Adding Value to Projects Through End-to-End Cost Management
Posted: October 25, 2016 | Project Management
By Hein le Roux
Owners and operators of sports venues are increasingly tasked with the challenges of making their buildings more efficient and sustainable – both from a design and operational perspective. In order to accomplish this, they must place a greater emphasis on the financial aspects of end-to-end cost management.
In today’s world, sport facilities must not only be delivered within capital budgets, they must also provide a return, either by increased ticket sales or more recruits. In order to achieve this, designing the building to the established budget is critical. In the context of collegiate sports, this is particularly pronounced; budgets are usually smaller, but aspirations for a collegiate venue are as high as any professional organization.
The traditional role of the cost estimator is no longer adequate within the context of these requirements. It’s no longer sufficient to know what projects cost after the design is completed; however, it is essential to know what the cost is at the outset.
The ability to accurately estimate the cost of a project using benchmark data from past stadiums or arenas is one thing, but to ensure the design meets the budget and is constructed within that budget is quite another. Cost estimation is no longer a reactionary task – it is a proactive process. It relies on genuine collaboration from all parties within the greater project, and throughout the project. It must be a primary objective of the project, and to achieve this, the estimator must become a manager.
For a project to be truly successful, it is essential that the entire project team work together in sharing the objective of proactive cost management – from the start. To achieve this, one must first create a collaborative environment where a successful outcome can be defined and then achieved.
On a large football stadium, for example, there may be as many as 15 or more consultants and a similar number of stakeholders, including the team and owner, operator, venue owner, land owner, concession holders, sales and marketing groups, legal representatives, catering, corporate hospitality representatives, facilities management, utility owner, adjacent land owners, local municipality, and various other government and non-government bodies. This diverse group of stakeholders becomes the collective Client.
In addition to helping establish the project vision and related objectives, the client must articulate answers to three simple questions:
- Why are they doing the project?
- What are the specifics of the project?
- How do they expect it to be delivered?
Without understanding what value means to the client – and how to measure it – no designer or cost manager can truly deliver a successful project on time and on budget. At the heart of this notion of value lies an intricate balance of Time, Cost, and Quality. Every client will place a different degree of importance on each of these, but ultimately will have a bias toward one – therein lies the value driver.
Cost managers instinctively understand this concept as they proactively manage and control project costs by guiding the team on decisions and options, providing best-value advice at all stages and assisting the team with its solutions. Cost managers have no vested interest because they are neither constructing nor designing the project and, therefore, have no emotional attachment – their input is independent and objective, and only serves the client’s interest.
Once the team is aligned in terms of the value proposition and knows where to focus its attention, the cost manager can begin to establish an effective management and procurement regime with clear lines of authority, responsibility, and communication among all involved. This structure is essential to providing an overall pathway through the project from inception to close-out, and allows cost managers to leverage various “tools” along the way.
A thorough process includes, to a greater or lesser extent:
- cost modeling and cost planning
- value analysis
- life cycle analysis and review
- risk management
- procurement advisory
- post contract controls and reporting
- account settlement or close-out
This process can best be accomplished through careful consideration of the project timing. For instance, in the context of sports projects, timing is also influenced by the sport’s season. Many renovationprojects will rely on the closed season to undertake the bulk of the work (football has an eight-month closed season, whereas basketball has only three), and many opening dates will coincide with the start of a season.
There are two aspects to consider:
- the direct impact on construction cost
- the impact on value
Historic evidence suggests that it is within the conceptual stage of the project that the impact on the out-turn construction cost is at its greatest. The further the project moves through the stages, the less the out-turn cost is influenced. Cost managers can add the most value in the testing and validation of the development appraisal (i.e., pre-concept stage) and in ensuring that the established budgets are robust.
In respect of the value aspect, key value decisions should be made early in the project. Changes made later are usually harder to implement, cost more and deliver less value. Hence, there is a period within the project termed the Value Zone, where maximum benefit can be derived if key decisions are made in a timely manner.
As a key decision maker, the client must be equipped with sufficient information and must understand the implications of those decisions. Cost managers play an important role in this, as decisions almost always require knowledge of the cost, time, and quality impact. As time passes, the potential to make changes will diminish, while the cost to make such changes increases.
Resistance to change also increases as stakeholders progressively sign-off design decisions and options. Once board and committee members have made decisions and images are published in the public domain, it becomes increasingly more difficult to reverse decisions.
With the enhancement and development of technology comes innovation – cost managers are able to make these decisions earlier, quicker, and with less risk due to improved accuracy. With some tools like SAINT (Stadium and Arena Investment Tool), rather than sequential steps, we have seamless integration of design, cost
schedule, and operations information. Thus, a project’s feasibility can be tested before putting pen to paper and avoiding potential re-design work. Earlier decision-making also means that inflationary pressures in the market can be mitigated, allowing projects to start on site sooner.
Ultimately, cost managers can assist the client and design team in achieving the desired successful outcomes. They are the ones who generate the reports, estimates, schedules, option studies, and findings that provide the necessary information for decisions that guide a project towards maximum value.
About the author: Hein le Roux has more than 19 years of experience and knowledge gained from working on projects within many market sectors and geographies, including the US and South America, UK and Europe, Middle East, China, and Africa. For the past 10 years, he has been a leading member of AECOM’s Global Sports Sector Group, delivering a number of sports and events projects which have varied in size, complexity, and location. As Regional Director, Hein currently leads AECOM’s Sports Cost Management Group in Kansas City.