The Q2-2024 Newsletter from ATLAS consultants llc
Happy Spring!
Spring is officially here, and it seems like the weather finally got the message. It's been a little over a year since ATLAS got going, and I've had the good fortune to work with a variety of clients and provide a variety of services. On a project-specific level, these services included risk mitigation, design + value management, and procurement. Organizationally, they included evaluations and recommendations on cross-functional effectiveness, communication, accountability and leadership. I'd like to say "thank you" to my clients for the opportunities to date, and I look forward to providing you with seasoned guidance as we move through the year.
If you're interested in connecting, either for a specific need, or just to see what ATLAS is about, feel free to contact me, and we can arrange a call. The best way to reach me is through my email gmulac@atlasguidance.com or through the website www.atlasguidance.com
In addition to the newsletter, ATLAS consultants llc can be found on LinkedIn. Please visit the website and subscribe to the Think... quarterly newsletter.
This is the third quarterly ATLAS newsletter, built upon the Think... page of the ATLAS website. The use of the word think for the page title was very deliberate. In my experience, spending time on critical thinking is always challenged by a myriad of competing demands. Without time to really think, and truly understand an issue, we tend to go directly to default positions. While these default reactions are typically based on experience, or an experience, they may not be "wrong", but potentially could cause us to miss out on opportunities to realize greater benefits. I touched on this in a brief blog that was posted in February of 2023 ("Seasoned, Learning from Lessons Lived"). So, the idea with the newsletter, is to look at a topic from different perspectives, provide some observations, recommendations, and opinions, and hopefully get us to Think. The topic of the Q2-2024 newsletter is The Estimate
The Estimate
Having spent a lot of my career knee deep in the Design & Preconstruction process, as the Builder, I thought a great topic for this newsletter would be "The Estimate." But if you're looking for a tutorial on how to estimate, a walk-about in the world of quantification, or technical trip into take-off, I recommend that you look elsewhere, as there are a myriad of great reference materials that are available to you.
From a design + construction industry perspective, an estimate is generally understood to be the anticipated cost to build a building. As we all know, estimates (conceptual estimates, milestone estimates etc. )at various levels of design development carry different levels of accuracy. I found the Cambridge dictionary definition of an estimate interesting, "a guess of what size, value, amount, cost, etc. of something might be." I'll skip the "guess" jokes for now and look at "etc." from that definition. If we take apart a project budget into hard and soft costs, and look at the schedule, the whole "project plan" is, in effect, an estimate until costs are realized. So, the topic of this newsletter, The Estimate, is not solely limited to the construction cost estimate component of a project plan. What this newsletter will do is shine some light on some common pitfalls in the development of a project and provide a bit of seasoned guidance for your consideration as you start or move through your building project.
If you've spent any real time in the development of projects, as an Owner, Architect or Builder, you inevitably have a lot of what I call "default" opinions. As I stated above..."While these default reactions, or opinions, are typically based on experience, or an experience, they may not be "wrong", but potentially could cause us to miss out on opportunities to realize greater benefits." Far worse than not realizing a great benefit, is not realizing that a fatal flaw has been built into your project planning. My thoughts and recommendations are based on my actual experience(s) over my career.
Project Goals:
"On-Time, Under-Budget, Highest Quality, Safest Execution." No one would object to this statement as a project goal. What Owner, Architect and Builder doesn't want that? Simply declaring it, however, doesn't make it so.
Recommendation: Answer the "how" question. I'm not talking about a software program. It's about behavior, and project culture. Spend some real effort on how the project team will communicate, interact and achieve the goals. It's my opinion that the Owner sets the tone for the behavior that supports the project goals. It's about transparency, communication and true collaboration with team members. If it isn't, then all the project goals in the world, and a couple of bucks, will get you on the Blue Line.
Developing the Project Budget, Scope & Schedule:
It sounds simple, but it's been my experience that this is the earliest opportunity to create a fatal flaw(s) in the project.
Recommendation: Do the work. The Total Construction Cost Estimate, and the balance of Owner scope that creates the Total Project Budget, warrants some real work. From the Total Project Budget perspective, refrain from shortcutting investigation into potential costs; identify the basis of your assumptions; develop a risk register. It's not dissimilar to what the Builder does in the preparation of estimates, only in this case it’s for the Total Project Budget. Clearly develop and define Owner soft costs and coordinate with the Construction Cost Estimate scope. Develop a master schedule that includes review periods for both design and cost; permitting; procurement; construction; building move-in & turnover. Think of it in Chess terms, the Opening (Design & Preconstruction), the Middlegame (Construction), and the Endgame (Occupancy & Operation). Seek formal design, schedule and cost input from potential teammates, and building operators, avoid speculation, but if you do identify the basis of the assumption in your risk register.
