Philip E Scott copyright 1997, all rights reserved

We are living in a culture that has become increasingly complex. Neither our educational institutions nor our individuals have been able to keep up. The world changes in months, new competition and hardware spring up overnight. Yet the human being takes years, or decades to make an equal advance.

These individuals are the ones however that must make the decisions, man the controls and suffer the consequences of any error.

Over the last decade the usual 10% cost overrun has turned to 50% or 100% in many cases, and many of us have seen projects overrun by several hundred percent or more. It is getting more common to see large projects canceled mid-stream after millions, sometimes hundreds of millions of dollars have been invested.

This paper will address some of the measures one can take to remedy this problem.

• Modular and redundant component design, construction and contracting practices.
• Staff training and project enhancement by doing extensive and thorough options analysis.
• In-house engineering and construction. Proper use of professionals, vendors and contractors.
• Slowing up a bit on fast track practices.

I recommend each project begin with a complete survey and options analysis. Below are summaries of the check sheets I use for this purpose largely on retrofit projects in the range of several hundred thousand dollars to several million.

Larger projects and new construction projects take a slightly different approach.

To begin:

Select an experienced and multi-disciplined project manager with both engineering and construction background. This is perhaps the single most important move an owner can make.

The project manager and his immediate superior should do the following check list alone.

1. Break the project up into its sub system components; for instance the wall systems, fire protection, power distribution, chillers, blowers, pumps, process, and the distributed controls systems, etc.
2. Discuss each sub system with as many vendors as possible in context with the proposed project. This gives the senior level project manager selected, and his superior, an update and a broad overview of some of the options available and stimulates thought in the area.
3. Hand each vendor this survey sheet and ask that it be filled out after his visit or telephone call and returned. It is also worth while to keep this form in front of you, and take notes on the face of it as you talk.

1. What is your estimate plus or minus 20% of this subsystem installed, tested and running.
2. What problems have you seen before with such installations.
3. What did you see in our approach that you would suggest we change or improve.
4. Please mention any ways that you feel we can save money or reduce risk on this project.
5. Is there new technology on the horizon that you feel we should know about.
6. Who do you recommend for the installation, and service.
7. What is the delivery time. Do you bond that performance?
8. What is the name of your firm’s most technically qualified person. Phone number.
9. If you are a distributor please provide the name of the most experienced technical contact at the factory. Phone number.
10. Please list at least 2 other users of this sort of equipment or service that we can call for advice. Phone numbers.
11. Can you suggest an entirely different approach for this project.
12. Follow up with the phone calls indicated, examine the options suggested, perhaps adding other vendors to the list and giving them this same survey.

Staff survey:

Give this survey to all operating staff, and engineers.

Provide a few system diagrams, mention of some of the options, and a system description complete with throughput required immediately, and throughput required in a year or more down the road. The project manager should run the survey in person with the operating staff and hands on crew, interviewing the front line staff first and their supervisors second.

Survey:

1. Please indicate your first and second choice for piece of equipment shown if it is in your immediate area of expertise. Please state why you prefer this brand or model of equipment.
2. Please sketch two or more alternative plans to the one shown, that might have one advantage or another.
3. What problems do you have with the current manufacturing technique or equipment.
4. How might this be improved slightly.
5. How might this be improved radically.
6. Can you think of a way the problem can be eliminated altogether.
7. Who do you recommend we talk to on these subjects. Phone number.

Thank the person for his or her time. Follow up using the same forms with anyone mentioned.

By now the project manager is beginning to get a pretty good picture of the project and what the real issues are and who is who in the business and locally. He has also learned a lot that is not printed in any manual or taught in any school. He has the support now in all probability of the people who will be using and maintaining the equipment.

The project manager must now hold a meeting with the front line supervision, present and disclose his findings in full, and with a complete explanation of his very _loosely held_ view point.

At this point supervision often will counter the input of front line staff just on principle. It’s thin ice. The cooperation of all however is vital to the success of the program. This is where it becomes vitally important to select a project manager who can cultivate respect both with the front line staff (who often disrespect engineers) and management, who often does not have a clue on the technical issues and feels threatened by a staff that does.

If the project engineer fails to take a stand for the most viable approach, or if he caves in to what is often times serious error by middle or senior management, the project will often not succeed.

I’ve found the most successful project managers are multi disciplined and came from the trenches, not the cloth covered cubical predominantly. They have an innate respect for working people, and demand and demonstrate the project to be meaningfully correct up and down the line. I’ve found that with a strong presentation, usually with several pounds of documentation on the table stacked in front of one, that middle and senior management can be persuaded to cease dominance and have their views incorporated with the rest in reaching a decision.

