The Path to Painless Budgeting & Forecasting
Budgeting and forecasting: words to inspire dread among many in commercial property and asset management. Months of grinding work with unwieldy spreadsheets. Leasing agents, property accountants, property managers and budget directors doing their own thing rather than working as a team. Ask survivors for a printable definition of the process and you’ll probably get “necessary evil.”
Is there a better way? That question should be top of mind for everyone kicking off budgeting season right now, but I’d like to shed light on how technology is driving the evolution of the budgeting and forecasting process.
Complexity and consequences
Budgeting is very complicated for commercial property management companies because it encompasses input from multiple sources including leasing, deals in progress, CAPEX projects and loan information. Accounting rules and standards and investor demands for greater transparency require a high degree of data collection and reconciliation. The process carries multiple implications for a company’s operations, including revenue and expense projections, reporting to owners and investors, cash flow and rent growth rate predictions, sales due diligence and performance benchmarking. Budgeting represents the organization’s plan, while the forecast shows progress against that plan.
Until the recent past, complicated budgeting and forecasting requirements exceeded the means available for dealing with them. Spreadsheets, generally the tool of choice, didn’t always have the most current information and could be difficult to manage. They could be “wonderful and awful at the same time,” as Nick Moore of Lionpoint Group said in a recent Realcomm webinar on the topic. Manual data entry multiplied opportunities for errors. Forecasts had to be recalculated manually when market information changed. Lack of proper insight could result in missed rent growth targets; for big companies, being off by just 1% can mean tens of millions of dollars of lost revenue. The obligation to provide annual investor guidance with quarterly revisions added pressure. Compounding the problem, employees with extensive tenant knowledge, such as assistant property managers or leasing executives, often couldn’t access the budgeting system at all.
Relief appeared about a decade ago, when technology enabled automation of many elements of the process and incorporated budgeting and forecasting into a company’s core property management and accounting platform. This eliminated the errors associated with redundant or manual data entry and risky spreadsheets. But there was still much more to be done.
The rolling forecast approach
To that effort, Yardi worked with a group of clients in search of ways to reduce the time and effort involved in budgeting and forecasting. The solution that emerged encompassed a continuously improving forecasting model that allows iterative tweaks on a daily or weekly basis, rather than monthly, quarterly or annually.
The first step in the project involved housing live property data, construction budgets, CAPEX, loan information, lease/deal information, debt information and more in one database that’s accessible in real time and effortlessly flows into the budget.
Next came bridging the disconnect between asset managers, property managers, leasing executives and finance staff. Historically these team members communicated manually, using spreadsheets, emails and weekly phone calls. When leasing assumption updates were received from the field, the finance team would manually re-enter this information in the budgeting tool, which was slow and error prone.
The new process involved developing technology that enables intuitive portals where leasing managers and asset managers enter real-time data such as MLA updates, speculative leases and CAPEX. Property managers can access the same portal to update operating expense information. This is how Yardi® Forecast Manager, part of the Yardi Elevate suite of solutions for asset management, evolved into a user interface that pushes the workflow to the field, removes manual processes and enables continuous improvement.
The system lets leasing agents and asset managers use a dashboard to see areas of risk they need to address and MLAs they need to add or update. They can add the deal flow, construction projects and more, then create a spec lease and have it flow to the budget. And they can do it all immediately, without waiting until the end of the quarter or month or week, trading phone messages, or constructing masses of spreadsheets.
The clients in this project who adopted rolling forecasts reported better budget accuracy, improved collaboration, better investment community guidance and more accurate monitoring of their business. One of them, an industrial REIT, reduced the effort involved in forecasting by 30% while greatly improving accuracy. We also documented 40% reductions in time they needed for monthly revenue forecasting and 50% reductions in budget processing time. There’s no sacrifice of accuracy for frequency. In short, rolling forecasts make the process all “wonderful” with no “awful.”
Budgeting in an organized, strategic fashion streamlines a property management company’s entire business and generates data that strengthens decision-making. Technology continues to evolve, enabling even better analysis and long-term forecasting that helps property management companies work more efficiently with less risk. We anticipate the next steps will include incorporating predictive analytics that can show, for example, the portfolio-wide impact on NOI of changing MLAs.
New technology that creates a single source of the truth and permits continuous improvement is making budgeting and forecasting easier and more accurate. While the exercise is still necessary, it’s a lot less daunting for everybody involved.
Learn more about Yardi’s budgeting and forecasting solutions in a 30 minute webinar.
This Week’s Sponsor
Yardi® develops and supports industry-leading investment and property management software for all types and sizes of real estate companies. Established in 1984, Yardi is based in Santa Barbara, Calif., and serves clients worldwide. For more information on how Yardi is Energized for Tomorrow, visit yardi.com.
Education Program Announced for CRE and Facilities on Technology and Innovation
The CoRE Tech 2019 education program connects you with global thought leaders and domain experts. Gain exclusive access to innovative case studies, reports and presentations. Be inspired and engage with experts discussing digital transformation, flex space and coworking, occupant experience, cybersecurity, privacy, AI and machine learning. CoRE Tech 2019 is the place to be for Corporate Real Estate and Facilities professionals at the intersection of Technology, Automation and Innovation.
