The effective and efficient control of real estate and asset management can be improved with a well functioning reporting, planning and budgeting system. Not as holy grail, but as a support to people, who can make decisions on a more reliable and accurate basis. 

Introduction

In general a lot of organizations have information management based on different source systems delivering their own set of information, which are combined and reconciled in an Excel environment. Mostly these types of processes are time-intensive and very susceptible to errors.

The need of a shell that structures data and immediately aligns data of the different sources is not only recognized within the business of real estate. In the Netherlands, SAP BPC (formerly OutlookSoft) has been first introduced in this area. Rabobank Bouwfonds (property finance), Ballast Nedam (constructor), Heijmans (construction), SNS Property Finance (property finance) and Boskalis (world-wide  dredger) were the first companies using SAP BPC/Outlooksoft.

This is not a coincidence, all these companies have the same kind of complexity with their joint ventures, cash flow management problems and a base of multiple source systems. The finance departments of these companies developed their own custom made solutions with different kinds of views, like statutory and management accounting, planning, controlling and risk management.

SAP BPC won a lot of projects in competition with their main competitors over the last years in the Netherlands, because it can deal with this kind of problems through their flexibility and easy to use Excel interface.

To reduce the complexity of your planning, budgeting and reporting processes two important alignments (horizontal and vertical) can be distinguished. These alignments will be described specific for the real estate sector in the following paragraphs.

Horizontal alignment

The horizontal alignment combines statutory accounting, management accounting, controlling, treasury and risk management.

Specific for the real estate sector is that all the different area's have their own requirements to accommodate the need for information.

The statutory accounting department has to deal with different kinds of obligations, like annual, investors reporting and Basel II reporting (or like such for the central banks). The most interesting complexity is the fact that most projects/ assets are set up by some sort of joint venture constructions with constructors or other investors. The way to treat this kind of joint ventures can be different project by project. Different kind of ownerships percentages, profit-percentages, risk-partitioning are more common than exceptional. The possibility and flexibility to build in these different contracts is normally very important.

The management accounting department in the Netherlands is normally split up in two sections; asset management and project management. Both are such different kinds of business that it will be measured and reported separately.

However the most complex challenge within the management accounting department is the cash flow reporting.  First of all projects/assets will be reported not year by year but project to date, which means a completely different measurement of the figures. Besides that the source of the data is so different in structure that a well thought solution to combine both kinds of data within the same system can be a real challenge.

As for management accounting the control department has to deal with two complete different businesses, namely project and assets management.

The reports for assets management project portfolios are based on:

• - Segment reporting (business and geographical)
• - Return on investment calculations
• - Year-by-year comparisons

Project management has a completely different setup based on a large set of key drivers like:

• - Project costs and dates
• - Construction costs and dates
• - Pattern of construction costs
• - Land and predevelopments costs
• - Sales and hiring revenues and dates
• - Sales Margins
• - Treasury setup (equity, mezzanines and loans)
• -
  Internal rate equity (Libor + percentages)

The risk and treausury departments must not be forgotten in the setup of a system like SAP BPC. Mostly there are a couple of dimensions designed for these departments to keep the exposures of your business in check.

First of all there is the currency exposure especially if you have contracts/projects in currencies not directly related to exploration of the project.

Second is a type of counterpart information dimension, which keeps the risk category of your counterparts based on ratings, business area, geographical area and history

The third exposure is normally the risk of the project and is based on the progress of the project and the investment structure (equity, mezzanine and loans).

Vertical alignment

Vertical alignment deals with the different aspects of the CPM-circle (budgeting, reporting, intervention and forecasting). For real estate companies the planning and forecasting process is nearly as

important as the actual figures. A result of this is that there are all kinds of forecasting models, flash reports, budget reports and predictions analyses

To realize a vertical alignment it's important to have two challenges in mind, first of all the reports are defined on a higher level, secondly the source of the data is mostly collected manually in Excel-spreadsheets.

Best practice

CPMview have a lot of experience in the area of assets management/property finance. The underpinning of this paper is to give a high-level overview of all the different drivers within a system as SAP BPC. Two best practice based on our experience to have in mind at the start of the SAP BPC project.

Start simple and improve continuously

Although it sounds attractive to align all kinds of information at once, the practice is that the realization will become more complex in an exponential way. The last project we had a setup of four phases and had a successful outcome:

• 1. Statutory reporting and consolidation
• 2. Management reporting and risk management
• 3. Planning, forecasting and cash flow management
• 4. Project investment calculations and investment decisions

Think it through

The second best practice is to carefully think about all future requirements and functionalities. It's very important to oversee all kinds of impacts and needs for reporting, planning and forecasting in the design phase of the project. Especially of if the project planning entails to align different kinds of information at a later stage.

Good luck with your implementation of SAP BPC!