Using Estimates:
The accuracy of a Total Construction Cost Estimate is commensurate with the development of the design. The Builder's charge is to "fill in the blanks" to provide a complete number and recommend contingencies. The Owner then uses these estimates as part of the Total Project Budget.
Recommendation: Understand the Estimate. Human nature draws the eyes to the lower right-hand corner of an estimate summary. "Fantastic, we're under budget!" Or are we? We can all see what's been delineated to date. Are we all in agreement with the way the Builder filled in the blanks? "Of course we are, we all collaborated." One quite common occurrence in the early stages of design, around the schematic design and early design development, is the level of engagement of the various design sub-consultants and the Owner's operations and maintenance staff. It's common for design sub-consultants to lag the architectural and structural disciplines, and it's also common that assumptions made (without the benefit of the sub-consultants input) for the completion of these systems prove to be unworkable.
Oftentimes these design consultants (along with the A/E) develop narratives to accompany early-stage design to assist in the estimation of the project. This is a recommended practice if the narratives are tailored to the project and it's goals. Owners should seek that early engagement of the design sub-consultant as a way to mitigate the risk associated with the traditional lagging input.
The input from O & M personnel seems to never really occur until late design development, or into construction documentation. It makes sense on one level, there is more drawn, and consequently more to comment on. On the other hand, it makes more sense to introduce that institutional knowledge, or look at the project from a total cost of ownership perspective. Some Owners have building standards that be applied but would benefit from direct input. The other benefit from an earlier engagement would be the development of the Endgame for the client, effectively validating post-substantial completion activities.
Developing Contingencies:
The level of any contingency (design, construction, escalation, schedule, Owner's) becomes more defined as the design advances. Here's is where our "default opinions" come into play. But first, back to the Cambridge Dictionary which defines contingency as "something that might possibly happen in the future, usually causing problems or making further plans and arrangements necessary." It's perhaps obvious, but contingency addresses risk.
Recommendation: A couple of views: The project team's experience of similar project types, locations and schedule is extremely valuable here. This experience is what an Owner seeks, and it provides a great starting point. An additional way to look at contingencies is to address the construction cost estimate by system (foundation, frame, envelope etc.) to determine the level of contingency for each system. It puts a focus on the confidence level of what is being designed. Similarly, the project schedule can be evaluated by components (design, procurement, construction, occupancy), and can put focus on critical schedule dates, beyond start and finish.
Your Project Team:
The Owner's selection of the A/E and the Builder are generally based on a Request for Qualifications / Proposal (RFQ/P) format. The Owner evaluates and then selects the team. Presumably, the selection process is not just based on the lowest fee & general conditions.
Recommendation: Benefit from the Team you assembled. As an Owner, you've selected your project team based on their ability to support your project goals. Benefit from that experience. This goes back to the earlier comment on Project Culture. Is the culture one of transparency, communication and respect? Or is it one of obfuscation and disrespect? Strong words, I know. The responsibility that each team member must whom they represent does not negate the ability to behave in a manner that supports the project goals.
If you have a project that would benefit from a Project Health Assessment, or the development of a Risk Matrix, please don't hesitate to contact me for an initial discussion. From there we can collaborate on potential next steps.
Perspectives:
One of my older posts was on feedback and perspectives. While that post was not topic-specific, it underscored the value in soliciting, and then actually listening to, the viewpoints of others. For this newsletter I asked Allen Brooks, and Brintel Johnson for a few thoughts on Estimates. I've worked with Allen and Brintel for quite a long time, and their abilities as Preconstruction Leaders are best of class, and have benefited numerous significant projects in the Midwest.
Allen C. Brooks, Preconstruction Executive
Estimating
During the preconstruction phase, a primary responsibility of the contractor is to provide estimating deliverables which provide critical information to the Owner regarding the status of the project while under development. Deliverables must be accurate and dependable to ensure that the project team can make informed decisions relative to the desired program, design, and budget. This is achieved through experienced estimating professionals with detailed knowledge of construction materials, specifications, constructability, codes, current market pricing and forecasts of future cost trends. A collaborative “real-time” approach to developing the estimate is extremely important. Input from the Owner, Users, Design Team, coupled with the development and coordination of the Construction Operations Plan / Logistics and Schedule are key components of this approach.
