Manage your risk and reap the rewards, with the help of NWE’s latest release of their in-house project feasibility program.
Michael Smuts, Civil Engineering department head and director, has developed a unique project feasibility program with the ability to
identify, quantify, manage and/or mitigate the risks that are an inherent part of any property development project. This is what he has to say about the new ProPac 5:
In a nutshell, what is Pro Pac 5?
Pro PAC is an acronym for Project Performance Analysis Calculator and we use it to determine the viability of any given property development project. Pro PAC 5 is the latest release of the program that had the first version developed in 2005. Pro PAC models the entire life cycle performance and cost of a property development project, from inception and technical viability through completion and financial viability.
Why have you decided to develop your own software for NWE, rather than using excel or other tools like other development companies?
Most developers and financing institutions use some form of software, past experience and “gut feel” to undertake due diligence studies or analyse the viability of development projects. More often than not these solutions are spreadsheet based applications, spreadsheet add-ins, and time management software such as MS Project or Primavera and in certain instances even some form of business management software.
While something similar to Pro PAC may well exist, we have not come across anything that is as comprehensively tailored for analysing property development projects.
The “problem” with most spreadsheets is that they are often written for a specific set of circumstances and as soon as the parameters change (as is inevitable with property development project viabilities), the need arises to amend or update the spreadsheet to fit a new set of circumstances or different needs expressed by the client. This creates the very real possibility of introducing errors into the spreadsheet which obviously compromises the accuracy – not something you need when important financial decisions are based on the output. Even with care and testing the re-writing of spreadsheets remains a tedious if not laborious process.
Pro PAC has been designed and developed as a powerful application that is robust, but with sufficient built-in flexibility and options available to enable the user to model virtually any scenario that may be reasonably expected.
For how long have you been using the program and how have you been testing the accuracy of its results?
We’ve been using the application since 2005 when Pro PAC 2.0 was launched. This version was really the start of the new generation analysis software – no more fiddling under the bonnet so to speak. The original tool on which Pro PAC is based was a simple spreadsheet circa the 1990’s used by our CEO, who although being a civil engineer by trade, is also a property developer in his own right. Being both engineer and developer, Wouter also understands the procedural and commercial complexities of property development, not merely the technical and financial issues associated with a particular built environment discipline like most consultants do.
Over the past 17 years we’ve had the opportunity to assist many clients with their development projects using this software and overall the modelled outcomes consistently showed good correlation with reality at the end of the projects. As always however, no software, regardless of complexity and accuracy, is the magical answer to all questions. The software is merely a tool and outputs are only as reliable as the inputs. This is why it is essential for the user to be intimately familiar with the subject matter he is advising the client on – in this case property development analysis.
What are the most important questions project owners want to answer when using the new Pro Pac 5?
Basically everybody needs to know if a project is going to yield an acceptable rate of return on their investment, what the profits are likely to be and when the profits will realise. We however understand that while certain types of information remain important regardless of the project stage, the need for other specific information changes with time. The whole idea is to empower the client to make informed decisions, based on reliable information throughout the entire life cycle of the project.
Pro PAC does all of this and more.
For example, when clients are in the process of evaluating a potential land purchase, they would like to know whether the asking price will fit in with acceptable returns for the project. Depending on the complexity and make-up of the proposed development, we can create a working viability model within two hours of consultation with sufficient accuracy to provide the clients with enough substantive information to undertake their land purchase negotiations or to make the decision to investigate other properties. In this manner much time is saved (for the client and the consultant) by not wasting it on fruitless negotiations and investigations, or confirmation is given at a very early stage that it is worthwhile pursuing and concluding a deal on the land. All this without any need for input from other built environment professionals.
During the viability and design stages of a project when town planning and engineering layouts become available and more accurately estimated costs (construction, fees, sales income, levies, taxes, interest etc) and timeframes are available, the model is refined and calibrated putting us in a position to accurately identify areas of time and cost risk, where to focus effort to manage these risks, as well as calculate project profit and rates of return on investment. Rigorous sensitivity and risk analysis plays an important part of the analysis. All these outputs are obtained instantaneously as the input parameters are updated and tweaked.
What is new with version 5?
While Version 5 remains true to its roots, it is a total re-write from the ground up. Some of the enhancements and new features include:
- An entirely new user interface, now with windows ribbon controls instead of the older style toolbars.
- A new project file management system.
- Some updated algorithms for increased efficiency.
- There is a new “Key Point Indicator Dashboard” that visually summarises all important outputs such as return on investment, project profit, comparison between the individual profitability of various erf or unit types on offer etc.
- One of the most important upgrades is in the Gantt Chart functionality. While previous versions also used the project programme as the backbone of everything, Pro PAC 5 now enables time programming with task linkage functionality. Tasks are therefore now automatically scheduled or updated dynamically as inter-dependencies come into play and allowing for critical path analysis for instance – something Pro PAC couldn’t do before.
How does your clients get access to Pro Pac 5
Pro PAC is not a commercial software package, nor is it for sale. Pro PAC is one of our most important marketing tools and we provide this service and the added benefit derived from it to all our property development clients – free of charge.
Whether Pro PAC is your way for checking your own analysis results, or whether you rely on it exclusively to base your development decisions on, we invite you to visit us and to experience the power of this unique tool first-hand.
Get in touch with Michael Smuts at firstname.lastname@example.org or Wouter Engelbrecht at email@example.com.
What does the future hold for Pro Pac? And is there any other programs that you would still like to develop for NWE?
The new time programming functionality opens a whole new range of possibilities as far as time and risk management is concerned. I am already working on additional routines to perform Monte Carlo analyses which will:
- Allow the running of thousands of iterations using refined randomised inputs, recording and then analysing results statistically. This enables us to add a statistical certainty level to our output.
- Determine which tasks are driving the time sensitivity of the programme (potentially entering or leaving the critical path and how frequently this happens, ie influencing the end date)
- Countering the phenomenon referred to as “merge bias” which basically states that all time based programmes are essentially (if unconsciously) optimistic.
Hopefully this functionality will become a permanent feature of Pro PAC within the next couple of weeks.