Controlling Project Costs Through Interactive Planning
By Mark A. Borodynko | minute read
If time is money, keeping a project on budget requires utilising the project's estimate, schedule, cost forecasting, and earned value systems interactively.
We have all heard it discussed one way or another - time and money equate with one another. Yet, in our specialised world where we need to keep our budgets lean, we have almost forgotten that we actually need to spend money selectively in order to save money.
The tendency is to reduce the budget for those who are guarding your money and schedule - the planning/scheduling and cost-control individuals. I've seen some companies assign this task to the project manager. When this occurs, a red flag should be raised, because it means that the control of the budget and schedule is only being done on a part-time basis. Part-time project controls equals inferior project results.
Having project controls alone is not enough to ensure your project will remain on budget and on schedule. So, how can you accomplish this on fast track, value engineered projects?
I have observed that successful project leaders have made a paradigm shift in their thinking as compared to the more traditional school of thought I call "thinking in a silo." The silo thinking process waits and holds off the construction management team until the detailed design documents are about to start or, even worse, when the detailed design documents are completed. This is too late in the project's life cycle. At this stage, there is a preliminary estimate and schedule developed. But because the estimate and schedule are based on preliminary engineering, it could be a false budget estimate and schedule put together at the completion of preliminary engineering by the engineer and owner, rather than by the entire team. To make matters worse, the construction start date is now set by the forecast receipt dates reflected on this preliminary schedule.
Therefore, the aforementioned paradigm shift in thinking needs to be applied earlier, during the pre-construction phase (during preliminary engineering). It covers the following three principles and applies them interactively to the estimate, schedule, and earned value systems.
Principle 1 - The Team
Assemble the right team, early in the project. Kick off the project with a team-building meeting. In order to do this, of course, you need to assemble the right team. The team should consist of key individuals representing the owner, architect/engineer, and construction manager. The scope of the project is drilled into these individuals, so when the project is being engineered, the costs to build and commission the facility are all interactively related and shown on the estimate and schedule dynamically. This principle insures that an agreed to budget and scope is established and all key team members are aware of how the project arrived at the estimate. Have you ever been in a final estimate review meeting and heard someone say, "How did we get to this number?"
Principle 2 - Planning for Problems
Acknowledge the project will have problems and plan for contingencies. This is so basic, it's never discussed. The project will have problems; so if that is true, let's start looking for them now. The earlier we find them, the bigger the influence can be applied at the lowest cost. The team needs to be trained to stop being defensive or prideful. Remember - the estimate and schedule was developed by the team, not just you or the estimator or the planner.
How do you identify these problems? Let's use the tools that we have. The first tool is the cost report, which takes the estimate and converts it into a coded budget where the committed and expended dollars and hours are reported. But what are the forecasted dollars at completion and how does that compare to the team's budget? Should there be a difference, you have identified a potential cost problem early and if you're not "on the defensive," you can rectify the problem.
Since cost and schedule are interrelated, we also need to look at our second tool - the schedule - as a forecasting tool and ensure we use the schedule as a true critical path method (CPM) of scheduling so we can forecast where the project will end up in time and not just report what activities were completed.
The third tool to identify problems should be the use of an earned value system that is used for both the architect/engineering firm and the construction manager's measurement of percent complete progress. What works best for the architect/engineer is taking the engineering budget and converting it into hours by an average rate for the particular discipline, then assigning the budget hours to the disciplines drawing and specification types. Most importantly, a series of "check points" that can be validated should be used to ensure that overstating of progress does not occur. The construction management earned value system should relate to quantities that need to be installed. The key here is to keep it simple and measurable at the appropriate level customised for the type of project. We are looking to forecast potential problems that we can drill down into when identified, not keep track of every piece of formwork that is installed.
These three tools, when used interactively for forecasting, will reflect the team's forecast finish date and cost. Should the result be a problem, then you've identified it and, applying your professional expertise, you have time to correct it. The alternative is the "Ostrich" mentality to project management; most of us know what happens when we keep our heads buried in the sand and take the defensive approach. Let's stop being defensive - you're slowing down the team that's heading for the goal.
Principle 3 - Stop "Silo Thinking"
We need to graduate from our specialised silo thinking into a more of a proactive community approach. What you do on the project directly affects the community or, in this case, the project, both in time and money. This is always most evident at the start of a project. In the beginning, everyone has their own plans for how and when things need to get done. Most of the plans are genuine and meaningful. However, it reminds me of someone dropping a quill full of arrows onto the ground that are going in many different directions. A project needs to have all these arrows, or plans, identified and positioned so that they are all headed in the same direction. I recommend doing this early in the project with the key members of the team, in what I call an "interactive planning session."
This planning session will identify the owner's critical milestones and the dates that they need to be completed. It will establish the necessary tasks that need to be accomplished in order to support these key milestones and will form the baseline for the entire project's master schedule. The major tasks are identified interactively by having the team place their key tasks on one comprehensive timeline. These key tasks cover all phases of the project and include: preliminary engineering; various bid packages for detailed engineering; purchase and delivery of major equipment and procurement of long lead material such as structural steel; funding requirements of the owner; permitting and environmental requirements; major subcontract procurement strategy; demolition, if required; major construction activities; major tie-ins; and commissioning/validation, depending on the project. This intense effort identifies problems early and gives the team an opportunity to get realigned, if necessary. It turns individual plans into the project master plan and shows the interdependence of each task to the other.
Ensuring that projects stay on budget does not happen by looking at what is spent or invoiced to date. The answer lies with changing our current thinking. A project's budget rests upon a three-legged stool - each individual leg consists of the estimate, cost engineering/earned value, and planning/scheduling systems. But all three need to be working together to support the budget. If one is missing, then the budget is in jeopardy. Therefore, a team needs to ensure they embrace and incorporate the project controls mission statement into its culture and "utilise an integrated application of estimating, cost engineering/earned value, and planning/scheduling with the correct level of software in support of project management."
Then the project must go the extra mile and truly transform itself into a team effort. This team can change the fulcrum of the project. With a team attitude, defences come down and team members can look for problems to solve, which in turn lets the team run more efficiently and effectively towards the goal of an on-time and on-budget project. Through interactive planning, and the team working together toward one goal, there is an increased awareness that what an individual team member does has a direct affect on other team members and their downstream tasks.
This integration of project controls tools applied by the project control professionals, combined with an early paradigm shift, will ensure projects are completed on time and within budget. You may even end up with some contingency.
Mark A. Borodynko is the senior director of project controls for Skanska USA, located in Blue Bell, Pennsylvania. He has 35 years of project controls experience in the engineering, construction management, and validation of projects. His expertise covers the pharmaceutical, biotech, healthcare, petrochemical, defence, and power industries. Mr. Borodynko can be reached at (267) 470-1033 or email@example.com