Options analysis:

Now is the time to do the options analysis based on the information gathered above. Answer the following list of questions:

1. What power sources do I have available.
2. Is there a way to use natural gas or propane to trim electrical demand charges. (50% of the bill in some cases).
3. Is there a cost effective way to recover waste heat.
4. How long does this system have to last.
5. What does it cost the company for each day the system is down.
6. How long will this system be useful to the company?
7. Would a lease be cheaper considering interest on the funds, maintenance and first cost.
8. How will this system tax or affect the other utilities in the plant in the area of the city.
9. What does city hall think of the proposed plan.
10. What underground utilities might be affected.
11. What overhead utilities might be affected.
12. How can this system be expanded.
13. Where can I add flexibility such as variable speed or parallel systems.
14. Design on a sketch pad 10 different ways to accomplish the end product.
15. Refine each to a workable system.
16. Do a cost analysis on each option. First cost, and operating cost, and cost of ownership over 5 years.
17. Decide on an option and do a fairly detailed mass flow diagram of it, equipment lay out, and material and labor cost plus or minus 20%.
18. Present the sketch to the front line workers for comment and changes. Revise accordingly.
19. Present the revised sketch to ones superior and explain the logic and features and benefits.
20. Call the selected vendors, contractors and staff in for a strategy conference.

Strategy conference survey with vendors, contractor, in-house engineers, and operating staff representative.

• Hand out 11 x 17 diagrams of the system, and each sub system, with flow rates and throughput minimums and maximums.
• Draw a chart on the whiteboard showing each section of the project, each utility system, each piece of equipment, each aspect of the structure.
• Inform the vendors that this project will be negotiated, not bid spec. and you wish to tentatively assign each section of the job to a vendor at this meeting.
• Send each vendor back to his office with a new survey form as follows:

Project participants progress sheet:

"Please contact the other vendors and contractors tentatively assigned to this project and determine how the project will proceed, and what if any real or potential conflicts exist.

Define the scope of your work accordingly to insure a functional system between your aspect of the work and the directly adjacent aspects of the job.

Provide a bid and construction schedule accordingly.

On items that require engineering you may wait until an approved set of plans are delivered, or estimate those plus or minus 20%."

Engineering:

At this point engineering specialty firms are retained as their stamp of approval will have to accompany any drawings submitted to the city for approval in most cases.

Tell the engineering firms that you will be retaining them to supervise and approve your in house production of the plans for the project. Then hire qualified contract engineers from a technical support agency as required to produce working drawings from the sketches you have provided. If you have registered Professional Engineers in house you will of course not have to hire outside firms to do this supervision and approval.

When the drawings are to your satisfaction, invite the chosen vendors, engineers and contractors to a meeting where each will be given a complete set of plans.

Run the meeting as follows:

This meeting will be to firm up any questions regarding schedule, to refine the schedule, and costs and make sure that no conflicts remain unresolved.

Then go over each item of the project, adding or deleting items as the group deems necessary, and get each item assigned to a vendor or contractor or engineer.

Inform those present that any extras will be performed by a firm hired separately just to perform extras (this will eliminate the motive to under estimate the costs and present a false picture of the real situation). You may opt later to use or not use such a firm.

Compare all the estimates you get with the following:

• Means cost guide.
• The original estimates by survey of the numerous vendors.
• Note the percentage of material cost to total cost and compare that to your last or similar project.
• If the cost is in line plus or minus 10% award the job. If not you may wish to investigate other vendors, but that is usually not recommended. Instead ask the vendors with prices above the norm what it would take to reduce costs without hurting performance.
• Then award the contracts.

This tactic makes the vendors and contractors and engineers responsible for their own actions, and to each other, without any significant involvement from yourself. It handles an entire array of potential and real problems that historically are not addressed effectively by the usual adversarial techniques.

Construction:

Draw up an engineering and construction chart per the vendors and contractors agreed upon schedules. The project manager now simply tracks progress and adjusts the schedule as necessary, and arranges for the inevitable added work, delays and unforeseen circumstances as they arise.

Construction on this tactic will cost perhaps 10 to 15% more than an aggressive bid spec approach, but will eliminate the huge cost overruns, and often severe heartache and low quality often associated with those types of jobs…. Engineering and management costs will be reduced significantly, perhaps by 50% or more resulting in an approximate equivalent cost, but with a much lower down side risk. You will be dealing with known high quality vendors, contractors and engineers, all happy to be involved in the project as none had to bid below cost to land the work.

Contract terms overview:

Each vendor signs your standard engineering and construction and/or vendors contract with the following added clauses:

Notes on ‘fast track’ construction:

Engineering and construction like many processes in the world are natural in that humans are involved. Humans need time to think, consider and decide. And when this is rushed one often gets an ill-considered, rashly decided, non functional project and result….and risks can become enormous. I’ve seen 2 million dollar jobs run to 11 million on ‘fast track’ tactics… and get completed months behind schedule even then.

Rushing a natural process has severe risks.

It is as simple as that.

None the less there are certain tactics that can be used to expedite work dramatically.

• Parallel modular construction is perhaps the key tactic.
• Modifying the design in some cases to use readily available equipment.

Parallel modular tactics:

An example might serve best. Let’s say we have a new hotel building project. The central heat and air is estimated at 10 million dollars and will take 3 months with massive amounts of ducting and pipe having to be run before the ceilings and walls can be finished.

That 3 month delay is going to cost 10 percent interest on the finished cost of the 50 million dollar hotel, that would be roughly 1.5 million in interest alone, not to mention the lost income of roughly $500,000 for a total loss due to the construction delay of around 2 million dollars.

