Risk. It’s a dreaded word for Owners, and on a construction project, it’s defined by time and money.
Most people working with the construction industry for the first time don’t understand when a project is most at risk for cost increases and time delays. Over the next few weeks, we’ll be assessing the three phases of risk during a construction project lifecycle: Getting out of the Ground, Enclosure, and Completion.
Before we dive in, we asked our Senior Project Manager, Ralph Agostinelli, P.E., to give some thoughts on variations in pricing for the same item, or same facility, from various companies. Over his years in the industry, he’s often asked what the main causes of risk are in a project – and has a few clarifying truths that he feels can help owners make the right decisions for their respective projects.
Ralph: When I first was introduced to construction cost estimating 30 years ago, my mentor gave me some books to read, including one with the intimidating title, General Construction Estimating Standards. Thankfully, it wasn’t dry as the title would suggest – and one part has stayed with me all these years later.
“Estimating is not an absolute science. In fact, Cost Estimating can be compared to weather forecasting, or betting on how quickly a 100 meter foot race will be run.
Using the 100M foot race example, it may be estimated that the race should be run in about 10 seconds. However, before wagering the bettor should know that the race is between trained athletes in good physical condition; the weather is clear; the track is not muddy; no wind is blowing; no obstacles exist; the race is run in a straight line; the athletes have not been instructed to run slowly or take it easy; and each runner wants to win the race.
Predicting the precise quantities and costs of materials installed by workers is a complex task. Installed material quantities can vary from the estimated quantities due to design conflicts, rework and waste. Estimated Material Standard Unit Cost may change because of commodity price fluctuations, supply and demand, and inflation.
Actual Man-hours vary from estimated Man-hours because workers must perform work in which they have limited or no experience, they come in variable physical and mental conditions, and the weather isn’t always clear. Job sites are often cluttered with obstacles, work is seldom in a straight line and workers may work slowly or take it easy.
Moreover, no two projects are exactly the same.”
This always reinforced how risky Cost Estimating is – and to never forget that an estimate is just that, an estimate. As an owner, the key it to trust the design builder or general contractor you work with, and to make sure they have the right relevant experience and track record. At Stanmar, Inc. we assume all the risk described above via guaranteeing a fixed price before going into construction – a method that gives owner’s peace of mind that many of the above factors won’t result in change orders or cost overruns.
Stay tuned as we begin a short series on the Risk Lifecycle of a Construction Project, beginning with Phase 1: Getting out of the Ground.