Proven Cost Optimization Strategies for Large Scale Real Estate Projects

Dr. Ohm Prakash Gunasekaran, Chief Operating Officer, Casagrand PGT Wing, in an interaction with Homes India, discusses how large-scale real estate projects could improve costs, quality, time, and customer satisfaction. Dr. Ohm is a multi-award-winning business leader with over 13 years of diverse experience across eCommerce, IT, Real Estate, Business Management, P&L Strategy, and Sales Leadership. He is known for his ability to build and scale high-performance operations that deliver value, innovation, and customer excellence.

How Can Value Engineering Principles Be Systematically Integrated During the Design Phase to Achieve Significant Cost Reductions Without Compromising on Quality or Functionality?

Value engineering (VE) is the systematic approach used to review and assess the design, performance characteristics, and the established objectives of value, with a view to enhancing its worth in relation to cost. As an expert in the field of managing real estate projects consisting of numerous buildings, I observed that integrating VE during the design stage is beneficial.

VE should be done at the conceptual stage of design since most of the project costs are determined at this stage, accounting to 80 percent. For example, an enhanced technique like changing from conventional RCC and brick work to MIVAN shuttering system saves time as well as cost. In one of our multi-storeyed township projects having eight towers of G+ 13 floors, we were able to achieve about Rs. 100 savings per square foot in the cost of construction by adopting the Mivan shuttering besides bringing down the floor cycle time down to about 8 days reducing the total project costs by 9.5 per cent.

Besides, measures like substituting between materials – for instance, engineered wood with pre-laminated finishes to frames and flush doors instead of teakwood have the advantage of two gains interior finishes and shortens the time it takes to install them. In the current façade treatments, one gets to see that making use of factory-finished stone cladding options is almost equivalent to that of the natural stones with the added bonus of having reduced procurement and installation costs.

Building Information Modeling is important during design stage for integrating various MEP systems. They eliminate the high chances of redoing work as issues such as shaft colliding with others like plumbing and structural beams are detected early. It is a platform through which the designer, the engineer, the procurement head, and contractors put their heads together in view of arriving at the optimal value without compromising on the value added.

What Procurement and Supply Chain Strategies Have Proven Most Effective in Minimizing Material and Logistics Expenses on Large-Scale Developments?

In large scale real estates, the procurement/supply chain management is one of the critical drivers of costs. From the indicated best practices, four can be highlighted:

1.     Centralized Bulk Purchasing: Centralization of material requirements for all phases or projects really makes sense with regards to gaining scale advantages. For example, it is easier to get a better agreement of prices, credit terms and quality supply for, let’s assume, 60000 ton cement, to be supplied annually.

2.     Strategic Vendor Partnerships: It is more effective to build long-term relationships with significant suppliers, which also ensures that prices do not fluctuate in the market. For steel purchases, we signed two-year rate contracts assured we would not have to deal with any price increase issues and enjoyed timely delivery of orders. Supplier involvement from the early stages also ensures that materials used in VE also target the intended goals.

3.     Just-in-Time (JIT) Delivery: JIT strategies helps to cut expenses of inventory storage and free up more storage space in established sites. In today’s construction project implementation, there are innovations such as SAP and BIM-based tools for delivering materials closely to the construction schedule to reduce time wastage and hence idle labour and equipment.

4.     Design Standardization: It has become evident that standardizing BOQs and design modules across towers helps to save costs by minimizing procurement and time and reducing materials. It not only reduces cost but also increases the speed of implementation, due to the absences of Variations.

Also, the other forms such as advanced e-tendering, reverse auctions, and real-time vendor evaluation boosted procurement transparency and competitiveness, driving down the costs constantly for the entire lifecycle of a project.

In What Ways Can Building Information Modeling (BIM) and Other Digital Construction Technologies Be Leveraged to Identify Cost-Saving Opportunities Throughout the Project Lifecycle?

BIM goes beyond being a visualization tool that simply provides three-dimensional models that can be animated; it provides 4D (scheduling), 5D (cost estimate), and 6D (facility management) management and is thus a factor in cost savings.

Clash Detection: BIM automatically detects clashes between the architectural, structural, and MEP systems in advance before construction which saves on avoidable costs of construction overruns during construction that can add up to 10 percent of the project cost.

