the newsletter of tbd consultants - 1st qtr 2013

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In this Edition

What is a PMO?
Budget Management
Project Managing the Economy

Construction Management Specialists

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What is a PMO?

Project management is important, but what is a PMO? What does it do, why might you want one, and what can you expect from one? We examine these questions and more here.


Budget Management


The budget is one of the three main items pulling on your project (the other two being schedule and quality), so budget management is essential.

The initial step in budget management is establishing a realistic budget in the first place. This might be fixed by specific funds having been allocated for the project, and the goal then is to see what can be achieved for the previously established funds. Alternatively, the scope requirements may have been established, and a realistic budget will then need to be arrived at, based on those requirements. For a commercial development, there is also the need to ensure that the development will be profitable for the enterprise. Sometimes the scope requirements and specific funds have been allocated, and the goal is then to establish ways to make the two work together, or adjust one or both to attain a satisfactory balance.

The project budget would include such items as:
Construction costs
Planning costs and fees
Design fees
Construction management fees
Allowance/contingencies for change orders
Regulatory authorities’ fees and charges
Utility company connection fees and charges
Loose furniture (FF&E)
Special equipment and instrumentation
Land costs
Legal and administrative charges
Relocation costs
Other owner costs and expenses

Sometimes the above list is summarized as Hard Construction Costs (the first item on the above list) and Soft Costs (the other items on the list).

Once the design phase has begun, the design needs to be assessed at points throughout this phase to ensure that it is keeping on target, and that ‘scope creep’, market conditions, or other factors are not moving the design off its budgetary target. Estimating the project when large parts of the work is yet to be designed means that you need good records from previous projects so that appropriate allowances can be made. Maintaining a database of project information to call on is very useful.

Apart from providing regular estimates based on the design as it progresses, Value Engineering provides an excellent means of ensuring that the building owner’s goals are being maximized within the constraints of the budget. Related to value engineering is life-cycle costing, where the initial and ongoing costs are combined to compare different options and establish what option is most cost effective over the life of the building.

Value Engineering is frequently thought of as a cost-cutting exercise, but it shouldn’t be. Cost cutting may add value to the project for the owner, but sometimes adding cost may benefit him/her more, if other benefits accrue.

Value Engineering can be conducted in an informal setting, or in workshops taking up part of a day or spanning a number of days, where the proposed design is looked at, alternative ideas are collected and then evaluated as to how they meet the owner’s needs in order to enhance the value of the design. This process normally starts with a presentation of the existing design and is followed by a brain-storming session where all ideas are collected, whether they are considered practical or not (because even an impractical idea might lead on to a highly worthwhile one). Finally the ideas get rated, and decisions are made on which ideas to implement in the next design phase.

Since design changes are easier and cheaper to implement at early design stages, this is when value engineering sessions are usually employed.

Once the design is complete and successful bids have been achieved budget management then needs to keep track of actual costs, forecast expenditures, change orders, claims, and other project related costs.

Sometimes costs need to be analyzed for allocation to different people. On one infrastructure project we have been associated with recently the costs for the joint trench had to be subdivided for allocation to the various utility companies running services through it. Another government project had to have the construction costs allocated to each of the agencies using the building.

Value Management would normally incorporate value engineering sessions, but takes the process further, involving continuous interaction with the design team and the building owner, to ensure that the latter’s needs are being maximized.

Value Management involves looking at the building owner’s needs and expectations for the proposed buildings, and seeing how those can be fully met or even enhanced in the project. In other words, it is aimed at maximizing the value of the project for the owner.

Claims settlement in construction projects involves a methodical investigation of the claim and its history to assess its validity or otherwise. The first issue to address in claims settlement is the contractual position of the parties to see if the matter that is the subject of the claim is already a responsibility of the claimant or not, and whether the other party would be responsible for recompense anyway.

With the contractual situation clear, the details of the claim itself can be evaluated if necessary.

Construction claims normally involve assessment of additional work and/or schedule delays with their associated costs, and these issues often need to be addressed as one of the initial steps in claims settlement.

Measuring the quantity of any additional or deleted work is the easy part when the claim is related to changes in scope. Assessing the appropriate values to assign to this work can be more involved, necessitating research into how and when the work was carried out. Was it carried out in sequence with similar work, did it involve remobilizing for the subcontractor involved, did the subcontractor have to work around other contractors, require overtime or double-time, or require a shutdown?

Assessing schedule effects involves checking whether the work is on the critical path or not. The fact that a contractor has additional work to do does not automatically mean that a schedule delay is involved - it may simply mean that the contractor can utilize her available staff more effectively.

Avoiding claims in the first place is far better than dealing with them, and this can be achieved by carrying out a constructability analysis of the contract documents to ensure their completeness, and by carrying out a risk analysis of the project to find where problems are most likely to arise and plan for mitigating them.


Project Managing the Economy
Geoff Canham, Editor

Dare to do some risk management on the economy? In this short article our editor looks at some of the potential risks and rewards that might affect the economy during the new year and beyond.



Design consultant: Katie Levine of Vallance, Inc.