Understanding the Community Pro Forma Program (P44H102)

The costs and risks involved in developing a new community can be significant, given the high cost of land and construction materials. To justify and secure the required capital, you should have an initial projection of profitability. Whether you are building massive retail shells, which might contain several unique retailer outlets, or a community of 1,000 homes, use the Community ProForma program (P44H102) to forecast projected profits and manipulate key profit-related parameters.

The P44H102 program:

• Tracks a significant number of revenue and cost variables.

• Performs extensive what if analysis.

  The program derives the base revenue from each plan master that is assigned to the community. You can manipulate plan mix, lot cost assumptions, additional costs, and additional revenue. Based on the revenue and cost assumptions, you can forecast community profitability.

• Overrides costs by a set percentage of the total revenue.

  You can use lot override percentages to associate a cost percentage that is applied with the extended base revenue for all plan line items. The system allows for 10 discrete average cost percentages, and it tracks each separately when it calculates totals. When you enter a lot override percentage, the system updates the associated average other cost on the Community ProForma form.

  For example, if you can build five houses on Plan B for 100,000 USD per house, and these houses include an estimated 10,000 USD in total options, the resulting revenue would be 510,000 USD. If you enter 10.00 in the Average Cost Percentage 1 field, the system applies 51,000 USD (10 percent of 510,000 USD) as a cost in the Average Other Cost 1 field for each Plan B.

The P44H102 program enables you to specify revenue and cost parameters for a specific community or phase. Revenue parameters include base house revenue, lot premiums, options, and company-specific revenue categories. Cost parameters include land costs, direct costs, allocated overhead, indirect costs, and company-specific cost categories.

You can apply the revenue and cost parameters equally to all lots in the community or apply them at a plan and mix level. For example, if the average sales and marketing costs are 500 USD per house, you might add 500 USD to the cost of every house in the community. Alternatively, you might decide that because more expensive floor plans require greater average sales and marketing burden, you will allocate these costs to specific plans so that more expensive plans receive a larger allocation.

The P44H102 program creates a pro forma contribution analysis for a community or phase. If the initial assumptions of revenue and cost do not result in an acceptable income statement, you can modify key profit-related parameters, including:

• Land and direct costs.

• Overhead and other indirect costs.

• Plan mix.

• Revenue per plan (including lot premiums).

• Option revenue and cost.

• Numerous user-defined cost and revenue variables.