How do you use pro forma analysis to optimize your design, budget, and schedule decisions?

1 Understand your market

Before you start your pro forma analysis, you need to research your target market and understand the demand and supply dynamics, the competitive landscape, the price points, and the growth trends. This will help you define your product type, size, mix, quality, and features, as well as your expected sales or rental rates, occupancy rates, and absorption rates. You also need to identify your potential buyers or tenants, their preferences, and their willingness to pay.

2 Build your model

Once you have your market data, you need to build your pro forma model using a spreadsheet or a software program. Your model should include the following components: land acquisition, pre-development, construction, financing, sales or leasing, and operations. For each component, you need to estimate the timing, the revenues, the expenses, the contingencies, and the taxes. You also need to calculate the key performance indicators, such as the net operating income, the cash flow, the internal rate of return, and the net present value.

5 Update your analysis

Finally, you need to update your pro forma analysis regularly throughout the development process. As you progress with your project, you may encounter changes in the market conditions, the regulatory environment, the design specifications, the construction progress, the financing terms, and the sales or leasing performance. You need to monitor these changes and adjust your pro forma analysis accordingly. By updating your analysis, you can track your actual performance against your expected performance and make timely and informed decisions.