The Owner's Perspective in Construction Management
by Darrell Garrett, Sr. Vice President
ViaNovus

"Construction is a business in which success for an Owner is measured by the ability to complete construction projects on time and within budget."

Traditionally, construction project management has covered the monitoring and tracking of a complex set of interrelated cost and schedule issues within a single project. In today's construction environment however, projects have become so large that a higher level of management is required: the level of program management. The majority of today's Owners find themselves responsible for the simultaneous management of multiple interrelated construction projects within a program, or the management of several projects within an agency. It is the ability to manage these multiple projects in a comprehensive manner that defines the program management space in which many Owners live today. The management of the construction program against a single bottom line cost and schedule represents the new challenge and current parameter for success for today's Owner.

Completion, in and of itself, does not constitute success for the Owner who is responsible for the management of a construction program. For the Owner, much of the success of the program depends on many factors, the most important of which is program completion within specified cost parameters (i.e. within a specified budget or funding plan). The second most important factor affecting success is on-time completion as delays in completion of facilities often directly equate to financial losses due to lack of revenue from facility operation.

The definition of success for a Contractor in many cases is in direct conflict with that of the Owner. The primary reason is that the Contractor measures financial success using a different set of parameters. Contractors do not benchmark cost performance against a budget, but rather against the contract award amount. In many cases, changes to a construction contract increase contract costs, and subsequently contract costs may exceed budget projections and diminish the success of the Owner. These same contract changes, however, increase the amount a Contractor can bill which increases his earnings and level of success. Contract changes can also increase duration which may negatively affect the Owner but keep the Contractor employed longer to continue billing and expend more of the Owner's money.

It is this direct conflict in the definition of success, which so often puts Owner and Contractor in an adversarial position. Clearly, each party must be concerned with its own success and although a win-win situation can be created in which both parties achieve some level of success, certainly the Owner does not want to be the loser in a win-lose situation. An Owner must therefore prepare and manage effectively in order to address any issues that help to maximize his level of success and head off problems that prevent him from winning.

The following are some of the areas of focus that must be addressed in managing a successful construction program: multiple-project management, planning, funding, document management and control, change management, forecasting/risk analysis, cost schedule integration, reporting, program close-out and claims mitigation.

Multiple-Project Management
In construction program management, the success of one contract within a project, or one project within a program, cannot define success. An Owner who completes the design phase of a $50 million construction program six weeks early may save $100,000 across several design contracts. But, if the Owner expends an extra $2 million in construction contract change orders which cause the same program to finish three months late, clearly he has lost - even though in one area of the program he has been successful. It is evident from this example that the interrelationships of projects are of critical importance and must be managed carefully. In addition, any management system implemented must be able to manage projects independently and when necessary summarize project data to verify progress against program-wide benchmarks.

Planning
If success is measured by the ability to complete projects under budget then establishment of project budgets during the planning phase is mandatory. Once defined, these individual project budgets must be summarized to create a total program budget that must then be baselined to ensure that an established reference point of measure has been set. Any changes to the budget, additions of scope or transfers of budget between projects must first be authorized, approved, documented and archived to establish the paper trail required for budget accountability. Without the ability to track actual program costs against an established program budget, an Owner can never know if he has truly been successful.

Funding
Whether it is a large construction program of inter-related projects or a group of non-related projects within an organization, funding sources to complete these projects must be established and managed with extreme care. In the case of large public construction programs, federal, state and multiple local sources can contribute to the funding of program completion, with each funding source requiring independent tracking. Mismanagement of funds from a single funding source can shut down a program because, in most cases, funds from one source cannot be used to pay for work authorized under another source.

The management of draw down of cash from funding sources is also a challenging exercise, which can save or cost a program substantial amounts of money. Leaving funds in interest-earning accounts for as long as possible affords the Owner the ability to maximize each construction dollar. Conversely, converting bonds into cash too quickly can cost millions of lost interest earnings. In addition, if enough cash is not drawn down properly within specified cost periods, an Owner can run out of cash to pay Contractors and the project can grind to a halt.

Document Management and Control
During the life of a major construction program an Owner creates and receives an enormous number of construction documents which can affect the outcome of the program. These documents include requests for information, field orders and directives, meeting minutes, submittals and general correspondence. Management and control of these documents is vital to success as the one document lost can contain information about a claim or some cost saving measure. Early in the life of a construction program, a document control system must be developed and implemented which calls for storage of all project documents (or, at a minimum, references to all documents) in a central location which can easily be retrieved and searched. Centralized document control allows Owners to access information quickly - which is now required in today's fast-paced construction industry. As with any control system, proper planning at the early stages will save substantial time and money later. Intelligence in the document numbering system allows documents to be tagged and filed in an organized manner (i.e. grouping documents by project, document type, work location etc.), which makes data retrieval around major issues much easier and more efficient.

