As a Development Manager it is our role to Optimise a project and not Maximise it at the detriment to the project. Optimising the project outcomes will ensure that a balance has been achieved between “maximising” profit, whilst minimising cost and time, but not at the expense of the commercial outcomes and intricacies within a project lifecycle.
During any development we need to Maximise:
- Stakeholder returns.
On the other hand we need to Optimise:
- Acquisition costs
- Project costs
- Financing costs
- Return metrics (Margin, IRR, ROE)
Optimising these outcomes ensures that you do not make these decisions in isolation however consider the impact that they will on the project overall. Consideration needs to be given to the cost/benefit analysis of many decisions and only by truly understanding the big picture can this be done.
How does your interest rate impact your project profit? It’s not just a case of considering the interest rate % but also the overall finance costs, conditions precedent and their impact. What level of pre sales are required? What is the time impact of these? All of these decisions assist in Optimising project outcomes rather than maximising them, in this case, which would simply be to get the cheapest interest rate, where as the Optimal outcome might be a slightly higher interest rate with no pre sale requirements that ensures the project is completed quicker and therefore increases stakeholder returns.
McAndrew Group is a leading provider of Development Management and Advisory services assisting our clients across the full lifecycle of a development project.
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