BWBLOG: Stefan Zalega: Enabling Infrastructure Design - Why the best route is not always the most obvious!
24 January 2014
When a Client begins to tell me of their plans for a new strategic development and what the likely implications will be for enabling infrastructure (access, highways, drainage, power, etc) the first thing I ask them is “What are their cash flow vs development cost preferences?”
"Cash flow preference? But you're just an engineer! What on earth has that to do with getting access to the site and putting in the enabling works?"
Well, quite a lot really! Enabling infrastructure, as the name suggest, enables subsequent development. That means money has to be spent before the development will derive an income. Typically, it could take 12 months of cash outlay in getting the enabling infrastructure in, then another 12 months to get properties built, assuming all the planning had been dovetailed nicely. If there are planning or economic hiccups, then it could take a lot longer. During this time there is no cash coming in!
So back to the question: “What are the cash flow vs development cost preferences?”
Normally, putting enabling infrastructure in all in one go, gives the cheapest possible development costs, as it maximises opportunities to provide design optimisation and economies of scale during construction. However, most major developments take years to build out and that can mean a lot of cash tied up before returns are realised. Discounted cash flows (i.e. money in the future is not as valuable as money in the present) only serve to exacerbate this situation. There are however, some very wealthy people/organisations and certain site constraints may well lead to the conclusion that constructing the entire enabling infrastructure all in one go is the client's preference. Hence, why the question is asked.
It will be no surprise that, generally, the optimum solution for most clients is a balance between whole life costs and short term cash flow and this is why most major projects are developed in phases. However, how many phases should the infrastructure be provided over? How big/small should phase 1 be? BWB can help answer these.
At BWB we work with our client and their professional team (architect, planning consultant, agent) to tackle these issues at the earliest opportunity during the scheme feasibility stage and help inform the masterplan and the planning strategy. Typically, to arrive at an optimum solution, we assess all the available options by pulling together all the following specialist disciplines that are covered under our A to Z of Services:
"Cash flow preference? But your'e just an engineer!"
I am just an engineer, but I'm a very, very good one!
To find out more on how BWB can help derive a cost effective development strategy, please get in touch with me or any one of our specialists listed in the A to Z.