Change Management
The best sets of plans and specifications have never been able to produce a construction program that does not contain some number of changes. In fact, if a construction program is proceeding ahead of schedule and under budget, the wise Owner will make changes that move excess money to other programs or interest-earning accounts that will better leverage the dollars. In any event, an Owner must proactively manage changes and keep project personnel and financiers abreast of potential cost impacts so that positive cash flow is constantly maintained. Documenting change orders as they occur is reactive, not proactive, change management. The tracking of the complete change process from issue identification to formal change requests to potential change orders and finally to change order is mandatory if an Owner is to stay on top of scope creep, cash flow and negative cost trends.

Forecasting/Risk Analysis
Nothing is more important to an Owner than the answer to the question "How much will this cost when it's done?" This question will be asked by everyone including senior management, the media, program personnel and funding agencies. The Owner's job depends on the scary proposition of the ability to answer this question accurately based on a combination of fact and speculation. It goes without saying that the factual portion of the forecast must be based on the accurate documentation of the current state of original contract amounts plus current contract changes. The trick is in creating the speculative portion of the forecast that must be based on some form of quantitative analysis of identified potential change orders and cost trends.

Although potential change orders have always been a part of program forecast at completion, it has only been recently that program managers have incorporated trends into bottom line forecast and exposure. A "trend" is defined as any issue that has not been identified as a potential change order, which may affect the contract value of one or more contracts within the construction program. For example, continuing sharp increases in the price of steel over a six-month period is a trend that could greatly affect the cost of construction for a thirty-story building. In the case of a $50 million sewer rehabilitation program, if after 20% construction completion there have been $5 million worth of change orders due to unforeseen obstruction, the trend is that the Owner can expect to continue to see some increased cost for the remaining 80% of the job.

Today's cost management system must allow program management personnel to input trends, assign them a dollar value and a risk factor to generate an exposure, and then incorporate these figures into the final forecast at completion. Effective trend identification, management and reporting is the only way the program manager will be able to completely answer the question of how much the job may cost, and through early issue identification, stop potential change orders before they occur by either modifying plans and/or changing strategies.

Cost-Schedule Integration
In no industry is the phrase "time is money" more relevant than in the construction industry. The management of the cost and time interrelationships between contracts within a project and projects within a program are critical to success. Every day that completion of a facility extends beyond the completion date is a day that the facility cannot be used, which often translates into lost operating revenue or lack of production of equipment and materials required for revenue generation. No longer can an Owner take a construction schedule, review it at the start of the job and then roll it up and file it in some dark corner of a construction trailer. Owners must continuously monitor the schedule to see if work is proceeding according to plan. Schedules from different contracts and projects must all be managed in an integrated critical path network to truly assess the financial and time impacts of delays.

Over the past decade there has been a greater awareness of the value of integrated cost and schedule to track the effect of cost over time. Although many of today's leading scheduling applications allow for the definition of activity cost, currently there is no commercial scheduling application available that provides the detail and flexibility required to manage all cost and time elements within it. An Owner must integrate the scheduling application with a full-featured cost and document application to ensure total program management. The integration of multi-project cost, document and schedule software forms the nucleus of a strong project controls software system.

Reporting
Information stored in a management system, no matter how efficiently, is of no use unless it can be retrieved and disseminated. Users of management systems have always been able to print out reports and send them to parties interested in various aspects of a construction program. Although report writers have definitely improved over time, printed reports have not changed much over the past 20 years. With the recent advent of improved graphical user interfaces (GUI) in Macintosh and Windows-based software applications, interested parties no longer have to wait for printed reports as information stored in computers can now be displayed in easy-to-read formats directly on the computer screen. Over the past five years, the construction industry has quickly become aware of the power of the Internet to display project data for availability to people all over the world who until just recently could only see project data in hard-copy reports. Traditional mail channels have all but been replaced by electronic mail (e-mail) systems which now allow users who are connected to the Internet and/or corporate Intranets to not only view project data but route it to appropriate personnel. This immediate availability of project data is not a luxury, but rather a requirement, as analysis and decisions on tough construction issues must be made faster than ever before as delays in decision-making can cost millions of dollars.

