Truth be told, for all parties involved in a construction project, it’s the bottom line that's the top concern. Owners and developers, architects and engineers, general contractors and subs, and consultants—every member of the team is ultimately—if not overtly—focused on the project’s profitability.
While this is the case, conventional approaches to cost estimating that many owners and developers have come to rely on may not always yield the best or expected results that benefit all parties. Budget shortfalls can often happen when they rely on data that is outdated, or when obtaining costs from a single source without enlisting a second pair of eyes to provide independent assessments and monitoring of budgets.
An alternative—working with an independent cost manager—may be a new concept for some owners, but holds far greater promise of saving them [and their team members] money and time. By treating the client’s investment as if it were their own, and actively serving as the client’s advocate, an independent cost manager adds quantifiable value to their work. Engaging a cost manager in the earliest stages of a project has a relatively modest impact on the process and timeline and can help to avoid snowballing setbacks as the project progresses.
Here’s a checklist of some key go/no-go indicators that cost managers use to put a project on the road to profitability:
- Scheduling. Hindsight may be 20/20, but in construction, foresight offers greater value. Cost managers use both historical and predictive data to determine the best time to break ground on a project and calculate its duration. Drawing on their knowledge of manufacturing and global logistics, cost managers can chart a reliable course for timely sourcing and procurement, resulting in an optimal schedule that appropriately captures project delivery risks.
- Market conditions. To make the most of investment dollars and establish a favorable financing environment, cost managers factor in real estate trends and cost variances for different locations. As part of the due diligence process in the early stages of a project, a cost manager can also advise clients on the programming of a building. Replacement cost estimates can reveal a building’s true value in the market, maximizing its selling value. This allows owners to see if the numbers work, and to make a go/no-go decision on the path forward.
- Procurement. A conscientious cost manager can advise their client about the advantages and disadvantages of a variety of alternative construction delivery systems, such as design-bid-build, design-assist, and design-build, helping them select the method that best aligns with their budget and schedule goals.
- Pricing. Lately, material, labor, and equipment costs have been exceptionally volatile. Unlike contractors and sub-contractors who draw solely on their past experience from the builder’s perspective to guesstimate these prices, cost managers minimize unexpected and unwelcome budget disruptions by using highly targeted, real-time data to accurately project future pricing trends. This forms the basis for creating a provisional budget for the various project-building components [i.e., structural system, exterior wall, lighting, and HVAC systems], an essential tool for developing and analyzing the project construction budget.
Watching for Red Flags
If a cost manager isn’t on board for the initial stages of the project, there are still opportunities to enlist their aid; in fact, there are critical situations when reaching out to an independent cost manger can mean the difference between a successful, profitable project and a resource-sapping undertaking. These three red-flag scenarios include:
- “Free” estimates. Often offered as an incentive for prospective clients by contractors, free cost estimates are frequently based on non-competitive data from a single source that may not reflect current dollar values or cost influencers, and therefore may not equate to a comprehensive construction cost. Third-party cost managers work only with fresh data—in many cases, proprietary—that accounts for current market conditions, is tailored to the needs of specific projects, and provides realistic cost information throughout the course of a project.
- Doubts from the design team. If the design team says the budget is inadequate, there is an opportunity to mitigate that before resorting to value engineering. Working directly with the design team, a cost manager can guide them through the process of identifying and selecting alternative solutions that won’t derail the design—or the budget.
- Rapid cost escalation in design-build projects. The efficiencies of the design-build delivery method are predicated on an accelerated schedule and a reduction in change orders. If there is a delay in any phase of the process, costs can quickly soar. A cost manager can step in and make new budget projections that can help reduce loss.
Once a cost manager has created the optimal scenario for the project, it’s a “Go” to the design phase. Having prepared cost estimates based on the schematic design documents, design development documents, and construction documents, the cost manager can provide guidance to the design team related to the cost impact of design decisions throughout the design process. Armed with this information, a realistic budget can be created, giving the design team a solid foundation on which to build, and minimizing budgetary surprises as the project moves into construction.
With construction costs typically making up about 70% of an owner’s budget in a project, there’s a lot at stake in a building project. When engaged at the outset of the job, a proactive cost manager will not just protect that investment, they will identify ways to increase the profit margins throughout the process. There’s little doubt that engaging a third-party cost manager adds a small cost up-front, but it will yield a larger payback; one that also pays it forward in terms of client service.
Related Stories
Sports and Recreational Facilities | Jul 29, 2015
Milwaukee Bucks arena deal approved by Wisconsin state assembly
Created by Milwaukee firm Eppstein Uhen Architects and global firm Populous, the venue will be built in downtown Milwaukee. Its design draws inspiration from both Lake Michigan, which borders Milwaukee, and from aspects of basketball, like high-arcing free throws.
Contractors | Jul 29, 2015
Consensus Construction Forecast: Double-digit growth expected for commercial sector in 2015, 2016
Despite the adverse weather conditions that curtailed design and construction activity in the first quarter of the year, the overall construction market has performed extremely well to date, according to AIA's latest Consensus Construction Forecast.
Multifamily Housing | Jul 27, 2015
Miami developers are designing luxury housing to cater to out-of-town buyers and renters
The Miami Herald reports on several new multifamily projects, including the Paramount Miami Worldcenter, whose homes include maid’s rooms, larger terraces, boutique-size closets, and guest suites.
Green | Jul 23, 2015
NASA: U.S. headed for worst droughts in a millennium
Data from NASA shows carbon emissions could be the driving force behind devastating water shortages and record droughts in the western U.S.
Airports | Jul 22, 2015
MUST SEE: JFK airport taps Gensler to design terminal for animals
Pets can enjoy luxurious spa and grooming services before being transported directly to their flight from the terminal.
Office Buildings | Jul 21, 2015
Finally! There's a workplace trend that’s worth embracing
There’s a realization by corporate real estate executives that in order to create a successful workplace, there must be alignment between their people, their place, and the tools they have to do their jobs.
Codes and Standards | Jul 16, 2015
Berkeley, Calif., adopts balcony inspection program following deadly collapse
Apartment building balconies will be subject to inspections every three years under new regulations adopted following a deadly collapse.
Codes and Standards | Jul 16, 2015
Oregon to spend $300 million for seismic updates on public buildings
A survey found that more than 1,000 Oregon school buildings face a high risk of collapse during earthquakes.
Cultural Facilities | Jul 16, 2015
Louisville group plans to build world's largest disco ball
The sphere would more than double the size of the current record holder.
Industrial Facilities | Jul 14, 2015
Tesla may seek to double size of Gigafactory in Nevada
Tesla Motors purchased an additional 1,200 acres next to the Gigafactory and is looking to buy an additional 350 acres.