The Project Management Body of Knowledge (PMBOK) promulgated by the Project Management Institute (PMI) defines a project as “a temporary endeavour undertaken to create a unique product or service.” The PMBOK goes further to suggest that while projects and operations share many characteristics such as being performed by people, constrained by limited resources, planned, executed and controlled, it differentiates a project from an operation in that projects are temporary and unique, while operations are ongoing and repetitive.
Whether you are purchasing investment property to rehab and immediately sell (fix ‘n’ flip) or purchasing it to hold as an investment for the remainder of your natural life, it is critical that you map out your investment opportunities as projects from start to finish in order to compare the value of one investment opportunity to the value of another and select the one that is the most valuable to you (remember that the difference between the value of the most valuable opportunity and the value of the opportunity that you select represents foregone opportunity cost).
“So,” you might ask, “how do I plan my investment as a project from start to finish if I intend to hold the property for the rest of my natural life?” There are at least two approaches to this that are effective. While it may seem slightly morbid, the simplest approach is to make an assumption as to the remainder of your natural life. Insurance companies do this when determining how much to charge you for life insurance. In fact, your assumption does not have to be a shot in the dark because some very reliable actuarial demographic data exist that these insurance companies use. However you arrive at this assumption, it will allow you to base your present value calculations on a definite time frame across all of the opportunities that you are evaluating.
Another alternative is to take an interim planning approach by selecting an arbitrary point in the future on which to base your present value calculations for each opportunity that you are evaluating. While this approach is inherently less risky than the first approach (mainly because the assumption as to how long you will live is a much larger one that the assumption that you will still be alive at some point in the future), you must keep in mind that the opportunity that you select as the most valuable using this approach is only the most valuable up to the point in time that you select and is not necessarily the most valuable before or after that point. This caveat is extremely important since it is not unusual for investments to be either increasing or decreasing in value over time or reaching a breakpoint.
In addition to facilitating the selection of the most valuable investment opportunities, planning your investment as a project insures that the project planning processes that are necessary to insure the success of your investment and the realization of your return are not overlooked. These project planning processes include scope planning, scope definition, activity definition, activity sequencing, activity duration estimating, resource planning, cost estimating, cost budgeting, risk management planning, schedule development, and project plan development. We apply these processes to all of the investment projects that we develop and can assist you with your investment project planning. Please do not hesitate to contact me if you have any questions about how any of these processes are effectively applied.
“Earning You Many Fond Returns…”