The Total Construction Cost estimate includes direct costs consisting of materials and installation incorporated into the construction and associated indirect costs such as construction supervision staffing, safety, hoisting, and insurance required to perform the permanent work in place. The Total Project Cost, commonly referred to as the Owner Estimate, includes additional project costs and may include design and consultant fees, independent testing, Owner fixtures, furniture, equipment (FF&E), Owner direct vendor provided scope, and other aspects beyond the physical permanent building cost. While the afore mentioned seems obvious, a comprehensive responsibility matrix is essential to understand where indirect and other costs are to be included in the estimate or reside in a separate budget.
Brintel C. Johnson, Preconstruction Executive
Estimating & Accuracy
The level of accuracy during the different design / estimate milestones (Conceptual, Schematic Design, Design Development, Construction Documents) is always a question. The degree of accuracy of an estimate can depend on numerous factors, such as the experience of the estimator, the availability of cost information, and the tools and methods used. But one of the major factors is the direct correlation to the completeness of the documents at the different design document milestones. To understand this let’s look at what information is typically included in the different document milestones.
During the conceptual phase, basic architectural floor plans and elevations are provided. This can be accompanied by a design narrative that explains the major systems (Substructure, Shell, Interior, MEP Services, Equipment, Special Construction, Demolition, and Sitework) of the project.
During the Schematic Design Phase, the documents are starting to become more developed. The design narrative is typically still included during this phase (You may or may not get a first draft of a compiled specification book).
Design Development, this is where the level of detail starts to increase, as the selected design is in "development." At this phase the drawings are more detailed, and the specifications are starting to become refined. Comprehensive floor plans, sections, and elevations are included. Material selections and finishes are specified. And, structural systems, mechanical, and electrical layouts are developed.
At the Construction Documents phase all systems for the project are fully developed and detailed in the documentation. The project specification book is also fully developed with written descriptions of materials, finishes, and construction methods. Also included are details about quality standards, installation procedures, and performance requirements.
As you can see, the level of detail in the documentation increases as the project moves from conceptual to construction documents during the design process. This is the same trend for the level of accuracy for milestone estimates. As you move from conceptual estimates to construction document estimates the level of accuracy increases. This is because more detailed information is being provided in the design documents. It’s really “common sense” when you think about it. More concise detailed information means less room for different interpretations of the information, which in effect increases accuracy.
Now you may ask, how do we distill this information into a concise explanation of the level of accuracy for the four major estimate milestones (Conceptual, Schematic Design, Design Development, Construction Documents). In the Preconstruction Industry we typically simplify it by using a confidence level relative scale. Below are some rules of thumb for each estimate milestone stone use a confidence level relative scale for each.
Conceptual Estimate: -20% to +30%
Schematic Design (SD): -10% to +20%
Design Development (DD): -10% to +15%
Construction Documents (CD): -5% to +10%
It's important to note that these accuracy ranges are general guidelines, and actual accuracy may vary depending on factors such as the complexity of the project, the experience of the design team and estimators, market conditions, and unforeseen changes during construction. Regular updates to cost estimates throughout the project lifecycle help manage expectations and ensure that estimates are aligned with project realities.
Cost Pareto.
Once a milestone estimate is developed and completed, the project team should develop a strategy to optimize the project’s cost. Where do you start? Which project systems should you focus your attention on? This is where you can utilize the “Cost Pareto”. The term “Pareto” is associated with the Pareto Principle or the 80/20 rule. The Pareto Principle states that roughly 80% of the effects come from 20% of the causes. This principle has been applied in various fields, including economics, business management, quality control, and time management. The Pareto Principle is named after Vilfredo Pareto, an Italian economist who observed this pattern in wealth distribution in his country in the early 20th century.
In construction cost estimating, the Pareto Principle can be applied to cost optimization by prioritizing efforts and resources effectively. For example, in Value Engineering. Value engineering is a systematic approach to optimize project costs without sacrificing quality or performance. By applying the Pareto Principle, project teams can identify the features, materials, or processes that contribute the most to project costs. They can then explore alternative solutions or design changes to reduce costs while maintaining project objectives.
