Risk Reduction by Design
Land development is a unique type of investment. It provides the opportunity to bring something to market that is truly new, and it has the potential to generate great returns. With these possibilities comes considerable risk. However, with proper planning in the initial stages of the project, the risks can be quantified and minimized.
Time is the real enemy. Risk increases with time.
Land development is a risky endeavor. When a project is begun, decisions are made based on the circumstances that exist at that time, and upon predictions derived from them. These decisions will determine the project’s ultimate success or failure. However, during the course of development, the circumstances that led to those decisions may change substantially. Labor and material costs can fluctuate. Regulations and zoning laws may change. Competing projects may be completed. Markets may shift. The economy may turn. Interest rates may increase. Predictions made when a project is begun may be completely invalidated. All of these changes can have dramatic effects on the development cost and future success of a project.
The longer it takes to complete a project, the more opportunity exists for these changes to occur. Time is the real enemy. Risk increases with time.
The converse is also true. As the project nears completion, the risk is reduced. Major changes in the development environment become less and less likely. Unknowns become known. More accurate predictions are possible. Tasks are completed. Units can be pre-leased or pre-sold.
It goes without saying that minimizing the time required to complete a project reduces the developer’s risk. Some delay is unavoidable, because the process of designing the project, obtaining permits and approvals, and construction simply takes time to complete. However, with proper planning in the initial stages of a project, the developer can determine the range of values within which these unknown quantities will fall. It is then possible to create a strategy to ensure that once development begins, the process flows smoothly and efficiently.
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Imagine you decided to build an airplane. Suppose you conducted market research and identified several underserved travel routes. Based on this information, you determined the number of passengers your airplane should carry, and the distance it should be able to fly without refueling. Perhaps you would communicate with different carriers interested in opening service along the routes your airplane could fly. Suppose you found a manufacturing plant capable of producing your airplane, and generated operating cost information. Suppose you hired a marketing firm to generate projected sales and develop advertising campaigns. Based on the information you had obtained, you might contact an investment company to obtain financing. Perhaps you would hire a graphic designer to develop a logo.
Last of all, after doing all of this legwork, with the plant scheduled to begin production, advertising campaigns ready to run, financing secured, customers waiting, you take your ideas to an airplane designer, only to learn that the combination of range and capacity you are trying to achieve requires engines and fuel tanks of such size that the operating costs of your airplane will be ten times that of similar aircraft.
Clearly, it would be foolish to proceed so far before consulting a designer. Yet, when it comes to land development, many inexperienced developers make the same mistake: they postpone hiring a site design professional until construction plans are required. The most successful developers, however, realize that involving site designers in the conceptual stages of a project is the key to reducing the overall development schedule and minimizing their risk.
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The initial planning stages of a project provide the greatest opportunity to minimize a project’s risk.
The initial planning stages of a project provide the greatest opportunity to minimize a project’s risk. It is imperative that this initial planning be thorough and comprehensive. While it is true that the level of risk decreases as a project nears completion, the cost of making adjustments increases. It is far more cost effective to proactively minimize a project’s risk through proper planning at the beginning rather than to react to changing circumstances near the end.
It is tempting to focus attention on minimizing the costs of the planning stages of a project. After all, the budget ultimately determines what can and cannot be done. However, shortcuts taken for the sake of cost savings during the preliminary and design stages can backfire. “An ounce of prevention is worth a pound of cure” is a well-known adage, but few are wise enough to practice it. It often happens that some unforeseen issue will arise late in the development process and require a substantial amount of time and effort to address it. Any savings obtained by cutting the planning budget are quickly eclipsed. Moreover, the delay in the schedule exposes the developer to additional risk, multiplying the negative effects.
Adding a designer to the team in the early stages allows a developer to streamline the development process and maximize a project’s potential.
The beginning of a project is when level of risk is highest, but it is also the time when actions taken then to reduce that risk will have the greatest impact and lowest cost. That is because many of the constraints that will impact future decisions do not exist early on. Major changes can be made quickly and easily. In this context, a professional site designer’s services are simultaneously at their highest value and lowest cost.
Designers are uniquely trained and qualified to quickly generate and evaluate multiple design scenarios, drawing upon their knowledge and experience to identify the strengths and weaknesses in terms of cost, feasibility, etc. They possess extensive experience creating a diverse array of projects, and they are familiar with the applicable regulations and permitting procedures affecting a project site. This allows them to anticipate challenges and foresee opportunities that others may miss. Adding a designer to the team in the early stages allows a developer to streamline the development process and maximize a project’s potential.
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The ultimate success or failure of a development project is largely dependent upon the project “identity” that is formulated in the early conceptual stages. That identity encompasses such considerations as the need that the project is meant to fill, the customers the project will be marketed to, and the style and form the development will take. This requires input from all members of the development team. Each team member contributes a unique perspective and skill set.
Unfortunately, in many cases, a project’s identity has been determined before the designer is added to the team. The designer must then shoehorn the project onto the site, and may have to go to great pains to overcome conflicts between the two. While it may be possible to create a functional plan under these circumstances, it is unlikely that the project will achieve the kind of unified character that might have been possible otherwise.
When the project and site are in harmony, the result is a project that moves smoothly through the development process and emerges with a clear, distinctive identity and purpose.
Alternatively, when the designer is involved in determining the project’s identity, the project can be created literally from the ground up in a way that ensures compatibility between the project goals and the site. Designers are trained to view a project holistically. This enables them to assimilate the input from the other development team members and integrate all of these disparate elements together in harmony with the site.
When this is done well, the clear presentation of the project’s unique identity sets it apart and distinguishes the location as a sought after destination.
Further, the harmony between the site and project elements results in a smooth, efficient development process. Complications and delays are avoided, reducing the developer’s risk.
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There is no way to eliminate risk entirely from the process of land development. However, through proper planning, risks can be identified and their impacts can be minimized. To that end, one of the most valuable, and most underutilized, resources available is the knowledge and expertise of an experienced site designer.