The Great Debate

SINGLE PROPERTY MANAGEMENT SYSTEM OR DATA WAREHOUSEGood business intelligence is key to making informed investment decisions. Yet obtaining the data that underpins this vital intelligence is far from easy. It requires a well-defined strategy and a clear understanding of the firm’s needs, both now and in the future. All too often, the method by which this data is obtained and man-aged is not chosen based on a detailed analysis of the requirements of the organization, but rather a review of what other, similar compa-nies have done in the past. In short, there is a propensity to rely on the status quo, rather than really delving into the crucial debate over whether a single global property data manage-ment system or a global data warehouse is the best way forward.

The building blocks of an effective business intelligence framework are well understood. A complete solution must contain three components: data integration, data storage and normalization, and data analysis. These components all need to be managed under a clear data governance system.

Effective data governance is a critical requirement. With-out it, even the best technology will be unable to produce insights of any real value. Data governance has to be part of the way the organization operates, and integral to its culture and capabilities. It means putting in place informa-tion stewards, systems of record, quality procedures, and clear definitions and standards, and maintaining all those elements effectively on an ongoing basis. Implementing an effective data governance program helps ensure a golden source of data can exist – one that is complete, consistent and accurate. And once data can be trusted to tell the truth, it becomes a powerful asset that can be exploited through effective business intelligence.

So the critical question is, what are the best tools and pro-cesses an organization should use to implement this frame-work and get to that golden data and business intelligence they need?

There is a real debate across the real estate industry as to what should be at the core of the solution, the question being whether to adopt a single global property data man-agement system or a global data warehouse. Many organiza-

THE FRAMEWORK

TOOLS AND PROCESSES

The first points to consider when determining which solution fits your business are the basic ones about the size and geographical reach of your portfolio. The larger and more diverse the portfolio, the more likely the management systems will need to accommodate regional nuances, leasing conventions and local tax law. These local differences make it difficult to standardize within a single management system without having to undertake a large degree of expensive customization.

Another consideration is whether you have third-party prop-erty managers from which you need to aggregate data. In these instances, some organizations might attempt to man-

“…the larger and more diverse the portfolio, the more likely the management systems will need to accommodate regional nuances, leasing conventions and local tax law.”

tions have an instinctive opinion as to the best option, but a clear review of the issues that should lead to that decision helps ensure the right choice is made, given an organiza-tion’s particular circumstances. The review should explore the business fit of each solution, establish the scope of the data and functionality that will be needed, and then look at what each option will really cost.

date the use of a single system among all external property managers, but this approach has downsides. By managing a system for the use of external property managers, own-ers end up paying twice – first for property management services and then again for software licenses and support services, which are normally included in property manage-ment fees. A bigger problem is that property managers who are forced to use a mandated system cannot leverage internal best practice process and scale efficiencies. In some cases property managers will resort to shadow accounting, whereby they continue to use their internal systems and then re-enter information into the mandated owner system, which is a recipe for poor data quality. Furthermore, if your firm invests in joint-ventures where you are not the oper-ating partner, it is unlikely that you will be able to mandate the system used to manage the properties and will therefore need a solution to collect and standardize operational and financial data from your partners.

“There is a real debate across the real estate industry as to what should be at the core of the solu-tion, ... a single global property data management system or a global data warehouse.”

Business Intelligence Capabilities

CONSIDERING THE BUSINESS FIT

Then, it’s important to consider your overall investment strategy, and in which specific sectors your invest. Pure equity investors will find single systems can store most of the information they need, but those who also invest in real estate debt or securities will need to track other information that does not fit easily within standard property manage-ment systems.

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THE GREAT DEBATE: SINGLE PROPERTY MANAGEMENT SYSTEM OR DATA WAREHOUSE

The next issue to consider is the breadth and depth of the data that will need to be monitored. Even in very simple businesses that only invest in direct real estate, you will always need to analyze additional related information concerning those assets. This includes information about loans, valuations, forward-look-ing assumptions, market benchmarks and a whole range of other financial information. A standard property management system may not be able to provide these features.

Then there is the question of the depth of data required. Prop-erty management systems typically store more granular detail than data warehouse systems about property-level operations, banking, tax reporting, and administrative details. You must consider whether you need the ability to drill down to individual transactions, or whether this can be left to the individual property managers. In contrast, data warehouse solutions do not provide this kind of information, but are more effective at consolidation, mapping and validation of data. In terms of re-porting and analytics, there is usually little difference between the two options, as both can be used alongside a wide range of reporting tools.

Determining the Right Data Solution

DECISION FACTORS

BUSINESS FIT

PORTFOLIO SIZEAND GEOGRAPHY

THIRD PARTY MANAGEMENT

INVESTMENT TYPES

DATA SCOPE

DEPTH OF DATA

CONSOLIDATION, MAPPINGAND VALIDATION

COSTS

CAPITAL COSTS

TRANSITIONAL COSTS

OPERATING COSTS

Whichever option is chosen there will be capital, transitional and operating costs to assess.

An important point to remember is that not all capital costs will appear up front. For example, the assessment of software license costs must consider not only the users in the first phase of the roll-out, but all users who will be granted access in planned future phases.

ESTABLISHINGTHE DATA SCOPE

A QUESTION OF COSTS

What should be clear from the points above is that no one solution will be right for every company. For smaller, simpler organizations, a single property management system may often be the right choice provided property managers can be relied on to use the system and the additional user costs are not excessive. However, for those with more complex opera-tions, data warehousing can provide some real advantages. Whatever the type of organization, real estate firms need to work through the functionality and data they need given the structure of their business, and understand the costs and benefits associated with the options that are available.

This structured review allows the right choice to be made that can secure the business intelligence you need to transform raw data into real insights. This could not be more important. As Peter Drucker once said, “Knowledge has become the key economic resource and the dominant, if not the only, source of competitive advantage.” A good business intelligence system is the best way to secure that knowledge and to get ahead of the competition.

CHOOSING A SOLUTION

Transitional costs, which are incurred when properties are onboarded or offboarded, are often underestimated and should be considered as part of the initial decision. These costs include items such as data migration, integration, new user licenses and user training.

When it comes to operating costs, these are likely to be similar in both the single property management system and the data warehouse option. These are the costs of maintenance and up-grades, the need for ongoing development and enhancements to the system to meet ever evolving reporting requirements, and end user support.

All images are made available under a Creative Commons Attribution-Noncommercial license.

Choice by William Ward

Voyanta is a cloud-based software platform that allows real estate investors and lenders to gather everything they need to know about their portfolios into one place – accurately, efficiently and securely. Voyanta leverages a comprehensive real estate data model, sophisticated data management screening tools and best-in-class reporting and analytics capabilities.

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