Design and Construction, Training

Managing Construction Cost Uncertainty in Modern Times

Whether a new construction project crosses your desk that is $25,000 or $25,000,000 (or more) in expected cost, how do you know with any certainty what the final costs will be? Conventional approaches include getting cost opinions from firms that specialize in determining construction costs through the estimating process. This is where the majority of my professional experience comes from, and I still advise building owners/facility managers to employ these firms for detailed estimates from engineered construction documents.

But what about pre-conceptual to schematic stage cost studies? While the foregoing is not a detailed tutorial on early-stage estimating, and any advice is generic without subjective project information, it outlines a way for you to DIY, with the proper education. In fact, the resources available today can not only have you preparing budgets and concept estimates that compete with the established experts, but with practice, you can exceed the quality of their deliverables and become an expert yourself.

Why Become an Expert?

You’ve heard the saying “knowledge is power.” Well, in the cost management space there’s perhaps no better application of this as when you can budget projects with a high degree of accuracy yourself. Will it be easy? Nothing worthwhile is. But you may find that the journey is both exciting and rewarding. As you get more informed about processes and resources, tips and hacks, and testing your budget against the market, you will find yourself reaching a high degree of expertise.

Why the Timing Is Perfect

We’ve all just been through a pandemic. Remote engagements/gigs and educational development to increase your professional value are hot topics and will likely only gain in popularity. Becoming an expert in managing cost uncertainty is in large demand. Dysfunctional supply chains, unpredictable labor supply, longer lead times for equipment, ever-changing local market factors, etc., all play a critical role in not only what a project will cost, but what prescriptive strategies you can develop and employ to improve outcomes, reduce contingency percentages, and commit key project resources early. With the increased interest in “baked in” resiliency, future proofing, and environmental sustainability, the demand for cost uncertainty management expertise will continue to grow.

Next Steps

Pick a project that is in early design or pre-design. Using a detailed project information sheet, describe the project. This will include basic parametric information: square footage, location, remodel/new, building type, sitework, and more. Based on the descriptions, develop derivative data to further refine the character of the project. When all that is known regarding project nature and extent has been defined and/or quantified, a draft cost opinion can be calculated, also known as the predictive cost.

You may think that you’re finished, but this is the beginning of managing cost uncertainty.

Does the predictive cost exceed the budget? If so, determine which elements may have alternative and more cost-effective materials, means, and methods. Are there ways of leveraging the needs of other projects to provide some economies of scale? Can prefabrication or modularization be used for any aspects? What procurement can you frontload to avoid excessive escalation and unpredictable delivery times? Is the original program “right sized” or an efficient use of space? Can the project be shrunk without sacrificing form or function? How does market timing work, and how do you apply it to your project?

Once you think of projects in this way, it becomes challenging, but fun.

In Conclusion

While becoming a cost expert is not for everyone, consider this: Every budget you develop after becoming proactive in the cost management space will save the expense of going to an outside firm. Chances are your budget will be more accurate than something done by a cost manager, engineer, or estimator. It will likely go further in confirming costs, which will lower the contingency requirements while freeing up more money for other projects. Since you are the estimator, you can continue to develop “what if” scenarios to increase value, lower cost, or accelerate the completion schedule, not to mention continue to confirm the adequacy of your budget over time.

Typical early-stage estimates can cost from $5,000 to $25,000 depending on size, but if you become the cost manager, it will only take your time when you learn how to create tight and accurate budgets yourself. More importantly, you’ll become significantly more familiar with the project, something that will pay dividends during the project development life cycle.

Imagine becoming the budgeting expert for your company. This skillset will continue to evolve over the course of your career, making you more of an early cost subject matter expert and increasing your value significantly. I’ve done this for 30+ years, but instead of becoming less relevant, I’m finding I’m more in demand than ever. Making the decision to become an expert starts adding value immediately, increasing your knowledge of the nature and extent of project cost drivers and how to effectively manage them.

Tim Coyle is a Senior Preconstruction and Construction Manager and the founder of ProactiveCost.Consulting. He has over 30 years of construction cost management consulting experience, with projects ranging in type and size from large hospital development to school classroom renovations. His current focus is using data science to inform decision makers on how to overcome supply chain and project budget challenges. He welcomes feedback and other inquiries at information@proactivecost.consulting.