International Journal of Social Sciences. Vol. 11, No.

4, October – December, 2017

International
Journal of
Social Sciences

Performance Measurement: A Strategy for Effective Real Estate

Development Appraisal

by

Francis P. Udoudo
Department of Estate Management),
University of Uyo, Akwa Ibom State
(frankpee63@yahoo.com), 08062516484

Abstract
The primary aim of this study was to show how performance measurement can be applied as a
development appraisal strategy in the building site. The objectives included to identify the
different stages of real estate development; examine the various development appraisal
techniques applied by development appraisers; and identify the performance measurement
indicators applied by appraisers at each stage of project execution. A total of thirty (30)
questionnaires were administered at project sites to either the project owners or site
managers in the neighbouring communities of Ewet Housing Estate, Osongama Housing
Estate and Shelter-Afrique Model Estate. Out of which, 22 questionnaires representing
73.33% were properly completed and returned to the researcher within the specified time
frame. The research identified six (6) major stages in building development, namely site
acquisition, preparation of development plans, sourcing of finance, construction, provision of
estate infrastructure, and estate management; Cash flow appraisal was the most frequent
technique adopted among the 8development appraisal techniques studied; while out of the 17
key project performance measurement indicators examined, only 5 were applied by
respondents. It was concluded by noting that performance measurement is a vital aspect of
real estate development as investors need to know the progress of construction, the state of
operation, and adopt appropriate strategies to improve faulty situations where need arise.

Key words: Performance Measurement, Real Estate, Development Appraisal, Development

Process.

1. Introduction
Performance Measurement is not a new concept or strategy of real estate
development for sustainability. It involves studying the construction stages and
determining performance strategies to ensure that development is in line with what was
intended or should have been achieved. It is an appraisal process that entails inspection of
on-going project, analyzing and reporting information regarding the performance of work

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and associated infrastructure. Most institutions (public and private) are interested in
developing and deploying effective performance measurement strategies in order to attain
set targets. This led to the identification of four broad areas of emphasis in executing
performance measurement which included measurement against targets, comparison with
external targets, internal comparison and with other investment media. Timely
performance measurement brought to fore reasons for good or bad performance, the
impact of capital expenditure on physical improvement, restructuring, the effect of
depreciation or obsolescence on project development among other problems(Hall, 1981;
Morrel, 1991& Bello, 2003).
All processes of measuring performance of projects require the use of statistical
modeling to determine results (Kaplan, 2001). These results are credible as they were
guided by principles, processes and procedures to increase the probability of programme
success. When an appraiser is measuring the performance of a project, his primary
interest is to determine the impact of such project has at a point in time or over a period
of time on the host community. This, at times may be difficult as some of the variables
cannot be measured directly, thus the resort to estimation through indirect observation as
a complete set of records may be lacking. Performance varies from project to project as
relevant indicators are influenced by the project type. Each project has specific objectives
which require certain expenditure for the projects to be completed within a given
timeframe. Therefore, projects that achieve cost, schedule and quality objectives are
adjudged successful; while those that do not are regarded as failures.
In order to establish the performance level of each project, the project appraiser has to
identify the various stages of executing a building project where performance would be
measured; and then proceed to establish the format for data collection and analysis. It
requires that the project manager need to be conversant with every stage of the project
execution in order to properly evaluate the progress of work on site and level of
compliance to specifications.In this research, a project is seen to be an investment in real
estate, which means, development of buildings and needed infrastructure on land. The
question then is: How do we measure the performance of a project, knowing full well that
each stage of a project requires different indicators of performance measurement?

2. Objectives of the Study

The primary aim of this study was to show how performance measurement can be
applied as a development appraisal strategy in the building site. The objectives included:
i. To identify the different stages involved in real estate development process;
ii. To examine the various techniques of development appraisal applied by
development appraisers at project sites;
iii. To identify the performance measurement indicators applied by development
appraisers at each stage of project execution.

Real Estate Development Process

Real estate is any form of physical development on land and buildings. It includes
all the natural and man-made improvements on the earths’ surface. The development