Applying the Pareto Principle to construction cost estimating helps streamline the estimation process, improve accuracy, and allocate resources more effectively, ultimately leading to better project outcomes.
To the right is an example of a construction cost estimate Pareto. The figure highlights that 80% of the project cost is associated with the systems highlighted in blue. These systems are the major cost drivers for the project. You should concentrate your value management efforts on these systems to yield the greatest potential impact to cost.
Thank You!
Many thanks to Allen Brooks and Brintel Johnson for providing their unique perspectives on the Estimate in this edition of Think...
Allen C. Brooks, Preconstruction Executive
Gilbane
Allen Brooks is a Preconstruction Executive for Gilbane Construction Company in Chicago where he has responsibility for managing the estimating for large projects in the Midwest.
Prior to joining Gilbane, Allen started his career as an engineer working for a large national construction firm. During his 17 years of service with this company, he worked his way up to the chief estimating engineer role where he was responsible for managing the firm's Chicago-based estimating department.
Under Allen's leadership, estimating and preconstruction teams have successfully completed numerous significant projects throughout his 36-year career. Representative projects include over $12 billion in healthcare construction volume and include the Elmhurst Memorial Healthcare replacement hospital, Elmhurst Memorial Imaging Addition, University of Iowa Children’s Tower, University of Chicago Center for Care and Discovery, Indiana University Health 2.5 million sf downtown hospital, Mayo Clinic Proton Therapy, ProHealth Care Cancer Center, Northwestern Memorial Hospital department and program renovations, master plan program development evaluations, and projects currently in preliminary programming phases.
Major sports and public venues include the redevelopment of Lambeau Field, Northern Illinois Convocation Center, and support roles for the Comiskey Park Renovations and Soldier Field Reconstruction. Criminal Justice experience includes repeat projects for Waukesha County Court House Renovation and Additions, and the new Will County Justice Center. Other areas of expertise include high-rise commercial office, high-rise residential, Fortune 500 corporate headquarters, life sciences (R&D, BSL-3, and BSL-4) facilities and many higher education projects.
Allen earned a civil engineering degree with a concentration in structural engineering from the University of Illinois Urbana Champaign, and started his construction career in 1988.
Brintel C. Johnson, Senior Preconstruction Manager
Turner
Brintel Johnson is the Senior Preconstruction Manager for Turner Construction Company in Chicago where he leads a team of preconstruction professionals and has responsibility for managing Turner - Chicago's Preconstruction Services portfolio of projects totaling $1.5 Billion annually.
The first 8 years of his career was spent in Field Operations where he held positions as a Project Engineer, Project Manager, Assistant Superintendent, and Superintendent, along with progressive roles in estimating. For the past 13 years, Brintel has been a Preconstruction Professional, specializing in preconstruction analysis and planning, value management, project estimating, and bespoke preconstruction studies.
Brintel has worked on projects of many sizes, scopes, & complexities and has managed the Preconstruction Services for several iconic Projects including the Obama Presidential Center located in Jackson Park on the Southside of Chicago.
Brintel is passionate about the construction industry and its impact on society. He believes that Preconstruction is a critical stage of the Construction process. He is dedicated to ensuring that every Project is well planned and executed.
Brintel earned a civil engineering degree with honors from the University of Illinois Urbana Champaign and started his construction career with Turner in 2003.
The Newsletter Think... has touched on the topics below. Take the opportunity to see earlier newsletters and posts by visiting www.atlasguidance.com
Q4-2023: Delegated Design
Q1-2024: Quality
Q2-2024: The Estimate
Coming next time....."The Schedule"
The Q3-2024 topic will take a look at the schedule from the perspective of project master-planning, design and procurement.
Current work
Building on a busy Q4-'23 and Q1-'24, it's already been a busy 2024 for ATLAS. Here's a brief update:
With stone fabrication in full swing, ATLAS continues to support Quarra Stone Company in the management of a significant Fine Art installation. ATLAS worked with the Quarra team to develop the contract framework, commercial terms and procurement of services. The project's Non-Disclosure Agreement does not allow me to share any details at this time.
ATLAS' current work includes advisory engagements in risk mitigation, functional effectiveness, value management and procurement.
ATLAS' current client make-up includes Builders, Fabricators, Specialty Contractors, and Owners, all active in the Design + Construction Industry.
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