How to Avoid Cost Blowouts in Engineering Design 5

Wednesday, July 29th, 2015
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When undertaking design work on major building projects, a critical imperative revolves around making sure design costs do not exceed budget.

Where this does not happen, cost overruns and financial exposures are avoided and construction can start on time. By contrast, where the cost of design exceeds that which is budgeted and quoted for, designers at best find themselves incurring significant reputational damage and at worst – depending on the terms of engagement – having to wear the financial impact of some or all of the overrun. Any delay which impacts construction schedules, as well, has a cascading effect in terms of more delays and cost overruns.

So what causes blowouts, and how can these be managed? Obviously, the overall costs of the design relate directly to the number of man-hours required to deliver on the design, and overruns in cost are therefore typically driven by a need for more labour time than was originally budgeted for.

This, in turn, can have a number of underlying causes, according to Werny Project Services CEO Adrian Werny. First, any lack of clarity with regard to the original scope of the project – such as in cases where consultants are engaged before the client has a clear picture of the project outcome – can lead to a number of dead ends, the scope of the design having to be altered as clients and other stakeholders make up their minds about exactly what they want and more man-hours being required than was anticipated. Such was the case with a number of iron ore developments during the recent mining boom, in which skyrocketing prices prompted a desire to extract material from the ground as quickly as possible and saw some projects during the pre-feasibility phase not engineered to the extent that perhaps should and would normally have been the case.

Also leading to further overruns in labour hours and costs are variations to project scope which occur after consultants have been engaged. Competing demands of stakeholders, where often unexpected issues and objections raised by councils, government departments and agencies or community or environmental groups can necessitate design changes and increases in design costs, can also be a problem.

More fundamentally, however, problems arise in cases where the volume of hours allowed for in original budgets and estimates is not realistic in the first place. This situation often arises when the design phase of the project has been compressed due to earlier phases taking longer than expected without any corresponding adjustments to the end-date. This creates a temptation for clients to pressure consultants and contractors for shorter time frames even though these may not be realistic, and for consultants to try to bid for these shorter time frames in order to win work.

Werny noted these kinds of practices lead to jobs which are destined to fail.

“Playing those games at the start does everybody a disservice,” he said. “In fact, because you are already starting on a bad foot, you are already setting yourself up for problems down the track.”

In terms of strategies to prevent problems, Werny said it is crucial to have a clearly defined scope right from the beginning and to have management strategies such as set procedures to be followed where a project is to be extended. It is also important to have effective stakeholder management processes in place in which all significant parties are identified and engaged early on in the process.

Finally, the importance of basic project controls cannot be understated, and it is imperative to budgets for dollars and man hours as well as monitoring programs to show how the team is tracking against budgets and schedules.

Werny emphasised that it is crucial these are not neglected.

“When you were in a construction project, you would expect that the budget is being fairly closely monitored and you would be working to a program,” he said. “For some reason, a lot of people don’t follow these processes when doing the design.”

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  1. Paul

    There is no substitute for experienced and capable people who know what they are doing and are capable of making informed decisions.

    That's what makes for efficiency. It's not rocket science!

  2. Tom Kendal

    We do more than half our design as lump sum work. The disciplines involved are clear scope, focussed design management plan, estimates that reflect the proposed work, management of the work to deliver the service required (importantly not additional services that our technical people think should be provided – ie remain in-scope and avoid scope-creep), peer and expert design review early on in the project (so minimise the changes), focus on completion, manage client interface to prevent scope change where possible and where change is necessary the client is ALWAYS advised of cost of change. You could write a book about the disciplines required, but they are very simple and mostly just require practice and consistent application. That does not mean it is easy.

  3. Sean Robson

    Even experienced designers will suffer in a project with unsustainable targets and complex stakeholder relationships.

    The value of experienced designers is the ability to predict issues ahead of time so they can be addressed sooner, but this shouldn't be a crutch for unrealistic budgeting. It will only delay the onset of overtime requirements and late delivery penalties.

  4. Daniel Tuckwood

    I am involved currently on a project with a very loose (read, barely existent) scope, which leads to redesigns multiple times to various components. While this is an open budget for our section of the works, it is still frustrating to have to redo work because of someone wants to change something else on a whim. To avoid many cost blowouts, I feel it is important for the scope to be very close to complete before design work can start. At the very least, a scope broken into "phases" can allow the project managers to get early parts of the scope finished and designers working on it, while they continue to scope later parts of the process.

    A topical analog of this is the F35 JSF; it is being built at the same time the design work is being completed, leading to redesigns on critical components after installation, and severe cost blowouts.

  5. Robert Northcott

    Understanding the client's scope is FUNDAMENTAL! It's simple! Never presume and never over complicate! Ask the client to clarify why, what , when, how etc questions big time at the bid stage!!!!