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process involves the carrying out of constructional works, which are associated with
changes in the use of land with its building or with re-establishment of an existing use.
Such works include construction of a new building, alteration or expansion of an existing
building, and the provision of essential infrastructure such as roads, electricity, water and
other services to the site (Udoudoh, 2009). Development thus commences with the
destruction of existing use on site, and provision of essential infrastructures and other
services to enhance a smooth take-off of the proposed project. The completion of real
estate development may take several months or years depending on the nature of the
project, size, design, soil texture, site topography and the construction team. The goal of
real estate development is to develop the land to its highest and best use, the use that will
produce the highest net return to the investor.
The stages involved in any form of project execution vary depending on the
nature of the project, the investor and funds available. The stages embody site acquisition
and preparation; physical planning and design; development finance; construction of
buildings, roads and drainage systems; provision of services such as electricity, water and
other essential needs of the estate; and ends with management and maintenance of the
completed project that are ready for occupation, renting or acquisition. Udoudoh (2014 &
2016) observed that development comes in three dimensions: creation of a new structure
from a latent land; creation of a new structure from an existing structure by way of
renovation, alteration, expansion etc; and maintenance of existing structure to serve the
purpose it was established for. Umeh (2009) summed up the stages as follows: the period
of land development stretches from the gestation period through the construction of work
to the marketing of the final product.
In developing countries, investors develop projects only when there is utmost
need and justification for such investment and attach greater significance to the
measurement of the level of performance being achieved therefrom. In contrast, projects
execution in Nigeria does not take into considerations the feasibility and viability
indicators. These are clear indications that public investors in Nigeria rarely give any
consideration to performance of projects after being established outside self-
aggrandizement and political reasons. The primary goal of project execution is to achieve
a target level of financial returns or to improve the economic well-being of the citizens.

Performance Measurement (PM) as a Project Appraisal Strategy

Performance measurements are carried out in the design, building, operation and
maintenance of systems, devices, structure, materials and processes. According to Kalu
(2007), a sound investment strategy demands that investment performance measurement
should be made on a regular basis. In discussing the need for performance measurement,
he listed communication, accountability, actual performance against goal and basis for
future action as the reasons for project evaluation. Ogbuefi (2002) agreed that
performance measurement involves a periodic evaluation of investment in order to
determine that at each stage, the target objectives are being achieved. The appraisal of
project performance on a regular basis enables management to assess how well each of
the assets has done against original expectations and other assets in the corporation. A

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sound project appraisal is required to measure the economic worth of any project with the
aim to achieve better spending decisions for capital and current expenditure on the
investment. As recorded by Savvides (1994) and Ogbuefi (2002), the purpose of
investment appraisal is to assess the economic prospects of a project by examining the
costs and benefits emanating from such investment. The approach usually employed is to
carry out analysis based on the available data and use it as an input in the evaluation
model. This is to enhance identification of risk elements associated with the project,
synergistic effects of the project on the host community, establishing coordinating
development plans and management processes toward achieving project goals.
PM as a project appraisal technique is conducted to know if the proposed
development can be embarked upon and to determine the current state of an ongoing
project. It tries to establish how reliable and achievable a proposed project would be
when considering the market (demand and supply) potentials. The primary objectives
being to answer the questions: Can and/or should the project be carried out? It assesses
the rationale behind embarking on the contemplated project taking into consideration
several economic and non-economic indicators including, economic, financial, physical,
topographical, legal, cultural, and socio-political. It is only when both the feasibility and
viability indicators have been tested and the results derived from the tests proven positive
that some appraiser advices an investor to embarked on the project. This is why PM is
considered as a project appraisal strategy, which involves assessing a project to ascertain
its economic, financial, operational and managerial efficiency.
Apart from determining the feasibility and/or viability of projects, appraisal may
also be conducted to measure the performance of a project after it has been set up and
operations commenced in order to determine its direction and degree of performance in
relation to the targeted objectives. Essentially, it is a form of follow-up investment
appraisal technique used to monitor the current state of an investment, in order to ensure
that the target objectives are being achieved. Performance monitoring thus allows project
managers to check progress and confirm results; if the expected results are not achieved,
adjustments are made to enhance continuity of the project. The growing need for
accountability and improved performance of projects definitely requires strategies to
examine the relative performance of such investments within the context of overall
national economy. Presently, different government agencies and parastatals are
evaluating the manner in which public projects have been provided in the past and are
searching for ways of increasing the efficiency of service delivery. Past analyses have
mostly considered indicators of profitability, with little or no mention on operational
efficiency indicators which contribute to service quality.
PM is used to evaluate how well investors could manage the available raw
materials and resources in the course of developing a project; and the value potential
occupiers, customers and other stakeholders will derive from the completed project. Its
application enhances the assessment of progress toward achieving pre-determined goals,
including information on the efficiency with which available resources are transformed
into quality building, structures and services, and the extent to which users are satisfied.
Generally, performance measurement appraises how a project is executed according to

