A simple concept that gives a great deal of control over the complex problem of controlling costs on large construction projects
How is it possible to control the cost of something that is not even designed never mind constructed? Far too often the ‘bean counters’ are brought in well after the proverbial horse has bolted. However just as often the construction team are loath to have the ‘bean counters’ involved up front (they do not see the ‘value add’) other than to help them get the Budget approved. Also it must be said that a lot of Finance personnel are reluctant to get involved out of ignorance and sometimes out of fear to share the blame latter on.
Traditional Accountants / CPAs are the ‘undertakers of the commercial world in that they can efficiently tell you what was the cause of death. Estimators need something to estimate from i.e. drawings. Project Controllers are asked to sign up for the future. The seeds of good Project Control are sown well in advance on a project. The Bid Package Cost Code matrix is one of these seeds.
- The majority of corporations / organisations drawn down funds against some form of Work Breakdown Structure. The complexity of which varies from organisation to organisation. This document is a ‘given’, it exists, it was created for another purpose i.e. to draw down funds.
- The construction team creates a Design Package, Bid Package, Buy Out Plan. This is also a ‘given’. It is called many names and it evolves during the project but somewhere if you search hard enough and pry it out of somebody’s hand there will be a plan of how they intend to construct the project.
If you have the above two items you then you have the elements of the Matrix. All that remains to do is the following:
The above is a simple example of a budget of 165 being spread over 6 packages of a project. This is so intuitive that I am sure a lot of people, especially construction professionals seeing this, are saying this is just common sense. Well! I ask them to reflect on their past projects and honestly state if anybody on the team utilised such a matrix. I have worked on projects where the costs codes have run to 400 unique cost codes and there were in excess of 150 Design Packages.
Again, I cannot emphasis enough that some Finance person has the Budget broken down into cost codes and some Construction person has the project broken down into something resembling packages.
The creation of the matrix is about 25% of the effort. The real control comes in keeping it up to date and relevant.
- The Indirects have been assigned their own Package number. Many teams do not do this. They argue that Indirects are not procured in the same manner as Directs and therefore should be accounted differently. It is essential that the Matrix balance and in order to do that Indirects must be included. For control to be effective it must all come together and balance to the ONE NUMBER- “Approved Funding”.
- Breaking down the individual Packages into their own Cost Codes will be the next challenge. This is where the greatest resistance is usually met. Whether the Package be at Design, Bid or Contract / Sub Contract Stage somebody needs to guesstimate / estimate what the spread will be over the relevant cost codes. DO NOT WAIT FOR THE BIDS to do this. Instead provide the breakdown to whoever is procuring the goods and services so they (a) have a detailed budget to work with instead of just a lump sum and (b) so that the bidders bid according to that breakdown which will become the Schedule of Values for payment purposes.
If the above is achieved you will have established 75% of the effectiveness of the Bid Package Cost Code Matrix. The remainder and the success lie in
- Keeping it all current. Packages get folded into one another, sometimes sub divided and worst, scope gets transferred from one package to another. Again the Construction Team will know that the Foundations and Structure Packages are all being bid as one General Contractor type contract. They will also know that the Boilers are being broken out of the Mechanical package and being bid separately. There is only one way for the Project Controller to know and that is to be intimately involved with the Construction team.
- Additive and deductive changes require the Matrix to be adjusted also. In this day and age of computer spreadsheet this is no longer the daunting task that it was of yesteryear. However it does require the discipline and the knowledge both technical and current of exactly where the project is at.
In my experience construction teams do not like the involvement of non engineering staff up front. They see them as somebody else who has to be educated or worse as police men.
- The project is below budget. In which case use the excess funds to add contingency to those future packages that have additional risk.
- The project is exceeding it’s budget. This is an early warning that the whole project is in jeopardy. Time for the construction team to redesign the future packages, cut scope or make contingency plans. Better to do this now than when 90% committed.
- Project is on Budget. In which do not lessen the monitoring or updating of the Matrix.
A lot of teams argue that they do not need the Matrix as their traditional forecasting by Cost Code is sufficient. Projects are committed by cost codes whole and in part grouped into packages. By concentrating solely on individual cost codes can give a false sense of security. Packages are much more meaningful to the Construction team than individual cost codes. Most modern cost tracking software (especially off the shelf GC packages) if properly used can automatically produce the Matrix. Usually all that is required is the creation of a ‘Dummy Package’ for the Indirects.
Like I have said before all this information is available on the project. However, to be effective as a controlling mechanism the disparate items of information (Finance / Construction) need to be brought together and the Matrix is a means to this end.