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By Missy England
June 12, 2016
Once a bid is won, or a project is approved, the management of a project begins. An estimate influences significant aspects of the project management process. It informs the structure of the schedule, influences the processes used during construction, and determines resource use.
An estimate, in some respects, also sets up self-fulfilling prophecies born from the need to stay within a project budget.
If the budget for a portion of a project is too low, project managers will search for processes and resources that meet the budget. The same applies if the budget for a portion of a project is too high.
While project managers are typically very familiar with construction processes, there are many ways for any particular part of a project to be completed, and choosing one of lower-cost may appear to be the best solution in light of the cost estimated. Likewise, over–engineering can occur when estimating costs are high enough to allow it.
There are other aspects related to the estimate that require close scrutiny. Many times the estimate is prepared before submittals are completed or owner selections are made. For project managers, this means they aren’t working with the complete picture and will have a difficult time matching resources, materials and processes to the tasks.
The reality of many projects is that an estimate becomes a living thing, complete with constant revisions as the actual construction nears. To be successful, project managers have to look way ahead as they plan and anticipate aspects within the estimate that are likely to derail the schedule. Identifying these in advance allows project managers to prepare for any potential delays.
Thoughtful estimators are worth their weight in gold, but project managers can’t always expect to get the best.
And don’t forget the element of time. Estimators are often in a hurry because project scopes arrive late and bid days get moved up.
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Ideally, estimators would have all the time they need to consider the tasks of a project and investigate the processes they would like to use. But unfortunately, this is wishful thinking. Therefore, project managers have to assume the estimate they’re going to work from is flawed, and do the necessary work to locate those flaws and prepare schedules that reflect the realities of a project,both from a cost and time perspective.
Where to look for potential problems:
General Conditions - So many things find their way into general conditions that it can become a sort of catchall for items where there isn’t a clear assembly. But it’s also the place where many items end up for further scrutiny. These items might be unique to a particular area such as environmental or regulatory aspects or the costs of special insurances and permits.
Tight Deadlines - When project bid schedules are condensed you can expect a lot more planning has gone into preparing the estimate. These assumptions often center on common processes and expenses unique to the particular shop. They may include best “guestimates” based upon a long track record of costs. The problem is, those might not be accurate if the assumed supplier, for example, is not going to be involved in the job, or participants change before a project gets underway.
Unusual Exposures - This includes aspects the contractor has not had much experience with, and therefore, estimating might not be as up to speed as it needs to be. For example, many contractors routinely work with trenches of shallow depth, two to four feet deep. An unusual exposure might include a particular job that requires trenches six or more feet deep, requiring shoring and other protective measures.
Unusual Processes - In construction there is often more than one way to correctly do a particular installation.The phrase, “generally accepted workmanship,” is a catchall phrase that saves time from detailing every step of a process. But when that phrase is attached to a process the contractors aren’t familiar with, the sky’s the limit as to what constitutes “acceptable”.
An estimate creates a rough outline of a schedule because a schedule is often built linearly, evolving from start to finish. The pitfalls that can arise involve the level of detail included in the work breakdown structure. When the work breakdown structure is not adequately broken down into individual tasks, and the schedule follows suit, discrepancies arise that creep into the plan. For example, a work breakdown structure item derived from an assembly can be missing components when the assembly that was used on a previous job is applied to a new job with slightly different specifications.
Ideally, estimates would remain accurate on all levels from start to finish. Cost breakdowns per division wouldn’t undergo an ounce of change and the amount witnessed at the beginning of the project would resemble the amount at the end of the project. This experience, however, does not represent the norm. In most cases, expenses not only change throughout a project, but on a daily basis.
Inexperienced owners have difficulty viewing office overhead separately from profit and assume their designers’ plans will finish without modifications of any kind.
These examples illustrate the extreme importance of accurate estimation that includes risk assessment, potential delays and setbacks.
In the best-case scenario, managing risk in construction begins during the project feasibility stage. Rather than hoping for the best and not preparing for the worst, your team should evaluate risk assessments as soon as possible.
Surveys from 2005 and 2007 by KPMG found significant contrasting results when examining risk assessments from an owner’s perspective and a contractor’s perspective. This is not a surprising result since the two parties have different relationships with the project.
While this may seem like a problem, it can actually be a benefit if both parties communicate the potential risks from their own perspective. It is best to know any and all potential risks as soon as possible so your team can prepare for all types of risks and not just ones from a particular division.
Don’t simply be aware of the risks, but evaluate their significance as related to project objectives such as cost, time, quality, environment and safety. In the article, “Identifying Key Risks in Construction Projects: Life Cycle and Stakeholder Perspectives,” Dr Patrick, X.W. Zou, Dr Guomin Zhang and Professor Jia-Yuan Wang, created a ranking order of project risks relative to each category.
Interestingly, “tight project schedule” was ranked as the top risk in all categories. “Unsuitable construction program planning” arising from inadequate scheduling, innovative design and/or the contractor’s lack of knowledge in planning was another high-ranking risk. In order to avoid these risks, involve the contractor during the design phase.
Other risks arise from the sheer volume of information and participants involved in projects. Contractors are challenged by the number of entities involved, which can lead to gaps in communication if incorrectly managed. The best results come when contractors focus on employing skilled planners and managers and implement flexible and comprehensive project management tools.
Want more? Click here to download the entire free eBook, "Project Management Guide Part 1." And don't miss Part 2: Scheduling and Part 3:Project Controls!
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