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approved plans and specifications, and the extent of conformity to planning regulations,
neighbourhoods’ and users’ expectations. It is a defensive weapon with the ultimate goal
being to prevent unfavourable consequences or unforeseen circumstances.
In infrastructure provision, utility performance is measured in terms of
production efficiency and service delivery efficiency as there is a casual relationship
between these two aspects (Humplick, 1996). The nature of the trade-off between service
quality and operational efficiency is an important qualifier of the true performance of any
given provision structure. When an entity providing infrastructure services has low
operational efficiency, it may result in poor service qualities in the short run and inability
to maintain high levels of service quality in the long run. Therefore, when comparing the
performance of public services under different provision structures, it is crucial to specify
the simultaneous and/or independent effects of operational efficiency and the quality of
service indicator. Hence, the key issue is how the development of infrastructure is
accessed by the users. Service of quality indicators are usually more difficult to define
because they are adapted to the degree of satisfaction users may have with a particular
service. Precursors to service interruptions and measures of unsatisfied demand can be
used as surrogates to service quality.
According to Akujuru (2004), different infrastructures have their reliabilities
measured in various ways. Electricity is measured by numbers, length and time of power
outages and by changes in voltage and frequency levels, while water supply is measured
by the timely delivery of promised amounts of water, its quality for drinking, irrigation or
other uses. For users, reliability means that service has a high probability of being
available in terms of quantity, quality and the time required. The existence of several
performance measures and the absence of standard index in Nigeria utility sector have
caused a lot of confusion in determining actual utility consumption level. This is in
addition to lack of proven data on installed production and utilization capacities.

3. Materials and Methods

To collect relevant data for this research, it was pertinent to visit ongoing-project
sites and observe how construction went on. A total of thirty (30) questionnaires were
produced and administered to either the project owners or managers found at project sites.
Out of which, 22 questionnaires representing 73.33% were properly completed and
returned to the researcher within the specified timeframe. This formed the sample
population and was adjudged adequate for the research. The choice of thirty
questionnaires was for convenient reason. Going by Nwana’s (2005) argument, there is
no fixed and inviolate rule regarding the size of the sample; thus no fixed number and no
fixed percentage is ideal, rather it is the circumstances of the study situation that
determine what population should be adopted. Other information was collected through
oral interviews. It was also pertinent that the researcher visited certain agencies involved
in granting approval and inspection of projects to ensure that they are built to
specifications as shown on the approved plans. Specifically, data were collected on the
different stages of project development, techniques of development appraisal, and the
need for performance measurement in project execution. Data for this research was

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Udoudo, F. P.
collected from neighbouring communities of Ewet Housing Estate, Osongama Housing
Estate and Shelter-Afrique Model Estate.
Stages of Real Estate Development
The various stages involve in the development process are shown on Table 1 below:
Table 1: Stages and Performance Measurement Indices
S/N Stages of Development Activities
1 Site Acquisition Scouting for suitable site
2 Preparation of i)Land surveying
Development Plans ii)Preparation of building
plans
iii)Environmental Impact
Analysis Report
iii)Issuance of Certificate
of Occupancy (C-of-O)
3 Sourcing of Finance Consulting mortgage/
financial institutions for
funding
4 Building Construction i)Excavation and pouring
of foundation
ii)Block-work and Roofing
iii)Finishing
5 Provision of Estate Provision of access roads,
Infrastructure electricity, water and
security at site
58
Indices of performance
Measurement
Compliance to Town
Planning and Land use
Allocation guideline
i)Site surveying by
Registered Surveyor and
acquisition of Certificate
of Deed from Office of
Surveyor-General
ii)Approval of building
plans by planning
authorities
iii)Payment of stipulated
fees and compliance to
the provisions on the C-
of-O
i) Meeting the stipulated
collateral provisions
ii) Refunding the loan
granted plus accrued
interests as at when due.
i)Ability of contractors
to interpret the building
plans
ii)Adherence to plans
specifications
iii)Using recommended
and standard building
materials
iv) Ensuring standard
alignment at curves,
edges of walls, floor,
ceiling, doors and
windows, etc.
i) Accessibility to public
infrastructure
ii) Regularity of water,
electricity and security at
site.
 International Journal of Social Sciences. Vol. 11, No. 4, October – December, 2017

6 Estate Management i)Letting and Leasing i) Attractiveness of

ii) Rent collection tenants to the property
iii)Estate maintenance ii) Regularity of rent
payment
iii) Adherence to
maintenance needs

Table 1 was summarized from the completed questionnaires of respondents. It revealed

that there are six (6) major stages in building development, namely site acquisition,
preparation of development plans, sourcing of finance, building construction, provision of
estate infrastructure and estate management. The table also showed the various activities
involved in each stage and the indices of measuring the level of compliance to building
regulations.

Techniques of Development Appraisal

Data was also collected to determine the appraisal techniques commonly used by
appraisers and real estate developers. The result was collated and presented in Table 3.