Bring automation and technology strategies back to your organization and REcalibrate – identify challenges, embrace innovative ideas and discover new opportunities to design, build, lease, operate, transact and improve Corporate Real Estate.
Premier peer-to-peer networking and learning connect you with topics that matter most:
- DIGITALLY TRANSFORMING a Corporate Real Estate Portfolio – Global Leaders Speak Out
- Continuing the SMART BUILDING/CAMPUS JOURNEY – Early Innovators Report
- The App for Buildings – Delivering the Optimal DIGITAL OCCUPANT EXPERIENCE
- FLEX SPACE & COWORKING – Leveraging Densification, Efficiency and & Experience
- Corporate Real Estate ENTERPRISE ARCHITECTURE – The Foundation for Transformation
- Convenience & Efficiency vs. Surveillance – Defining PRIVACY in Highly Connected Buildings
- Corporate Real Estate, Workplace & Facility DATA – Insight, Analytics, AI & More
- Inside Google – An Innovation Culture Encompassing Real Estate & Facilities
- Leveraging LED Technology – Creating a Visual IMMERSIVE EXPERIENCE
- TECH TALKS – Corporate Real Estate and Facilities Innovation Spotlight
And more to come! Get all the details (program subject to change without notice).
UPCOMING REALCOMM WEBINARS
CORPORATE REAL ESTATE & Technology – The Importance of Developing a STRATEGY - 10/24/2019
The Corporate Real Estate industry has quickly gone from constantly resizing the corporate real estate portfolio based on the everchanging business needs of the corporation, to having to understand and deal with a myriad of issues relating to technology, automation and innovation. Not only do CRE professionals need to understand things such as IWMS, intelligent buildings, the smart workplace, AI, VR/AR and other emerging technologies, they also need to understand the fundamental shift on how we use space. Technology which is enabling mobility has shifted the landscape. This webinar will feature some of the most innovative professionals discussing the importance of developing a comprehensive Corporate Real Estate portfolio strategy around the concept of Digital Transformation.
Founder of Realcomm Conference Group, an education organization that produces Realcomm, IBcon and CoRE Tech, the world's leading conferences on technology, automated business solutions, intelligent buildings and energy efficiency for the commercial and corporate real estate industry. As CEO, Jim interacts with some of the largest companies globally pertaining to some of the most advanced and progressive next generation real estate projects under development.
Chuck Niswonger has over 30 years of successful leadership experience in technology-related roles that range from operating his own consulting company (www.nicenets.com) to directing the IT strategy of a real estate investment management firm to manufacturing and technology-enabled education. Chuck has also been the chair of the Realcomm Investment Management (IM) Advisory Council for the last ten years, managing content selection for the conference educational sessions, IM forums, workshops and webinars.
Emmanuel Daniel is responsible for building and delivering the Digital Transformation strategy for campuses across Microsoft and leads a global multidisciplinary team of architects and experience designers. He builds experiences that merge technology with the built environment, leading to the formation of spaces that respond to the needs of its users. He is also accountable for identifying, building and implementing the next generation of products that will make smarter and sustainable buildings.
Paul Maximuk is the Product Owner as well as a technical SME at Ford Land, leading all BMS and controls integrations globally. He has over 30 years of experience in the industry managing multiple types of energy systems and specializing in strategic smart building implementation and management. Paul’s expertise in the built environment spans real estate assets from large industrial facilities to Class A office buildings.
Ronna Davis has been in the networking and telecommunication industry for 23 years. She has been with CommScope for over 13 years and has held positions in sales, channel and product line management. She is currently on CommScope’s Strategy and Technology Team for Buildings and Campuses. Previous to CommScope she worked in the design and construction of telecommunications networks for eight years and in wholesale distribution for two years. She studied marketing and is a LEED Green Associate.
Ron Victor is a Silicon Valley based technology entrepreneur with 20 years of experience and expertise launching new ventures at start-ups and fortune 1000 technology companies. To-date he has enabled raising more than $30Million in start-up capital for multiple start-ups in silicon-valley. Ron has founded and led three companies to-date with successful exits. His latest venture is IoTium Inc. – a Silicon Valley start-up that provides a secure, cloud-managed, easy-to-deploy software defined network infrastructure for all IoT verticals.
Marc is a pioneer in leading the Intelligent/Smart Buildings and M2M movements pushing the industry forward and has contributed to transforming and changing the Intelligent Buildings and M2M (now IoT) industries. As Chief Marketing and Communications Officer for Lynxspring Marc leads corporate and product marketing, strategy, brand management, public relations and communications that support the company’s strategic and growth initiatives.
Brent Boekestein is the CEO of Vintra, Inc., a leading video analytics company from Silicon Valley that uses artificial intelligence to transform any video surveillance into actionable and tailored intelligence. Forward-thinking enterprises and public safety organizations like Sacramento City, NYC DOI, Sacramento County, and more use Vintra’s solutions to organize, analyze, and derive critical insights from overwhelming amounts of stored and live video.