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Time is money: establishing a system for evaluating time.

What is good property management worth? Too often, the answer has been "only as much as the market will bear."

Many overly enthusiastic management firms win projects by underbidding the competition. In their drive to win new business, these firms fail to fully analyze the cost of providing quality services. In doing so, they often ensure their own failure.

Such firms have historically existed by turning over new accounts year after year, ending contracts that were never profitable in the first place. Some clients have gone through three or four firms before finding a company that will manage their properties effectively. Often, these clients are willing to pay considerably more than their previous management firm charged.

The problem

What have property management firms historically done wrong? They have never established an effective system to evaluate where time is spent and how much it costs to manage a property.

Before pricing a contract for management, the firm must ask:

* How much time will be needed to meet the owner's goals for the property?

* How will this time be divided up among firm employees or outside contractors-i.e., how many hours for maintenance? For leasing?

* Does the fee cover the estimated costs and still permit the management firm to make a profit?

To help us answer these questions, our firm, Saunders Real Estate Corporation, AMO [Registered Trademark]developed an effective tracking system to monitor and evaluate staffing needs for each property in our portfolio.

The analysis

The first step was to implement discussion groups with our middle management. Enlisting their support early helped us better define our objectives.

During the next six months, our manager of information systems interviewed employees from each department-property management, maintenance, accounting, and leasing-to determine how they were spending their time.

The principal question asked was: "Describe your typical workday." We repeated this procedure several times during the research phase to obtain accurate readings and made adjustments to allow for unexpected occurrences.

The result was an extensive list of the tasks that made up all phases of property management-ranging from daily accounting, through on-site visits by property managers, to long-range planning.

We next developed and refined detailed time sheets, which reflected the results of the research and enabled employees to accurately record their hours (Figure 1). The specificity of the time sheets also helped us analyze work flow and time allocations.

For example, we found that some on-site visits by property managers were being conducted inefficiently. Some visits were too frequent; others not frequent enough. By tracking each staff activity, the program allowed us to schedule site visits more efficiently. We also detected some work that could be transferred to our administrative maintenance supervisors, freeing our managers for other projects.

The tracking

Having established estimated times for a variety of management functions, our next job was to track the actual amount of time employees spent on these tasks and compare it to our estimates. The firm purchased a time management software package, designed for recording the hours spent by each employee.

Codes were assigned in three categories: staff types, which categorized the type of personnel used (e.g., property managers, accounting staff); project codes, which depicted the function areas relating to the property (e.g., leasing, accounting); and labor codes, which denoted specific actions taken (Figure 2). Time is also tracked by date and by property.

On the cost side, the system tracked such items as employee payroll, benefit costs, and related payroll taxes.

Each employee records his or her daily time under specific categories on a paper time sheet. Data is entered weekly into the central computer program at the main office. Reports for detailed analysis are usually run monthly.

The time sheet information is entered into the AEASY Time and Materials Billing Package, from Timberline Systems, Beaverton, Oregon. This menu-driven, microcomputer software was specifically designed for architectural firms, but its flexibility allowed us to customize it for property management functions. The software permits easy access to almost any type of report information relative to an employee, property, project, or task.

The outcome

With each passing month, the system provides historical data which help us track the staffing needs for each project and the resources each property will require. Using our predefined hourly costs and billing rates for each employee, the system is able to track costs for each property by task, in every department of the company.

With this information, we are able to calculate a break-even cost for any given project and re-evaluate each property to determine its profitability to the company. Our firm uses the data to estimate time commitments when bidding for new management projects or when undertaking major renovations at existing client properties. The "Management Price Form" from IREM is used in estimating costs.

The price information that we obtain has also permitted us to review which properties now under management are appropriate to our portfolio. Although some prestige properties may be retained as "loss leaders" we now know exactly what the loss will be.

The system has also been invaluable for billing our clients, especially for the extra services that require documentation. As a result of more precise recordkeeping, our billable hours for administering insurance claims and for construction management have increased.

The detailed documentation of actual time spent is also beneficial in negotiating higher rates with new and current clients. Prior to the system's implementation, we significantly underbid certain accounts because we simply did not have the information needed to project time requirements.

At one condominium project we managed, our time management study revealed that current monthly costs were running 15 percent over the fees charged. Using the reports generated by our time management software, we were able to reassess the time staff was devoting to the project and provide the trustees of the condominium association with an analysis of our actual time spent (Figure 3).

The combination of these factors justified our need for a fee increase when the contract was renewed, allowing us to operate the account at a profit. We have found that clients are willing to pay a higher price for management if they know exactly where their money is allocated.

The benefits

Knowing how much time is needed to operate any given property can only work to the manager's advantage. For years, lawyers, accountants, and other professionals have used time accounting methods to evaluate staff time and justify the fees charged. It is time for property management companies to catch up.

Accurate time and costs estimates will increase credibility with clients, who will appreciate knowing where time and resources are spent. Management firms will also gain added understanding of the staffing needed to operate a property well.

Property management in the 1990s will require a high degree of professionalism and an even greater service orientation. Without an accurate estimate of the time commitment necessary to make a venture successful, the manager will not be able to meet these challenges.

(Figures omitted)
COPYRIGHT 1990 National Association of Realtors
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Title Annotation:property management
Author:Woelfel, John A.; Goldstone, Mark B.
Publication:Journal of Property Management
Date:May 1, 1990
Words:1156
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