Table 2: Development Appraisal Techniques

S/N Development Appraisal Nos. of Appraisal Percentage of
Techniques Conducted Usage
1. Residual Appraisal Technique 3 14
2. Cost Benefit Analysis 4 18
3. Payback Appraisal Technique 4 18
4. Cash Flow Appraisal Technique 5 23
5. Performance Measurement 3 14
6. Sensitivity Analysis 2 09
7. Scenario Analysis 0 00
8. Simulation 1 04
Total 22 100

The result indicated that out of a total of twenty (22) appraisals conducted by five
firms of real estate valuers in Uyo, Akwa Ibom State, cash flow appraisal technique was
the most frequent measure adopted as indicated by five (5) respondents representing 23%
of the sampled population, since it is banking requirement for granting of slogans to
developers. Cost benefit appraisal and payback techniques were carried out four (4) times
each representing 18% respectively. Performance measurement and residual appraisal
techniques were applied three (3) times which represented 14% each of the sampled
appraisal techniques. Performance measurement should have been applied more than
shown on the table since it is a technique that is required from the conception of the
project throughout the life time of the project. No firm applied scenario analysis as an
appraisal technique in the conduct of project investment analysis.

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Udoudo, F. P.

Why project performance Key Indicators Yes No %

Variation measurement
1. Target Setting Specific Time-frame 6 16 27
Cost achievement 5 17 23
Schedule of work 8 14 36
Quality of work 13 9 59
2. Terms of Esoteric Value for Money 15 7 68
Value for project 17 5 77
3. Monitoring System Expert Recruited 6 16 27
Responsibility assigned 9 13 41
Timely Inspection 17 5 77
Fault Discovered Reported 8 14 36
Action taken to rectify fault 5 17 23
4. Cash Flow Capital Budgeting 8 14 36
Capital Investment 7 15 32
Working Capital 11 11 50
Operational Cash Flow 7 15 32
Taxation 9 13 41
Cash Inflow exceeds
Cash Outflow 6 16 27

From Table 3, it is shown that under Target Setting,13 respondents representing

59% of the sampled population indicated that on their sites the qualities of work were
attend as against 9 respondents representing 41% who complaint of poor quality works
done. Under Terms of Esoteric, the results showed that value for money was 15 (68%) as
against 7 (32%) and value for project was 17 (77%) as against 5 (23%) respondents.
Under Monitoring System, data collected revealed that the property owners or project
managers embarked on timely inspections of project as syndicated by 17 (77%) as against
5 (23%) respondents. Under Cash Flow, 16 respondents representing 73% reported that
cash outflow exceeded cash inflow which was reported by 6 (27%) respondents. The
overall result indicated that, out of the 17 key indicators identified, the No responses
from12 key indicators which scored less than 50% exceeded the Yes responses from only
5 key indicators that scored more than 50%.Thisglaringlyrevealed that performance
measurement is not taken into consideration in the cause of project execution in the
communities studied.

4. Results and Discussion

Table 1 revealed that there were six (6) major stages in building development,
namely site acquisition, preparation of development plans, sourcing of finance, building
construction, provision of estate infrastructure and estate management. Table 2 revealed
that cash flow appraisal technique is the commonest appraisal techniques conducted
required by developers in the study area, even though just 5 property owners requested for
it. It is seen in Table 3 that project performance measurement is carried out in order to set

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 International Journal of Social Sciences. Vol. 11, No. 4, October – December, 2017

target, for exoteric reason, to monitor the project performance to ensure compliance to
project network and realization of projected cash flow of project. The key indicators were
items if monitored properly provide measurable assessment of project performance.

5. Conclusion and Recommendations

Performance measurement is a vital aspect of project execution. In developing
countries, investors develop projects only when justifiable reasons have been established
for such investment. This is the outcome of a thorough development appraisal which will
lead to achieving significance level of performance. In contrast, projects execution in
Nigeria does not take into considerations the feasibility and viability indicators. From our
field exercise, cash flow appraisal technique was the most frequent appraisal conducted
by real estate investors as against performance measurement. This clearly shows that real
estate investors in Nigeria rarely give any serious considerations to performance of
projects.
Many project investors regard performance measurement in project execution as a share
waste of resources and energy. It is logical for any developer to regularly visit his project
site for on-the-spot inspection to ascertain if the construction work follows approved
plans; study operational performance; and where any deviance is noticed, appropriate
corrective measures employ to ameliorate for fault. This clearly shows that performance
measurement is an integral component of real estate development process and should be
carried out during the design and building construction; operation and maintenance of
buildings and associated infrastructure; and in the management of the entire estate.
Effective performance measurement ensures that real estate development is executed
according to approved plans, within the range of estimated cost, expected quality for
sustainability.

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