Sharpen Your Pro Forma

27 June, 2019

Four Steps to Better Outline Soft Costs Up Front

The pro forma: it’s the basic tool of land development, serving as the basis for forecasting cost decisions and predicting return on investment. Like any tool, however, it’s only as useful as the effectiveness of its parts.

When contracting your professional service consultants, a civil engineer for example, consider following these four steps to sharpen your pro forma and secure more accurate and predictable results from it.

1. Fully communicate your development objectives

The more your consultant knows about your project, the more precise the scope of work will be. When soliciting a proposal, provide the complete project background with items like timeframes, lease requirements, landlord/tenant responsibilities, and team members you anticipate engaging in the project. Providing this information to your consultant helps reduce unnecessary and duplicate effort.

2. Respect due diligence

Approximately 90% of the time, up front development decisions are made with 10% of the required information. That figure may be difficult to substantiate, but ask a handful of engineering project managers, and they will likely agree there is a lot of truth to it. While your consultant should educate themselves with some quick desktop due diligence before crafting their budget and timeline, they are better positioned to define – and refine – their scope with more thorough due diligence. In identifying issues up front, they can provide pricing for what they know and establish budget parameters for what they don’t.

If you’re short on due diligence budget or time, read about six key due diligence items you shouldn’t skip.

3. Ask for big picture pricing

Now that you’ve enabled your consultant to define and refine their scope of work, go big — don’t compartmentalize. Request pricing for the entire project, not simply a specific task or phase.

Sure, there will likely be future unexpected costs because, as experienced developers know, projects rarely go as planned. But your goal is to capture as many upfront costs as possible to help control the budget from the start. Contracting on a per-task or phased basis limits your ability to see the big picture.

Additionally, in competitive bid situations, consider asking your consultants to provide pricing in a fee template with all exclusions noted. Breaking out proposals this way enables you to see the big picture, while comparing apples to apples.

4.Understand the scope (and experience) behind the number

With the proposal now in hand, it’s tempting to jump to the number on the last page. Instead, talk with your consultant about how they arrived at their numbers, what they’ve included and, more importantly, what they’ve excluded. Ask them to explain what could change, outlining the best and worst cases. Talk through the appropriate contingencies to ensure you’re not duplicating efforts and including too much padding in your pro forma.

Evaluate their experience to assess the credibility of their fee. If your consultant is providing thoughtful ideas and insightful responses, you’re likely to have more confidence in the accuracy and thoroughness of their pricing.

Often, the best number to put in your proforma is not the bid, but what the life cycle of the project could likely entail. Outlining upfront costs, identifying issues, and budgeting for uncertainties should result in more targeted and realistic numbers.

Following the steps above positions you to swap a traditionally transactional contracting approach for a collaborative one, enabling you to secure more accurately defined pricing for what needs to be achieved and the work that must be performed to successfully deliver the project within budget.

Bohler can help you better outline soft costs up front. Contact Our Team Today!

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