Protect yourself from renovation overruns

The planning fallacy was first studied and documented in a 1979 paper by Daniel Kahneman and Amos Tversky as the tendency for people to underestimate how long they will need to complete a task, even when they have experience of similar tasks over-running. The theory was later expanded to more than time overruns, but also cost overruns and benefit shortfalls The bias only affects predictions about one's own tasks; when uninvolved observers predict task completion times, they show a pessimistic bias, overestimating the time taken.

This is a phenomenon that can be a big pitfall for renovators and something to guard against when planning a renovation on a property to sell or rent because time really is money. Failing to accurately program works resulting in more time spent on the renovation can mean one of two things .

1.    Your underestimating of the timeframe means you have deemed a project more profitable than it really is.

2.    Your processes are inefficient and causing delays.

Whatever the cause, there can be several outcomes, most of which will be eating away at your profit.

Increased Holding Costs

Costs such as bank interest, utilities, equipment hire (temporary fencing, scaffold etc.), building insurance are all clocking up while you’re battling against the clock to get the project finished.

Lost Income

If your project isn’t finished it can’t be sold and the money isn’t in the bank or if it is intended to be rented it can’t be re-valued and earning income.   So not only are you still paying out costs, you are not receiving the income.

Lost Opportunity

While you are labouring away on a project overrun, you are not moving on to find the next opportunity but more specifically you may be losing the opportunity to capitalise on good timing.

To quote an example: the early spring is usually a great time to sell. Stock is sparse during winter and buyers are often hanging out come spring – the selling season. Many vendors miss the mark and don’t manage it until a few weeks in. So if you can make it for those first few weeks, you can have a captive audience.

However if you who miss the mark due to your project overruns, you also miss the opportunity of optimum sales conditions and it can reflect in the days on the market and the price.

Stress

Speaking from experience, project overruns cause a lot of unnecessary stress, which is bad for your heart and your mind.

Awareness is the first step in recovery.  Once you work out what’s going on, you can do something about.

A project overrun can be forgiven once but if it happens again you need to work out why. If you cant identify any potential time savings then you need to factor in more time which may make some projects unprofitable but it is always best to have the pain up front when you can do something about it.  Knowledge is power.

Working with a team is a good way to protect you from your self!! Having your feasibility scrutinised by some one else will provide an objective view and force you to justify your assumptions.

Lastly I am a big fan of project post mortems where you spend some time going back over the project to identify areas you could improve, this will most certainly help you to highlight problems with your timing.