How the Private Sector Can Avoid Surprise Capital Project Costs
by Evan Hill | June 8, 2021
What’s this project going to cost—and how do I know the estimate is accurate?
With the cost of raw materials and labor skyrocketing, this question is more challenging than ever for capital project owners to answer.
Accurate cost predictions require constant re-evaluation as plans change and material costs fluctuate. Technology tools can help capital program managers keep up with the juggling act, providing visibility to actual and potential cost impacts that affect forecasts and project performance.
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Anticipating Costs: A Moving Target
Accurate predictions start with building an anticipated cost philosophy, says Chris Shaida, Enterprise Managing Consultant and CEO at RealFoundations. “It’s about having a plan for when things take an unexpected turn. Recognize that while the budget predictions you make before the project starts are essential, you’ll need to keep calculating and estimating as it moves forward.”
Once construction begins, capital program managers must think about the present situation, including the current prices of materials. “Ask yourself, based on everything we know right now, what will it cost to complete the work?” says Shaida. “That answer might change a little every day. It’s a moving target.”
To make the most accurate predictions, capital programs need to question those closest to the project for their input. “The people who know what it’s really going to cost to get something done are the people in the field managing the work,” Shaida says. While many owners and managers realize this, they might not have a good way to collect the data they need. “You need to provide a place for them to answer those questions. This is where a lot of systems fail because it’s too complicated to enter and approve data. The consequence of that is a loss of valuable on-the-ground information and intelligence.”
“Ask yourself, based on everything we know right now, what will it cost to complete the work? That answer might change a little every day. It’s a moving target.”
- Chris Shaida: Enterprise Managing Consultant and CEO, RealFoundations
Technology Can Help
While creating a budget before construction begins, it’s essential to recognize that every building project is slightly different. “None are exactly the same because everyday changes affect the cost,” says Hrishi Manavi, associate director of capital programs at Gilead Sciences. Manavi’s team focuses on in-depth forecasting while tying each project to the organization’s strategic priorities. “When we go through our capital planning cycles, we really focus on accurate forecasting of our capital year over year, because that also affects our OPEX budgets.”
Until recently, Gilead Science’s capital projects team completed all their project reviews, approvals, justifications, and business cases manually. “We didn’t have any automated processes that could provide a single source of truth,” Manavi says. “Everybody had their own versions of budget data and cost reports that we’d have to track. Having multiple versions created a lot of inaccuracies.”
Manavi and his team looked for a solution to provide a central hub for documents and project data. They chose e-Builder. “Finding a system that is easy to use was important to us,” Manavi says. “We wanted something accessible not just for system owners, but also the peers, project managers, engineers, and everyone else on the field. Reporting is important, but having a repository to manage data and share information between all stakeholders is essential.”
“Project costs are like beach sand—the more you try to hold onto it, the more it slips through your fingers.
- Hrishi Manavi: Associate Director, Gilead Sciences
One of e-Builder’s best features, Manavi says, is the ability to generate workflows. “We don’t have to go back to each builder to say, ‘Hey, can you guys create these workflows for us?’” Manavi says. “We can go in and create what we need, giving us the flexibility to adjust and gain efficiency.”
Shortly after implementation, Gilead Sciences is already seeing noticeable benefits -- such as the ability to run cost reports and make nuanced changes to budgets. “Project costs are like beach sand—the more you try to hold onto it, the more it slips through your fingers. You have to really understand what you can control, and how best to control it. For example, I’ve learned that instead of reducing a project’s overall budget, it’s better to add value within the same budget and come out with a better product than what was planned.”
If you enjoyed this blog, check out: "Assessing Your Capital Construction Management"
Key Topics Covered: Capital Program, Cost Management