The Importance of Project Risk Management for A&E Firms
Progressus can help implement the right estimating and planning solutions to keep your A&E Firm and projects on track.
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In the highly competitive A&E marketplace, knowing and anticipating a project’s expenses correctly provides a definite advantage when competing for a contract. But, even in the best of circumstances, cost estimating is complicated and there are myriad risks and uncertainties to consider.
First, it’s important to understand the complexity of cost estimating. Companies should invest in proper training for estimating professionals. In many organizations, technical experts (e.g., architect, engineer, designer) are automatically assumed to be qualified to collect, build, and analyze project scope and deliver estimates. While this approach sometimes works on smaller ventures, assigning untrained technical people to build scopes and estimates on larger, sophisticated projects can prove to be a very challenging.
Deriving high-quality cost estimates depends heavily on the quality of data, for example, historical databases, comprehensive project plans, and standard work break down structures make it easier to make comparisons to similar projects. In most cases, the better the data, the better the resulting estimate will be. But you should always be on the lookout for common items that significantly increase risk in the planning and budgeting phase of projects, such as:
Faulty assumptions. Clearly articulate and validate all assumptions.
These challenges often lead to underestimating project costs; thus resulting in significant losses or project shortcuts to mitigate losses. In addition, many projects, in both the commercial and public markets, are awarded based on low bids. Forcing AEC providers to offer competitive estimating and budgeting for new clients. With all of the competition out there, service providers have a need for cash revenue quickly, which trumps the requirement of making sure they’ll profit in the long run off their shot-gun estimate.
By identifying and overcoming the common estimating and budgeting issues, service providers can bypass the underestimating barriers and increase estimating accuracy in the future.
As a project progresses it is important to keep a pulse on how the estimate is holding up. It is important to keep abreast of whether there is a significant difference between estimated cost to complete and budget for remaining work, whether there are work phases/tasks with no budget left and if there is frequent allocation of contingency reserve for newly identified in-scope effort. One of the biggest culprits in budget to actual variances is scope creep. Even when there’s a clearly defined project scope, you still have to beware of scope creep. This phenomenon generally tends to occur when new features are added to designs that have already been approved, without providing equivalent increases in budget, time and/or resources. Some of the main causes of scope creep are similar to the problems that cause poor estimates:
With all the uncertainties that are inherent to construction projects, there are some key best practices when it comes to developing a credible cost estimate:
Lastly, an accurate estimate is not effective if the scope of the work that is being estimated is incomplete or misunderstood. While changes can be facilitated through a change management process, this is not the optimal approach. Estimates based on clear and open communication of all aspects of the project and with full understanding are essential. The more information that is made available before, during and after the estimate is built, the more accurate your estimating will be.
Generally, a project’s approved cost estimate is generally used to create the project budget. Because a reasonable and supportable budget is essential to a project’s efficient and timely execution, a competent estimate is the key foundation of maximizing project profitability.
With the best of these circumstances, cost estimating is difficult. It requires both science and judgment. Deriving high-quality cost estimates depends on quality of data, such as historical databases, comprehensive project plans, and standard work break down structures; making it easier to make comparisons to similar projects. In most cases, the better the data, the better the resulting estimate will be.
If you need assistance with improving your estimating processes, Progressus can help implement the right estimating and planning solutions to keep your projects on track.