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The evolution of construction cost estimating and project management technology
The evolution of construction cost estimating and project management technology By Peter Cholakis
Introduction Accurate, timely and transparent cost estimating is critical to the success of any renovation, repair, sustainability or new construction project. An equally important consideration is the construction delivery method.
Most construction cost estimators continue to rely primarily upon hardcopy documents and electronic spreadsheets such as Microsoft ExcelTM. Relative to construction delivery methods, most Owners, Contractora and AE’s engage in a version of the outdated and adversarial design-bid-build process. (DBB).
Growing numbers of cost estimators, however, have the need to work with multiple projects and multiple estimates simultaneously, securely share information on active projects and better leverage localized cost information reuse historical data. At the same time, Owners, Contractors and AEs are recognizing the need to work collaboratively as early in the construction process as possible.
As a result many are moving to advanced cost estimating and management systems and various forms of integrated project delivery (IPD) methods. Furthermore, these ‘innovators’ are discovering that significantly higher productivity (50%+) and cost savings (5%-20%+) may be attainable. The collaborative aspects of these advanced cost estimating and project management software systems are also better aligned with the process of life-cycle management supported by digtial technology, otherwise known as Building Information Modelling (BIM).
Spreadsheets
Construction estimating involves the estimating of material, labor, equipment, overhead and contingencies. Spreadsheets, most commonly Mircrosoft Excel, are used by more estimators for this purpose than any other tool. Spreadsheets have significantly improved cost-estimation capabilities and accuracy since the 1980s. Relatively easy to master, spreadsheets provide a means to create and report a construction cost estimate. Cost construction models can also be built within speadsheets. Productivity improvements result from the ability of Excel to easily handle a lot of the more mundane calculations required.
One problem with spreadsheets, however, is their inherent vulnerability to errors due to data entry, a problem that only increases along with the complexity of an estimate. Also, as the formulae within the spreadsheets become more numerous and complex, errors became exponentially more frequent and costly. Spreadsheets also do not easily account for the use of dynamic vs. static cost information or suport the use of historical information. Both have proven to be important variables for many construction projects. Lastly, since spreadsheets are bascially single user applications, collaboration and reporting relative to roll-ups for example, are both problematic. Audit trails on a ‘cell’ level are also not possible, thus transparency and accuracy are negatively impacted. Multiple people working on the same spreadsheet, or multiple spreadsheets, while on the same project is inefficient and risk prone. Thus estimates and associate information and reports created using spreadsheets tend to be created and stored in different locations, making information difficult to accurately retrieve. As a result, changes extremely costly to execute, while old data errors are perpetuated, copied over and over again.
As it became apparent that more localized and historical data would be critical to improving the accuracy of construction cost estimates and cost models, organizations instituted a formal process for collecting and storing this information. Individual Owners, Contractors and AEs began to collect this information internally in databases. Third party cost organizations, such as RSMeans Company LLC, North America’s leading source for commercial construction cost data, also began to collect, store and provide cost data in electronic format, including materials, equipment, labor line items, productivity factors, as well as assembly and square foot cost information and localized cost indices such as the City Cost Index (CCI).
Based upon the size and type of construction project, estimators soon found that they could improve their productivity and accuracy even further by sharing cost data and leveraging standardized reference cost information for specfic items/areas. Standardized cost data architectures also became important, such as the Construction Specifications Institute’s (CSI) Masterformat, Uniformat and even newer OMNICLASS.
Collaborative, Integrated Project Delivery methods and Job Order Contracting As noted spreadsheets have proven value for single, ‘static,’ estimates of a certain project size, as well as a media to gather and transfer data sets. Similarly, the integration of electronic cost books with spreadsheets are equally valuable for individuals performing a small number of relatively straight forward construction, repair, or renovation estimates and projects, say three to five per year.
However, with greater productivity required, the need for collaboration, transparency and better information use and reuse became apparent. Thus, two signifincant developments came to be, (1) newer, collaborative construction delivery methods such as Integrated Project Delivery (IPD) and Job Order Contracting (JOC), and (2) construction cost estimating and project delivery software technology.
Job Order Contracting is a form of Integrated Project Delivery developed over 20 years ago and has a long, successful track record within certain institutional sectors in the United States, and is now moving into Canada. Collaborative cost estimating and project management solutions have been develop to support these and other constuction delivery methods. The result is a system of business processes and supporting technology to enables Owners, Contactors and AEs to modify
and constantly improve upon construction project delivery process to meet their individual and changing requirements, while all communicating with the same vocabulary, and sets of information.
For focus, let us talk a little more about Job Order Contracting as a process and how it is supported in cost estimating and project management software technology. JOC provides a much needed solution for most public institutions attempting to deal with large building portfolios, including but not limited to, DOD and non-DOD Federal Government, State and Local Governments, K-12 and Higher Education, Healthcare and other public services.
