Excellent budgeting and forecasting are not only predictive but also provide means for evaluating and improving performance going forward. With our experience creating bespoke models in both “commercial tools” and Excel for several different multifamily companies at various points in our careers, we’ve identified four key items that make for great budgeting:
Given the industry-specific complexities of rental housing, it’s critical that any budget model be built by people with deep business experience in this space. There needs to be a combination of business and technical/analytical skills to create a good model.
Great budgeting cannot be done when somewhat arbitrary assumptions representing aggregations of the underlying business metrics are the key entries. The solution is driver-based modeling for both revenue and expenses.
A great budget application allows for all forms of aggregation and ad hoc analysis. Data is brought into a database from the property management system (PMS), and the user interface drives workflow by reading data in from the database and writing back to it. The result is a centralized “single source of truth” for all budget/fore- cast-related data which makes reporting and analysis much easier to do than with connected Excel workbooks (i.e. a spreadmart).
A great budget/forecast application will be built by people who have or intend to have, many units over which they can amortize an ongoing investment. A group of people whose success in sales and retention will be driven by continuous enhancement will have the same energy for a v2, v3, v4, and beyond that they had for their initial v1.
Ultimately, to bring it all together, a good budget model:
Donald is CEO of Real Estate Business Analytics (REBA) and principal for D2 Demand Solutions, and industry consulting firm focused on business intelligence, pricing and revenue management, sales performance improvement and other topline processes