and tasks of your project. A well documented scope will instruct the project team exactly what to do. Low level scope tasks will read something like: “Paint living room walls – Valspar 2000 Antique White Eggshell Finish”. At a higher level, scope tasks look like: “Install new deck”. The general and detailed tasks both have their place in a comprehensive project plan. We won’t dive into the scoping process in this post. For now, just understand that the Scope of work relates directly to the actual work to be done to the house.

Scope will also be the constraint that identifies the finish level or “quality” of your project. When planning your scope, you will undoubtedly make decisions as to what materials and finishes to use to maximize your profits. Will you install formica countertops or granite countertops? Black appliances or stainless steel appliances? Fiberglass tub surround or tile tub surround? The answers to all of these questions will all be found in your scope.

The Project Management Triangle – Inter-Dependency of three Project Management Constraints

The most fundamental principle of project management is that the three main levers are inter-dependent. That is, you cannot change one of theses constraints without having an impact on at least one of the others. The inter-dependence of these three constraints has led the project management community to utilize the metaphor of a triangle.

Consider the illustration below:

Project Management Triangle

Imagine you were to grab one of the points of the triangle and move it somewhere else on your screen. It would be impossible to do so without changing the size of two or more of sides of the shape. The triangle helps to illustrate the fact that it is impossible to adjust any of these project constraints without being forced to make an adjustment to another.

Let’s look at some examples:

Example #1 – Roof Nightmare

Consider a residential rehab project you purchase in January. When you buy the house, you assume the snow covered roof is in great shape. You move forward drafting your project scope and you leave out the cost of a full replacement roof. Now imagine the snow thaws in March and a disastrous 4 layer roof is exposed. You have no choice but to add a new tear off roof to your scope. As project manager, you make the decision to increase scope. The added scope of the roof will certainly come at a cost. You need to pay your roofing company to tear and replace the roof. Its impossible for you to add this piece of scope without adding to the overall cost of the project.

Change – Adding a new tear-off roof to project scope

Cost Impact – Increased project cost; roofers cost money

Time Impact – Depends. Your roofers may be able to get in and out without any lost time.

Scope Impact – Increased scope & quality; house now has a new tear-off roof.

Example #2 – Unforeseen “Snowvember”

Imagine you just started a rehab project in the beautiful landscape of Buffalo, NY. Its early November. You and your team are hustling to get as much exterior work done as possible before the winter hits. Then, winter hits; with authority! The region is slammed with 7 feet of snow virtually over night. The region is at a complete standstill. Its obvious no work is getting done for at least a week while crews work to clear the snow. It is clear that this storm will have a negative impact on your project timeline . On the surface it may seem like the increased project timeline will have no impact on the other two constraints. After all, your scope remains the same and the cost of performing your rehab is also unchanged. But you must dig deeper to understand the increase in overall project cost as your holding costs increase. Your holding costs include your property insurance, tax, utilities and financing payments. The longer you hold the property, the more you spend in this category. In fact, you can and should have an understanding of your daily holding costs on any rehab project. In the case of the surprise November storm, the added timeline increased project cost as well.

Change – Added rehab timeline due to unforeseen november storm.

Cost Impact – Increased project cost; A longer project means increased holding cost.

Time Impact – Increased timeline

Scope Impact – None

Example #3 – Painting Triple Threat

Let’s assume you are just getting started in your investing career. To save a few bucks, you decide at the onset of the project that you will personally paint the entire house! In the beginning, this seems like a fantastic way to save some money. However, as you get into the project, you quickly realize that like as a real estate investor is very hectic. Between managing the current project and looking for new projects, your time is in short supply. You begin to consider outsourcing the painting project that you had previously committed to. You realize that hiring an outside contractor will surely free up some of your time. A professional crew would be in and out in a single week whereas it would have taken you at least 2 weeks to do yourself. In addition, you understand that a professional crew will most likely do a better job than you would. Sure, you’ve painted before. But you don’t do it for a living. Finally, its obvious that this professional crew will cost you some money.

Change – Hiring professional painters instead of painting yourself.

Cost Impact – Increased project cost; painters cost money

Time Impact – Decreased timeline; your work will get done quicker

Scope Impact – Increased quality of work; professionals are better than you

By now you should have a strong grasp of the three major constraints of any project. While the concept is rather simple, its understanding is essential to the success of any rehab project manager. In future posts, we will dig into the tools and processes used to establish and manage your project plan. We will learn how to account for changes to project constraints and the methods one can use to maximize project profitability.



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