CBRE Group, Inc. is one of the world’s largest commercial real estate services firm serving real estate owners, investors and occupiers through more than 300 offices worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Gurjot Bhatia spoke to Sandeep Menezes on project risks and how they can be avoided.
How is project risk linked to financial closure?
A project basically has three important aspects to it: cost, time and quality. Any project has to optimise these three important factors in order to be successful. A risk in a project may be directly or indirectly attributable to the financial aspect of the project. It could be the way the project budget is created; if it is accurate then projects will not have cost overruns at the time of closure.
There are certain risks which are outside the purview of the project which are not directly attributable to the financial aspect of the project. It could be something to do with approvals which are outside the purview of projects or it could do with some internal management factors like the way the project has been managed or certain important parameters of the project that have not been accounted for.
Risk is not a negative thing; it is anything that can impact the project in a negative manner. There will be no project in the world that has no risks. The idea is to identify the risk and ensure that it does not have a negative impact on the project either financial, time or quality related; it can even be on aspects such as safety on projects.
While these are not directly or financially attributable risks, they have an impact on the overall finance of the project. If the project gets delayed, then there are cost overruns and if one has not mitigated it or if adequate contingencies are not provided in the budget, then the project is impacted.
Have you come across projects delayed due to such risks?
Well, there are so many projects like the social infrastructure projects happening around us, such as roads, bridges and airports. We understand that project costs keep going up. The planners and project owners go back to the drawing board and look for more funding. Sometimes they are able to do it and at other times they have to change the scheme of things to accommodate the funding that they already have with them which somewhere or the other impacts the project. It changes the course of the project or delays it since somebody has to go back and look for more funding.
Do you witness such issues in private or commercial real estate projects?
There are various reasons like improper budgeting and planning or looking at only the four walls of the project and ignoring the issues outside those four walls. Then they find that there is something outside the four walls which has impacted the project adversely. It could be a simple thing like right of passage not being available in the way one envisaged to bring in man and material. It is a small matter, but if one looks at a long relation project which runs three or four years, then that small change can impact the project in a big way over the long duration of the project.
While project planning is essential, does it create an additional layer of management that can delay the decision-making process?
That is where good project management comes in. I agree that a project is a complex organisation. There are various stakeholders who are specialists in their own right. No project can be done by one entity or one person because different specialisations have to come together to deliver a project. If there is bad project management, lack of coordination or even lack of communication, then it’s not good. Effective communication can lead to smooth process management and stakeholder management.
What is the major difference between project management in India vis-à-vis that in the West?
I think when it comes to the fundamentals of project management, they are the same and do not differ anywhere in the world. Ultimately, every project manager wants to do a good job with the focus areas being cost, time, quality and safety. The issue is more about the overall construction environment that we operate in; I mean the work environment in Asia vis-à-vis the developed world. There is a gap between the users, developers or expectations of end users versus the project management ability or delivery of the rest of the market.
At the moment, we are still in a learning phase wherein some of the stakeholders in the project like multinational real estate companies have well practiced systems and processes within their organisations.
How should project managers handle sudden changes in regulatory policies?
The answer to that is yes and no. This is a risk; in fact, a huge risk. It definitely impacts the project. The first thing is to be able to recognise or be aware of what needs to be done to the best of one’s ability.
At times, it is not only change in regulatory rules that impacts the project adversely; it is also lack of knowledge on the part of people managing the project who had not really thought about the risk.
There is a fine dividing line between risk management and firefighting. There are cases where one is not able to do proper risk identification and hence has not done good risk management, therefore, indulging in firefighting. This is when cost and time overrun happens or quality is compromised.