As a developer, you are required to make hundreds of choices over the course of a development project. From what architect to hire, to how much to spend on landscaping, to what price to sell your end product, the developer makes countless decisions every step of the way.
The stress of these decisions can build up fast. One thing that may help you eliminate some of the stress, clear your head and help you make better choices is to understand what you are really doing when you make these decisions – choosing whether to buy down risk or not.
A story will help explain this better:
A few years ago, my father was developing a subdivision of single family homes. They were in the very early stages of the project and he had hired a geotechnical firm to take some soil borings for use in designing the roads and the storm water detention pond for the project.
The geotechnical firm had put together a proposal for the bare minimum of soil borings – a few for the road and just one for the detention pond. The price was right and so my father gave them the go ahead.
The geotech firm conducted the soil analysis and found sand or sand with traces of clay from the top soil to down well below the water table.
No surprise there as sand is common throughout most of Florida. So the engineer went about designing the road and stormwater pond for sandy soils and the project moved ahead as planned.
It wasn’t until they were nearing the end of construction that problems started showing up with the stormwater pond. The engineer had designed a dry pond for the subdivision. (A dry pond has no water in it except during storm events where it fills up with water and then the water percolates into the ground over time. Usually within 3 days the pond should be dry again.)
Well, the subdivision had experienced a good rain storm about a week prior and the pond was still full of water. It hadn’t drained like it should have. Then another rain storm came and the pond was overflowing and water was flooding some of the new lots.
Quickly my father was on the phone with his engineer. And shortly after the engineer visited the site, he was on the phone with the geotech firm.
Long story short – the geotech firm ended up taking some more soil borings and discovering that the pond had been located over a significant layer of clay soils. The initial, single boring in the pond area had just missed it.
The stormwater pond had to be redesigned and reconstructed resulting in tens of thousands of dollars in additional costs and project delays.
Looking back, my father realized that he had made a poor decision when choosing to go with the bare bones geotech analysis that was proposed.
He had subconsciously made the decision to take on more risk for the hope of increased profit. If he had taken the time to consciously look at that decision as one about risk, he would have made a different choice.
You see the majority of costs for hiring a geotechnical analysis is in the mobilization of the equipment. Once you have paid to get the boring equipment to your project site, the cost of an extra soil boring or two is minimal – usually a few hundred dollars.
The risk my father chose to take was a significantly greater uncertainty about the geotechnical features of the property. And he exchanged that risk for the chance of only a few hundred dollars extra in profits.
If only he had looked at the decision from the standpoint of risk, he would have seen the bargain in paying only a few hundred dollars to buy down his risk significantly.
He learned the lesson the hard way. Hopefully, you won’t have to.
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