Job Order Contracting is a competitively negotiated, fixed unit price, indefinite quantity contract construction project procurement method. Public agencies negotiate and enter into a competitively bid contract with a JOC contractor for an amount it could potentially spend over a certain time period.
Procurement processes are established when putting a JOC program in place.
Complete design and specifications may not be required; thus negotiations may be necessary to define processes required to accomplish a specific construction task.
A cost guide - a construction cost database of detailed priced tasks - includes a variety of facilities and physical infrastructure including construction, maintenance, repair and renovation work items. The priced tasks form the basis for defining and negotiating task orders and projects.
The duration and value of JOC’s vary from three to five years, with annual volumes from $1M to $100M.
The following figure illustrated a typical JOC process:
A properly designed and implemented Job Order Contractng can save time and money, as well as improve overall quality by encouraging collaborative communication, expediting procurement processes, and enabling higher visibility into costs. A professionally developed and managed JOC program saves from 8% to 15% or more in time, design and procurement costs. The JOC process also allows public entities to begin construction projects in weeks rather than months. Project work orders can be assigned without bidding each project out. A higher percentage of construction funds are used for work projects vs. procurement costs. JOC requires less time to start a project than conventional methods.
Other JOC benefits can include: 1] Expedited facility management - the repair, renovation, maintenance, and renewal components of managing a facility portfolio represent a wide range and high frequency of construction projects. JOC expedites the facility management process by minimizing associated procurement costs and costly construction delays. 2] Green and sustainability projects - the need to address improved sustainability and high performance for Existing
Buildings (EB) is well known. JOC can be readily applied to expedite the deployment of HVAC, exterior shell, lighting, building automation and similar construction projects needed to achieve high performance building targets or mandates per LEED EB and similar guidelines. 3] Support for Local Economies - JOC readily enables local minority and small subcontractors to perform construction work. 4] Performance Basis - on time and on budget performance can be more readily monitored and becomes the norm as contractors are motivated to meet and exceed owner expectations in order to receive additional task/delivery orders. 5] Higher Return on Investment (ROI) - collaborative, predefined JOC processes and defined accountability better integrate all project participants and mitigate change orders and legal claims. A JOC contractor may assume full responsibility for errors, omissions, execution of the design, or the contractual relationship may be with an Architectural/Engineering firm.
Projects also can be started more quickly which can lead to dramatic cost savings. Lower administration and procurement costs enable owners to focus scarce resources on projects.
Design costs are also mitigated as the technical specifications are defined and included as part of the basic JOC contract, and a significant percentage of JOC projects can be scoped without full design documents. Economies of scale can also be achieved as grouping of multiple small or similar projects can spread out indirect costs, general conditions and overhead costs.
Cost estimating and project management software
The evolution of technology that integrated business processes, specfically efficient project devlivery methods , was the next logical step. Thus cost estimating and project management software has evolved to support and manage multiple construction delivery methods, and there associated multiple
Traditional Construction Procurement Process: 9 to 15 Months
JOC Construction Procurement Process: 3 to 5 Months
projects and associated estimates. These newer systems, available over the past ten years, integrated contract, project, estimate and document management. Tools include visual cost estimating, advanced search engines, and both custom and electronic standardized cost data.
These integreated software systems assure contract compliance by not simply having a cell in a spreadsheet with calculated totals, hidden formulas and lack of traceability. They also help to organize and standardize office, electronic files, emails, project documents and attachments. Sharing, updating, and reusing estimates and project information is enabled with internal and external partners.
Summary
Over the past forty plus years, there have been many initiatives to improve cost estimating to facilitate the delivery of construction projects on time and on budget. Owners, contractors and AEs now have multiple methods to select from based upon their needs. Spreadsheets were a major improvement in the 1980s, followed by formal processes for collecting and harnessing historical information to more accurately project and control costs. Over the past decade, a powerful new capability has been added, collaborative cost estimating and project management software.
The evolution of transparent and collaborative cost estimating and project management software mitigates the unproductive aspects of creating estimates one at a time from scratch, and working ‘in a vacuum.’ Additional benefits include the reduction of data input and formulae errors, as well as costly ‘errors of omission,’ common with ‘ad hoc’ spreadsheet-centric approaches. The application of cloud computing to cost estimating and project delivery and management software and the subsequent integration with Building Information Modelling will further enhance the ability to produce accurate cost estimates and control costs throughout a buildings life-cycle.
The author is the Chief Marketing Officer for 4Clicks Solutions (www.4clicks.com), a leading provider of cost estimating and project management software and solutions to the DOD Sector, and RSMeans Strategic Business Partner. Mr. Cholakis helped to define and established the concept of CPMS (Capital Planning and Management Solutions), and has domain knowledge and expertise in facilities lifecycle costs and total cost of ownership. You can contact him at pcholakis@4Clicks.com.
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