Project Forecasting
Project forecasting, also known as projections, is a function of construction planning and execution. Many project owners understand the importance of project forecasting but find that it's difficult to do with accuracy. Despite the difficulty of traditional forecasting, knowing capital needs on a construction project is critical to ensuring that proper cash reserves and interest reserves exist.
When forecasting, a project is scoped for duration, cost, and performance. A project’s most current figures are taken and an incremental, detailed forecast is created. This gives relatively accurate predictions and guidelines to follow so that projects adhere to budget, time, and quality expectations. It also helps a project owner break down the project from start to finish.
It's important to track the actual project progress against the projection to identify significant discrepancies. When there isn’t alignment between the current state of the project and the forecasts, the project owner has two choices: figure out how to get back on track with the forecast or alter the forecast to create a more realistic project expectation.
Projecting the timing of costs throughout the life of a project leads to capital planning. In pre-construction phases, an accurate projection enables a development team to predict the exhaustion of their committed equity. The team will be able to determine the extent and timing of capital calls from their equity partners thanks to the cost projection.
In platforms like Rabbet, projections provide important benefits during the construction phase. As progress is made on the project, actuals feed into the projection to create the most up-to-date prediction of the capital needed to complete the project. Project owners can see the premature exhaustion of a loan much earlier and take the necessary steps to avert unforeseen equity injections and delays.
However, this initial forecast is just the first piece of the puzzle. The forecasting metrics at every stage of the process are equally critical to the success of the project.
Project Forecasting at Every Stage
Project forecasting is important at every stage of the project’s lifespan for many different reasons.
Creating a forecast is one of the earliest things an owner does when a development idea starts to take shape. Money is needed to move the project forward for everything from permitting to securing funding. As the project progresses from stage to stage, it is critical to have a project forecast so all parties involved know where money is coming from.
For example, a project forecast can dictate the exact amount of money a project will need for the next six months assuming everything goes as planned. This helps with gaining funding from an equity partner. The forecast then moves to a capital partner in order to obtain the loans. A project forecast ultimately helps the project owner determine when cash is needed so they can plan accordingly.
Project forecasting later on in the project helps the owner stay on track. The forecast helps ensure construction isn’t behind and can help identify when more capital will be needed to finish a project. Oftentimes, projects hit roadblocks because money wasn’t appropriately allocated or additional funding wasn’t added when there was time to adjust the budget.
How is project forecasting typically done?
The traditional process of creating a project forecast is time-consuming. Formulas for projections are typically created in spreadsheets. Not only are these formulas intricate, they are extremely fragile.
Then as the project moves forward, these values have to be adjusted to factor in time, budget, and additional costs. These formulas have many components that must be tweaked and adjusted in the spreadsheet. Project owners are constantly tweaking formulas and complex spreadsheets, which leads to costly errors and often delays in construction and funding.
Why isn’t there an easier way to do this critical task? (There is!)
Project forecasting with Rabbet
Rabbet’s projections feature simplifies, streamlines, and automates this intricate and necessary process. Rabbet users are able to forecast what funding sources are going to be drawn during which months on the project. This information can then be used to ensure sufficient interest reserves remain available.
Rabbet easily configures a forecast by applying linear, manual, or S-curve projections to line items or divisions on the project budget. The software can pull and populate data from budgets, invoices, and documents. Additionally, Rabbet systematically updates forecasts and compares projections versus actuals to confirm that the project is staying on track.
Forecasting a project in a traditional spreadsheet is complicated time-consuming. Rabbet's Real Estate Development Management software can take over this process for you. Learn more about how Rabbet can simplify your project forecasting.
