The Need for a 'Commercial' Perspective at All Times
I was talking to a property developer the other day. He had just completed building an 86-storey building consisting of over 500 apartments and units. A massive seven-year project that involved high development and commercial risks.
He wasn’t the builder or the architect or even the financier; he was the guy who pulled it all together to ensure it was a commercial success.
He was the ‘sponsor’ with a very active interest in the outcome!
All project sponsors should learn from this developer.
Value maximization
While the builder was focused on all of the building issues, the developer focused on the commercial (or value-generating) issues.
He arranged the pre-sale of 70% of the apartments. He didn’t do any of the selling himself, he had a ‘project team’ to do that.
He discussed with the architect ways to maximize the attractiveness of the building, and therefore value, (by, for example, putting small units on the outside of the residents’ car park to disguise its use).
He approved the overall designs and finishes as consistent with the overall ambience and quality he was targeting.
He prioritized the full implementation of some of the amenities — like the swimming pool and gym — so that he could get early benefits — namely, the lower floors fully occupied as early as possible while the rest of the floors were built and finished.
He chaired the weekly meetings where the architect, builder and himself as developer dealt with issues arising and made critical decisions. Late decisions would cause the building to be delayed incurring huge costs; so he made sure that decisions were made, even if they weren’t known to be the best decisions.
When the banks wanted to revise their loan (funding) agreements, he worked with them to renegotiate the loans while still protecting the commercial viability of the overall project.
The builder also had deadlines and performance targets to meet otherwise he had to pay substantial penalties. The developer monitored his performance and delivery against the schedule.
Throughout the project he kept track of the actual costs, the actual sales and the revenue to ensure the project remained viable and profitable.
At the end, not all of the apartments were sold — about 3% remained. Some of the ground floor shops were not yet leased and some of the sales fell through at settlement. So the project wasn’t a 100% success at the time of completion, but the developer put in place processes and ongoing projects to rent, sell or lease the remaining areas. His focus was still on the full commercialization of the project.
In Conclusion
All in all, the developer ‘governed’ the project. He ensured it kept going, that it remained commercially viable, that it was always solvent, that early benefits were realized as soon as possible and, at the end, negotiated the project’s close-down arrangements.
This is what project governance is all about — the full commercialization of the project — or, in conventional organizational project terms, the maximization of the benefits for least cost within the quality and other parameters set.It’s not just about turning up to meetings! Explore more with our Project Governance ebook
