Industries
Real Estate
Although many experts believe we are pulling out of the recession, the real estate market is continuing to experience a major decline across the globe. Tight credit markets, volatile commodities prices, declining market rents and occupancy rates, and pressure on operating expenses continue to make cost containment, strong internal controls, and contractual compliance the order of the day.
There is some good news for this sector. The economic stimulus package has generated development and construction projects for improving our nation’s infrastructure. In addition, the National Association of Home Builders Housing Market Index recently surged, underscoring a potential, though still long-term recovery.
Cost Pressures
As the credit crunch impacts the availability and costs of capital, inflationary pressures have spurred price increases for subcontractors, skilled labor, fuel, land, and other costs. The strain is felt by developers, builders, and property managers. But opportunities exist to minimize the financial burden. Cost modeling allows developers and owners to better anticipate construction costs, while lean management practices can be used to identify and eliminate non-value-added efforts. Internal audit can play a role to ensure cost controls and contract compliance are maintained. As regulations and policies evolve, Leadership in Energy and Environmental Design (LEED) practices can also be implemented to encourage and accelerate sustainable "green" building initiatives.
Contract and Procurement Systems and Processes
For some public companies, compliance with Sarbanes-Oxley has been accompanied by significant costs. Compliance and internal control programs must go beyond SOX to become an integral part of value-adding systems to control costs, ensure contract compliance and deliver projects on time and budget. For example, an internal controls program focused on contract, development and construction controls can reduce the risk of overpaments, fraud and other avoidable costs. From initial project scoping through bidding processes, supplier evaluations, supplier selection, contract execution and fulfillment, and vendor payment, a proper contracting and procurement system is the foundation for cost control.
Reduce Complexity and Overcharges
Intense competition for a shrinking pool of projects can force bidders to bid low. Knowing the true cost of construction is a critical first step in determining the existence and validity of excessive charges. Contractors' requests for payment are highly complex, or conversely, have too little supporting data. Tracking and analyzing those costs can be time-consuming. Change orders add another layer of complexity and often result in unwarranted costs by labor and materials providers. These costs can be avoided by employing independent teams to validate building specifications against the contract to reduce rework and improve end user satisfaction. Improved project management, systems and controls can streamline payment processes as well as reduce the risk of overpayment.
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