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Reducing Project Costs

On August 28, 2008, Tom Koulouris – co-owner of Koulouris-Freyer, Inc., (KFI), a leader in construction management services, led a webinar sponsored by E-Builder.  In this webinar Mr. Koulouris detailed ways to Reduce Project Costs.  REDBUD Construction Services attended this webinar.  With permission from Mr. Koulouris, we have summarized some of the main points of the webinar below.

The four major components of a project are planning, design, construction, and occupancy.  The owner usually has control over the planning, design, and occupancy and the costs associated with these components, but spends most of his or her time trying to control the construction costs.  The construction component is defined as determining the measurable output of the design as managed by the owner.  And as Mr. Koulouris stated the construction component “is pricing the work that is planned and designed.”  The planning and design components are the areas where the owner should focus a majority of his or her efforts in order to ensure that the overall project costs are minimized.

EFFECTIVE PLANNING:

Use a smaller project budget (fewer cost line items) with a properly tailored database for establishing the overall project costs.  Many times owners will get ‘so far down the road with architects’ and not have a good grasp on the project specifics that they must go through several iterations without knowing whether or not the project is feasible for the scope intended.  This is a major pitfall of many projects.  With a properly developed database and well defined scope, the construction manager should be able to put together a good ‘ballpark-estimate’ in a relatively short period of time.

CONSTRUCTION COSTS:

The cost of the construction can bu summarized in these five general categories: Fee, Cost of Work, General Conditions, Reimbursable General Conditions, and Self-Performed Work. Below is a graphic showing the percentages of costs for the various categories.

An important note about bidding a project. The next time you bid a project, ask the Construction Manager or General Contractor to provide a sub-contractor/sub-supplier list.  With a given niche industry, by-in-large, 90% of the subs for that given project will be the same.  Therefore, by bidding the project, all you have done is asked the CM or GC to provide a few estimates from essentially the same people.  This is not really ‘bidding the project’ as much as it is adding up the costs of the project.

The most effective way of reducing project costs as they relate to the construction component is by reducing the General Conditions.  This is the cost of the management personnel and associated costs of that labor.  Using fewer people can overload them and effect efficiency,  and using junior managers and staff can cause Change Orders to be accepted that a senior person may have more experience in working out without passing those costs along to the owner.

How do you know the costs at the end of a project at the beginning of a project? USE THE PROCESS DRIVEN MODEL.  The graphic below shows the way to achieve this is by defining the scope, cost, and schedule BEFORE the design, not DURING the design.

LACK of OWNER DRIVEN PROCESSES:

The graphic below shows the relationship between the two major management models.

In the Design-Bid-Build model, the planning cycle is very short.  This leads to a lenghtened design period and eventually a higher cost of construction.  The Process Driven Model allows for longer planning phase and more detailed design phase, which are the most important components to determining the overall cost of the project.

This graphic also shows that the later changes are made in the Design-Bid-Build model the higher the costs as compared to the Process Driven model.

EFFECTIVE PLANNING MINIMIZES CHANGES DURING CONSTRCUTION THEREFORE REDUCING THE OVERALL COST OF THE PROJECT.

In the Process Drive model, with the additional time spent in effective planning, the design time can be greatly reduced, construction can be started earlier, and therefore, finished earlier.  And a project that is completed sooner, can provide revenue sooner…greatly increasing the profitablility of any project.

One last point about the Process Driven model is that the cost of effective planning in this model is significantly less than the cost of the iterative process of design in the Design-Bid-Build process.

DUE DILIGENCE PLANNING:

The most important part of effectively planning the project is the scope of the Due Diligence phase.  This is project specific, but should be well defined at the beginning of the project.  Below is a list of items that should be considered during the Due Diligence phase.

The full webinar can be viewed here.  For more information regadring The Process Driven Model or questions about the specifics of this webinar, contact Tom Koulouris.

Do you have questions about Effectively Planning your next project?  CONTACT REDBUD Construction Services at 865-250-9172, and let our Construction Management Team walk you through the process of determine the scope, cost, and schedule of your next project.

September 23, 2008 | Filed Under Construction Management, Effective Planning 

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