How Cost, Scope and Schedule Definition Improves Preconstruction Planning

Encountering budget shortfalls or schedule overruns during a construction project can set off a cascade of problems. Fortunately, for contractors and industrial project owners, taking a proactive approach to project planning and using proven tools take the guesswork out of predicting a project’s scope, cost and schedule. Implementing these tools as part of a comprehensive preconstruction phase is the key to developing a project definition that leads to successful project delivery.

The Project Definition Rating Index

Capital projects—such as the construction of an industrial plant—require long-term investment to develop, build and maintain. Because of the level of commitment involved, capital project delivery has begun to receive a great deal of attention—so much attention, in fact, that a scope readiness tool was developed by the Construction Industry Institute (CII). CII is a consortium of more than 100 leading owners, engineering-contractors and suppliers from both the public and private arenas, and its mission is to improve the cost effectiveness and sustainability of the capital facility project life cycle. Its readiness tool, the Project Definition Rating Index (PDRI), is a weighted scoring system that evaluates all aspects of a capital project. CII developed the assessment based on research of more than 25,000 completed capital projects. PDRI improves the front-end planning process and aligns the expectations of team members and owners.

PDRI documents define the key elements of an industrial facility project and provide a rating system for those elements. After the preconstruction team assigns a rating to each of the elements on the checklist, a final score is generated. This score indicates, at a glance, the overall risk associated with a project.

Defining Project Cost, Scope and Schedule

Early definition of a capital project is critical for successful project delivery. Preconstruction services can provide owners with a formal approach for developing and executing capital projects. The goal is to define the project scope, schedule and cost as early as possible to enable the most efficient use of resources and money. The preconstruction process should include developing preliminary design documents, constructability reviews, project cost estimates for both equipment and construction and a project schedule. The preconstruction phase can typically be performed in eight weeks for 1 to 3 percent of the total project cost.

This process helps the owner determine if the project is viable or not. The preconstruction process provides early identification of possible problems and where they might occur, allowing for risk mitigation. The result is a reduction in the number of changes, unexpected costs and schedule variations during the execution of the project. Ultimately, going through the preconstruction process results in efficient use of funds, adherence to schedule, a facility that meets user requirements and a smoother capital project delivery process.

The preconstruction process allows for an evaluation of the constructability of the project and identifies opportunities for value engineering. In addition, it provides the owner with a number of deliverables including an execution plan, risk analysis and a procurement plan.

Common deliverables from preconstruction efforts include the following:

• Site analysis
• Project feasibility
• Critical path schedule
• Evaluation of utilities
• Comparison of equipment selections
• Evaluation of soil conditions
• Identification of permitting requirements and potential issues
• Value engineering/cost-saving options
• Constructability reviews

On-the-Ground Implementation of Capital Project Delivery

Firms that offer construction management services should make sure that they have solid offerings for capital project delivery. Although large client companies usually have a formal process for the appropriation of capital for large manufacturing, distribution and research and development (R&D) projects, working with a construction management firm during preconstruction can help a company arrive at a more accurate project description and a guaranteed cost and schedule for projects.

O’Neal Inc., an industrial engineering and construction company, has developed a preconstruction approach that is driven by their proprietary Capital Appropriation Process (CAP). By using CAP, owners receive a thorough front-end assessment of their proposed project, including where there is specific risk to success, especially from a design and cost standpoint. The process also helps O’Neal understand an owner’s approach, thought processes and other critical items when executing capital projects.

O’Neal’s CAP focuses on project development and delivery models that exhibit the following characteristics:

• Every potential project is viewed as an opportunity for savings.
• Capital is directed toward the areas that best benefit the organization’s overall goals.
• Stakeholders are included in the front-end loading process at the appropriate times.
• Each step in the capital process is connected to and builds on the previous step.
• Long-term requirements are considered at the front-end of a project.
• “Gates,” or review processes, occur throughout front-end loading. Projects must meet owner-established criteria at the beginning of the project in order to move forward.

In addition to the CAP process, O’Neal uses a project readiness scoring system to provide an effective risk assessment for both O’Neal and their clients.

A recent example of how the company used the readiness index in conjunction with its own CAP process is a $230 million transformer manufacturing plant in Memphis, Tenn., that O’Neal designed and built for Mitsubishi Electric Power Products. The team’s early focus on scope, cost and schedule definition resulted in a successful project. Mitsubishi reaped the benefits of having clear project definition, enabling them to negotiate and develop their project funding model early in the process. After the preconstruction process, they moved right into an Engineering, Procurement and Construction Management (EPCm) at-risk contract with O’Neal, because they were interested in keeping all phases of design and construction with one company.

Using the readiness index and CAP aided in the successful completion of the project and helped Mitsubishi meet their production and product delivery requirements. The index helped identify areas for cost savings. Long-term facility requirements were met at the front end of the project, capital was focused on areas that had the most benefit for the client’s goals, and all parties were aligned in terms of requirements and expectations.

Successful project delivery of industrial projects requires a comprehensive approach to accurately determine the scope, cost and schedule of the project up front, to establish a plan that minimizes changes and unexpected costs and to mitigate the cost and schedule risk once the project is funded.

Contractors working on industrial projects can improve their preconstruction and project delivery processes by implementing the following best practices:

• Taking a proactive approach to preconstruction
• Completing formal project preplanning
• Developing a contracting strategy
• Identifying and developing relationships with subcontractors and vendors
• Establishing and following a consistent approach
• Utilizing consistent, industry-standard tools
• Defining responsibilities and expectations for all team members
• Effectively communicating

Implementing these best practices as part of a comprehensive preconstruction phase is critical and will lead to successful project delivery.

For more information regarding the CII or its research, initiatives and industry alliances, visit construction-institute.org.