Program Close-out
The ribbon cutting ceremony for a large, multi-year construction program signifies completion for the Owner, Contractor(s), media and the community. It is a day of triumph that should begin the start of use of facilities and the end of construction and management expenditure. However in so many cases although the construction may be complete, a great amount of time and money is spent on project close-out after the workers and primary management personnel have long-since left the project(s). There are many reasons for this close-out expenditure: poor management of funding and draw down during the program, outstanding claims, unfinished or undocumented punch list items, undue delays in preparation of close-out reports due to the inability to gather required program documents and delays in processing final balancing change orders. All these issues are the result of the use of inefficient tracking systems during the life of the program. Because administrative costs during program closeout can be high, they should be factored into total program expenditure, and an Owner cannot assess financial success until after the close-out is complete.

Claims Mitigation
The construction industry is becoming more litigious every day. As profit margins decrease, a single claim can mean the difference between a program being completed under or over budget. Just a few years ago, claims were fought at the end of a job and the Owner was forced to sift through file cabinets of archived paperwork to find documents related to a particular issue. Much of the initial cost savings for an Owner was then spent on project personnel or lawyers scouring archived data in search of documents relevant to the claim. If paperwork was lost or not filed accurately, or if paperwork was not grouped around a particular issue, claims were lost or settled at unfavorable amounts even though the Owner may have had partial or no liability. Today's Owner must proactively manage claims by creating and filing all documents electronically in a relational database system where documents can be proactively or retroactively sorted and grouped around issues. This allows for the electronic searching of documents for issues that may become future problems and provides the opportunity to address problems before they become claims. If a claim situation does arise at the end of a job, the Owner can quickly retrieve all pertinent documents from electronic files, spending less time and money on data retrieval and more time on analysis of the issues.

So how does today's Owner manage all of these issues simultaneously while still keeping track of the day-to-day problems that arise during the life of the program? It should be clear from the examples above that the most effective and efficient way to manage a construction program is to manage all phases of all projects within a single comprehensive relational management system.

In the past decade, much advancement has been made in technology to assist Owners with the management process. Local area networks (LANs) and wide-area networks (WANs) have made distributed computing much easier than ever before. The ability to have multiple program managers and project control engineers input data into client-server database systems on a network have made it much easier to capture and centralize data. In addition, as desktop computers have become faster data processors, Owners are now able to retrieve information from large databases in acceptable time frames. Desktop computers in combination with laptops now ensure that a project controls engineer is never caught in a situation where project data cannot be immediately input. Technological advances in modem speed and portability now allow for speedy and efficient transfer of data from laptops to centralized databases.

As technology has improved, so, too, have software applications that reside on the new hardware and network systems. The good news is that today there are several new choices of project management applications. The bad news is that there is no single magic bullet for construction program management. No single software application, Internet system, or special hardware and operating system can provide a total program management solution. It is therefore the job of the Owner to gather the set of integrated computer tools that will best assist in the management of a construction program. This integrated suite of tools should include best-of-breed scheduling, estimating, accounting and cost/document control software combined with state-of-the-art hardware and connection systems to network all of the tools together. In addition, since most program management personnel are increasingly mobile or located at disparate sites, the tools must have the capacity to merge program information into the central management system.

As stated earlier, the central components of a successful program management solution are the project controls tools: cost and document software, and a scheduling application. Both of these key tools must be written through the Owner's perspective and should have a non-proprietary data structure. In addition, the project controls software must seamlessly integrate, as well as allow for the flow of other program data through it if a successful integrated system is to be formed. An Owner can no longer afford to pay several hundred thousand dollars for a consultant to create a system from scratch or to convert a proprietary, contractor-focused system to suit the needs of the program. Often times this approach weds the Owner (and the Owner's wallet) to a consultant for an unspecified amount of time and when the work is complete it is often outdated or not reusable.

Project controls software along with other software applications are simply tools to help Owners manage construction programs. The Owner must use either specialized in-house staff or program management consultants to assist in the setup, integration and implementation of these tools to create the comprehensive management system. Once the system is implemented, training of in-house staff is mandatory to ensure that the Owner is able to maintain the system long after consultants have moved on. The challenges of today's Owner are formidable, but with a strong management team in place to identify and manage the issues along with a solid management system to log and catalog information, an Owner greatly increases the chances for success in the construction program management space.

About The Author
Darrell Garrett is the lead developer of the PARAGON Program Management System™, the premier product for ViaNovus®, a leading provider of owner-focused, decision support software and services that introduces the concept of project intelligence into the traditional management process. Currently being utilized in construction programs worth more than $85 billion, PARAGON helps customers manage cost and minimize risk through an innovative financial project management platform. Responsible for driving the direction of the company's technology development, Garrett has more than 10 years of construction management experience and has overseen a wide range of projects while working for such leading companies as O'Brien Kreitzberg and Luster CM.