Development Danger Zones: Avoiding Costly Delays

May 29, 2020 | Uncategorized

The four tenets of Do it Together Development are all about one thing: reducing cost through proactively minimizing or, ideally, outright eliminating delays.

Opening on time, on budget, or better is the stated goal of virtually every construction project. Yet, delays before and during construction are so common they’ve become an industry cliche. As a developer or contractor, your intentions need to be paired with actions that ensure on time arrival, with budget to spare. We’ve never seen it happen on its own, and don’t know anyone who has. For this reason, we have built our company’s entire philosophy, and practices, around this idea. 

It should be common sense that delays cost money. But there are less obvious types of delays that even seasoned developers and owners overlook that eat up massive amounts of cash.

Lost Opportunity Cost

Hands down, the cost that most developers fail to understand or take fully into account is the cost associated with not being open. Every delay in your project, from planning  through to construction, presents the risk of your project not opening on time. The more delays, the more costly it becomes. We refer to this as Lost Opportunity Cost. 

There’s an easy way to calculate this. Take the amount of revenue generated in a certain period of time. Multiply that by the length of the delay, and that will tell you how much money was lost by not being open. 

So say, for instance, that you’re building a hotel. If you’re going to charge $100/day per room, and you have 100 rooms, that’s $10,000/day in Lost Opportunity Cost. 

Now, through applying the four tenets of DIT Development (building your team early, leveraging their talents, protecting your time, and managing your project proactively), we have been able to reduce project timelines by upwards of 6 months or more. So, using the above example, reducing the timeline by six months, we’re talking $1.8 million in lost revenue! That’s real money.

General Conditions Cost

Believe it or not, things like the weather can drive up your overall costs if you don’t plan accordingly. 

Not everyone lives and works in San Diego where the weather is always perfect. We work predominantly in the northeast, which means we typically experience all four seasons, not all of which are conducive to working outdoors. We calculate general conditions costs on a monthly basis, and they can very quickly add tens of thousands of dollars to your bottom line if not factored in correctly. 

Material Inflation Costs

Delays can also be costly from a materials standpoint. The price of materials typically only goes one way: up. We have consistently seen yearly increases of 3 to 5% in the cost of materials and even greater depending on region.  If your project is riddled with delays, you could end up paying a lot more for materials than you would have a year earlier. 

Run Processes Concurrently, Not Sequentially

Your strongest weapon in the fight against unnecessary delays is running as many processes concurrently as possible. A tremendous amount of time can be saved this way. 

For instance, lending can take a long time to secure, once applied for. Very often, developers will wait until they receive more assurance from their lender before they move forward with their project. That may seem like a sound financial decision, but if you’re not setting other aspects of your project in motion while you wait, it could end up eating into your opportunity cost. Building an experienced team of professionals, across all the necessary disciplines, and bringing them together at your project’s inception, will allow you to maximize your lead times throughout the entire development process. Any time you find yourself waiting is a time you should be asking yourself, “What else can we be pushing forward right now?”

Remember, the goal of your development is to open on time, on budget, or better, so that you can start generating revenue sooner. This is why we preach and practice the four tenets of DIT Development. In doing so, we have been able to help developers shave months, even years, off of their project timelines, saving millions of dollars in the process. 

About the author

Lee Crewson

Lee Crewson

Founder & President

Lee has made commercial construction management his life’s work, focusing on building places where people live like multi-family, hospitality, student housing, and senior living for successful developers. He’s also committed to the values of this country and has over twenty five years of service in both the active and reserve forces as a Commissioned Officer in the US military. Lee embraces the power of a committed team that collaborates early and often and is happy to guide any developer who shares the same philosophy for success. Reach him anytime at LeeC@TeamPeak.com.

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