We can eliminate that delay with parallel modular construction. In this case by going to high quality through-the-wall HVAC units. We eliminate the ducting, piping, and the wall units can be installed any time right up to opening day. We save perhaps 5 million by going to the wall units and the 2 million in delays.

This happens to be a fairly common tactic in new hotel construction for obvious reasons. The same tactics can be used in all sorts of different situations in industrial retrofit and new systems from explosion-proof drilling platform systems, to clean rooms in the semi conductor industry, to various industrial refrigeration and control strategies.

Engineering and Construction management tactics that do not generally work well.

• Use of force or threats. There are exceptions of course to every rule. It’s just that there are few valid exceptions to this one. Project activity treated as warfare self destructs, contrary to several popular books on the subject. Business activity on the other hand is a different matter. Compounding these two under one operating mode is perhaps the second biggest mistake management can make.
• Trying to do a one year job in 3 months. It is possible you know. Just as running a 3.8 minute mile is possible, it is just simply not the way to succeed on a daily operations basis. There are three levels of psychosis in the ‘fast track’ concept. The first is that the job can be well done faster than prudence dictates, the second is that people can be forced to create an optimized product, and lastly what I call the ‘insane track’, fostered by those who haven’t a clue of what makes a successful project. For every fast track project that comes in anywhere near budget figures or on schedule, I can show you 10 that went 500% over budget and that much over schedule.
• Pushing someone who is in the process of carrying out management’s edict that she run a 3.8 minute mile. This is counter productive in the extreme and is only done by those who are unable to do real work themselves and who do not understand the productivity cycle involved. Visualize pushing a runner from the back with your hand for instance, its a counter productive activity even if you survive the backlash.
• Lying to staff and contractors about the real deadlines, and progress and problems with the job. Those doing the work know full well what the situation is. When you lie to them they loose respect for you, the project and the management. This is not conducive to a functional team effort, just more games that drive costs up and extend the project. Lying demonstrates ones disrespect. That ruins a respectful relationship, the staff know thereafter that what you say is just an attempt at manipulation. People resist manipulation.
• Failing to fire incompetent project management or overriding competent management from above with inappropriate edicts. Both, absolutely rampant in many large corporations and government funded projects. A staff under such command will not produce efficiently, also such management will fire competent staff because of the risk of exposure a competent person can present.
• Driving bid prices down and taking the lowest bid. Often this bid is dramatically below the cost of producing the work. The work will then not be produced either on time, or on budget, or to the quality standards required. One such contractor on a project will slow the entire project down escalating costs for all others involved. Bankrupting a contractor is not going to solve the problem for the owner. Select your vendors on the basis of interview with your staff and other vendors. Do not select on the basis of price alone.
• Failing to hire the best people one can find by refusal to pay a professional rate. I have seen major firms pass on highly qualified and successful engineers services in order to save five dollars an hour, or a total of $10,000 on a job worth millions. These then hire someone willing to work for less than a professional rate, the firm saves the $10,000 that’s for sure, but the job goes over budget by 6 million and ends up a year behind schedule. If you think this sort of management wishes to admit to the error, well you’d be mistaken. The overrun is detected by material costs/ labor/ overhead ratio’s prevalent in the industry and available via Means, or industry study groups.
• Paying professionals a median salary range, instead of by the product produced. Evaluating services by cost per hour is almost too ludicrous an activity to comment on. Its been proven time and again that one experienced and competent staff can do the work of five or ten mediocre staff any day of the week. Studies in the software industry for instance show that a competent team will out produce a mediocre team in both quality of work (more efficient coding), and the time it takes to achieve a result by a factor of about 10 to one. Yet today’s management currently edicts their personnel departments to search for talent within a usually very mediocre hourly rate range. Accordingly many projects are staffed by the lowest bidders, always a serious mistake.
• Applying administrative concepts to hard construction. It appears to be the current fad to start a job with the idea that we can make mistakes now, and fix them later. And this is true in the soft disciplines, even software to a marked extent, but not in the case of errors made at the core issues level, or after several thousand tons of concrete has been poured.
• Micro manage, override, and hear criticism of your chosen project manager. This last is the favorite pastime of many staff on construction projects and these have it down to a very fine art. Such lack of support eviscerates the PM’s project control authority, and with that any faint chance of controlling the job or reaching budget and schedule targets…. Everyone gets rich on overtime, except of course the project owner.

This is of course just a partial list. Most errors stem from arrogant behavior, the attempted use of force, and improper project structure and contract documents.

About the author:

Mr Scott is a multi disciplined industrial systems specialist with a degree in mechanical engineering, and is a licensed industrial systems contractor with mechanical, high pressure piping, electrical and controls certification. His experience has been with clients in the food, petrochemical, aerospace, semi conductor , printing, process, and commercial building industries to name a few. Primary expertise is mechanical systems of all types, process equipment, HVAC, refrigeration, ultra pure water and air, and explosion proof systems. He also offers project oversight service as outlined above. Projects can be arranged turn key, including construction, or just the project engineering management as appropriate to a clients situation.

Philip E Scott