Putting Facilities Construction Estimating in Context

 

The First Line of Defense against Cost Overruns is an Accurate Budget Estimate

On Bell Rock off the coast of Angus, England sits the world’s oldest surviving lighthouse. This 116’ tall granite structure was built by Robert Stevenson starting in 1807. The project was completed and functioning by February 1811. The construction duration approached 5 years and the cost exceeded the original budget estimate by 60%.

Just another example of a public funded project exceeding budgets of time and money?

Did I mention that the Bell Rock is a treacherous sea-washed submerged reef, located 15 miles off the coast, and the base of the lighthouse is 12 feet underwater at high tide, 4 feet above water at low tide? Did I neglect to mention that during construction the rock was hammered with brutal storms 5 months out of the year and that labor shortages were on-going due to a war with France? Compounding these issues, the granite specified for this project was not native to the area and had to be brought in by wagon at a premium expense.

Context Matters: The engineer’s plans and specification were well defined for the Bell Rock Lighthouse. The baseline budget was established. The project was seemingly straightforward when viewed from the two dimensional form of the Architect/ Engineers (AE) plans and specifications.  The budgetary estimating lessons learned here are not too different from those that continue to frustrate facility managers today. The accurate estimating of construction goes well beyond the project drawings (things always connect together neatly on drawings) and must include an accounting of the realities of the environment where the project is constructed. The fact is: project context matters!

Most facility renovation projects are not dealing with high tides and treacherous storms. Just the same, facilities budget estimators must account for the challenges (and the resultant costs) of building around site-specific issues such as ongoing operations, aging buildings, environmental issues, matching existing construction, noise limitations, the weather, access and egress to the site, time constraints, customer unrealistic demands, the availability of labor, and phased construction. Whew! In most facilities the reality of the context where a project is built has a considerable impact on the budgetary estimate beyond plans and specifications. To ignore the context scope is to eventually face the angst of project cost overruns. It is inevitable, actual costs will overrun budgeted costs if the baseline budget is incorrect to begin with.

Busting Budgets: The consternation caused by the busting of a project budget is common with renovation projects in their own challenging environments. Bell Rock was exceptionally challenging. The consequences of overruns are painful in that getting the additional funding required to finish a project is not always an easy task.Explaining overruns is a tough position to be in.
The fact is one of the common causes for the overrunning budgets is with the budget itself. If you start a project with a wrong baseline for the cost (or time) then you have already set up the project for failing. The first line of defense against budgetary overruns is to begin a project with an accurate, realistic budget from which the actual costs will be measured. Poor construction budgeting results in project cost overruns.

Getting Budgets Right: The actual cost of a project is eventually known after a project is completed and all the costs are reconciled. An estimate is a prediction or projection of what that actual cost will be. Therefore to budget a project accurately it is necessary in the estimating process to build the project before the project is built. Predict the resultant cost by building it before you build it. This is great advice for estimating any facilities renovation project. This is why some of the best estimators I have ever worked with are those individuals that come from the field. Knowing construction and the means and methods for executing work in the field environment is very important to the process. An accurate budget estimate is one that captures the realities of the true scope of work of the project. Construction estimation at its core is not a cost book or a calculator (they have their roles) but all the parts, pieces, specifications, quality, site conditions, labor, equipment and materials that make up the scope of work. Show me a poor budgetary estimate and I will show you poorly identified project scope of work. This will then result in budget overruns.

Capturing Scope: Architects and engineers define scope well in plans and specifications but for construction estimating this scope is incomplete. Successful contractors will tell you that construction scoping for estimating purposes (as with scheduling) goes well beyond the AE scope and includes field specific realities or the context scope. I recall a context issue at an old VA hospital where the roofing contractor was hot mopping a replacement of a built up roofing system. One hour into the day the project was shut down because of the smell of the hot asphalt filled the hospital from the intake roof venting. The contractor had to extend all intake hoods up off the deck before the work could continue. Context scope matters.

Beyond the context scope the estimator needs to account for the means and methods used in the execution of the work. How will the work go together in the environment the contractor will work in? What equipment and labor power will be used to complete the tasks? The answers to these questions will influence the overall cost of the project. The best estimators will think like a contractor and mentally build the project many times before the project is actually built. The informed budgetary estimator knows construction well and is able to identify and capture the AE, context and execution scope in the process of estimating the projected construction cost of a project.

With limited funds and many facility needs sometimes owners will mistakenly stop short in budgeting a job with just the AE scope of work captured. This is wishful thinking. It is better to accept the reality cost of a project with the shock of a higher than “expected” estimate then to deal with it later in cost overruns. As facilities managers and estimators it is not our job to tell the owner what they want to hear but to identify the real cost of the project from the beginning in the budget estimate. This requires thinking beyond the AE scope of a project and capturing, quantifying and pricing ALL the real scope of work in the project. Accurate budgeting of our facilities projects is a big step to eliminating project cost overruns and the complete scope of work to be priced is AE, Context and execution scope.