Accurate Quantity Takeoffs: BOQs which are generated from BIM models on time make the estimations of material to be used with much exactitude hence the traditional contingencies of 5-10 percent will not need to be made.

Construction Sequencing: The 4D scheduling that is offered by BIM helps in overbearing the sequences of the tasks to be undertaken, help reduce timelines and plan essential costs.

Cost Management: With BIM, the aspect of cost can be quantified in 5 dimensions, and real time quantifying of material and labour cost is possible depending upon the modifications in the design.

Facilities Management Integration: BIM models ease the post-handover period where the structure warrants, service schedules, and the asset’s life span are significant for maintaining the structure in an efficient manner.

Having recently implemented Autodesk Revit, Navisworks, and Bentley Systems, we have saved a significant amount of lifecycle costs without sacrificing the quality of the results.

How Do Risk Management and Contingency Planning Practices Influence Overall Budget Performance, and What Methods Can Be Used to Optimize Contingency Allocations?

Contingency and risk management also play an important function to shield budgets of projects from probability of additional costs.

Design risk or design scope risk, construction risk or construction execution risk, procurement risk or procurement volatility risk, financial or cash risk, and regulatory risk have to be assessed by means of quantitative approaches. There are instruments such as Monte Carlo simulations where probabilities are attached together with impact values for contingency estimations and derived using Expected Monetary Value (EMV) models for improved accuracy of allocations.

For instance, a contingency of 10 percent typically may work across the spectrum, but our practice entails only 2 percent for localized specifications and up to 15 percent for risky zones like basements vulnerable to monsoon activity. This makes it necessary that cash requirements are targeted for real risk requirements, instead of the dummy ones that proactively use up available cash without necessity.

Continuing rollers extend contingency allocations even more effectiveness, since the performance of buffers that convert design risks into scopes can be adjusted on the fly. Risk registers associated with 5D BIM and ERP systems allow the instant adjustment of the project budget according to newly emerged risks such as a labor strike or a material hold up.

All high-risk items are reviewed and corrected on a monthly basis by MEP, Structural, and Architectural cross-teams. These include snapshots that show contingency drawdown, utilization, contingency, and reserve and Memos to give management direction to alter their direction.

Indeed, it can be argued that the best strategy for contingency reserves is to keep this amount at 5-8 percent of the total costs of the project in our portfolio.

Which Key Performance Indicators (KPIs) and Data-Driven Metrics Should Project Teams Track in Real Time to Ensure Proactive Cost Control and Continuous Improvement on Major Real Estate Projects?

This step requires incorporating a number of KPIs into the project management process to achieve bottom-up, real-time control and improvement of costs. CPI, Actual & Budgeted Cost Variance, Committed/Forecast cost and Contingency Draw down rate that assist in control of the budget and management of contingency say delight. Schedule Performance Index (SPI), Labor Productivity Rate, and Equipment Use Rate are some of the sections dealing with schedule and productivity KPIs required for proper utilization of schedules.

This paper has found that Material Delivery Adherence, Procurement Lead Time, and the Inventory Turnover Ratio are some of the most vital KPIs in the field of procurement and material management to enable efficient supply chain management and controlling of wastage. Risk and Change Management KPIs such as Unplanned Downtime Frequency, Risk Register Closure Rate and Approved Change Orders Impact help in recognizing risks and reviewing the consequences of changes. Financial Health KPIs such as: Cash Flow Performance, Accounts Payable Aging, Return on Project Cost (ROPC) ensures that financial health is within track with the project progress and cash.

Environmental/Operation Management KPIs like the Waste Generated vs Recycled and Green Material Usage ensure that Building Constructors are conformant to Environmental laws regulating Construction activities. Cerule has created and implemented a series of project KPIs to be used in these real-time dashboards and analytical tools, which, when adopted by project teams, allow them to make timely and educated decisions to correct deviations, optimize operation, and improve, consistently, the project over its life cycle.

Therefore, through these practices such as VE, BIM, procurement strategies, risk management, and KPI control, large-scale real estate projects could improve costs, quality, time, and customer satisfaction.