Protecting Profitability
Keeping the “Big Three” in balance for the life of the construction work!
Robert C. McCue and Michelle N. Delehanty
Consulting Engineers
In construction projects there are three main areas of importance to a successful project – scope, schedule, and budget. It is vital to have a clear definition of the scope of work, a defined schedule including milestones, and the cost of performance based on the scope and schedule. These “Big Three” must be in balance at bid submission time, remain in balance when the actual work starts, and continue to be balanced until project completion.
This sounds simple but becomes difficult over the course of the work and after making necessary changes. It is one of the first signs of trouble that we look for in beginning a Forensic Project Management (FPM) analysis. Many times, the work is planned and bid by one team and later handed off to the project execution team. When the Notice to Proceed is issued and work begins, is the advertised and bid schedule still reasonable? Was anything missing in the bid scope or cost breakdown?
What happens to the assumptions that were made in the bid development planning? We often hear that “It is just like the last one – except …” and this is where trouble begins. Are the assumptions that were made for the “last one” really the same? Have they been communicated to the project execution team, so they are aware of them and their significance in the cost and schedule decisions leading to the bid price? The project team’s recognition of the impact of the changed assumptions affecting the “Big Three” will not likely become apparent until the work is well underway. After this, the opportunity to accommodate them without suffering a cost and schedule penalty is well past.
In developing the bid, a full range of assumptions must be made concerning site access, labor availability, material delivery schedules, schedule relationships, and potential location issues such as weather. Is it going to rain, how much and when? Did Notice to Proceed come as planned and scheduled? Are there other large projects underway in the same time frame that will need similar resources? Are there scope gaps that may later lead to additional requirements?
Unfortunately, for many projects external factors (common assumptions) that are not under the control of the project team can prevent efficient project execution. Many times, these undocumented bid assumptions were once valid to the original scope, schedule, and budget but are constantly under pressure which leads to adjustments as the project progresses. The project execution team must approach each change in assumptions knowing that the “Big Three” will be affected. It is up to the team to decide how to balance them. To save one you must sacrifice another. Increased scope but still must finish on time? Then the acceleration costs will increase due to added labor. Budget pressure means that scope items might have to be adjusted. However, once actual work is underway it is extremely unlikely that savings from scope reduction can provide even a minor cost savings.
No project will ever have a perfect scope, schedule, and budget, but a balance of assumptions and expectations surrounding the “Big Three” at the start will enable the team to adapt more easily when the unexpected occurs.
MDCSystems® has been providing Project and Construction Management services for over fifty years. We use our knowledge, experience, and credentials to solve your engineering and project construction challenges. Articles on various topics are available at www.mdcsystems.com.
