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DO YOU PAY NOW OR LATER?

May. 18, 2015 ⋅ Categories: In the News

Balancing Risk vs. Cost in Building

Like a kid in a candy store, it’s easy to envision the best money can buy – an optimum location, plentiful space, first-rate materials, and the latest in technology. The challenge is aligning these elements with your budget. Some CUs choose to go it alone – relying on an architect for design while bidding the construction separately. Others go the design-build route, handled as one cohesive project.

Which is the better deal? Or, maybe the better question is, do you pay now or later?

Reasons to go design-build:

•       CU attains greater value with guaranteed project cost early in the process
•       Cost risk shifts to design-build firm
•       Savings from value engineering returned to the CU
•       Collaborative design process
•       Faster project delivery
•       Forgo combative relationship between designer and contractor

Cheaper isn’t always a deal.

Overall value is what most of us look for in any purchase decision. Whether it’s designing a new 60,000-square foot flagship headquarters or a small branch remodel, the process is the same. It boils down to what the budget will allow without compromising the project’s integrity. The estimator’s job is to help clients sift through a plethora of wants and needs and determine what the client is out to accomplish. Many design-build firms use conceptual estimating to begin this collaborative process.

Thinking big within your budget.

Let’s be clear, conceptual estimating isn’t an open checkbook; it’s a way for you to view the scope of your project and ensure funding is available to meet project demands. Reputable firms will assist with specifics like site location, building materials, and securing a local labor pool. The best take it a step further by helping you to clarify member needs while comparing construction scenarios and their impact on cost and member service. It’s a process that helps narrow the choices, enabling the client to establish a budget based on project parameters, and select the optimum solution for members.

Preparing for the unexpected.

With conceptual estimating, the budget and design evolve simultaneously based on client needs. Most firms will assign values to contingency buckets within the estimate, carried as ‘yet-to-be-defined’ costs. Appropriate contingencies will also help to eliminate financial surprises at the project’s end; the design level, time of year, and acceptable amount of financial risk are all considered typical contingencies. Once these factors are recognized, the estimator can allocate an appropriate amount to each bucket, lessening the CU’s financial risk.

Trusting the estimate and approach.

Conceptual estimating offers a collaborative approach CU leaders appreciate. It also keeps the creativity alive to ensure the member experience stays top of mind and costs under control. The result is a clear-cut, defined strategy based on project parameters. With the budget determined upfront, the risk is also minimized, so there are no surprises later.  

The cost/risk-benefit analysis.

This phase is a fact-finding mission. Here, the design-build firm fine-tunes client needs while honing each construction scenario. Influencers, such as the local economy, site conditions, life cycle costs and regional building methods, are also considered. Once the data is collected, the estimator will generate a project schedule and cost/risk-benefit analysis. These items enable the CU to compare the potential value of varying construction and engineering methods in relation to cost. The CU can also prioritize needs, weigh the cost/benefit of each task, and begin the elimination process.

And with the design-build approach, the often combative nature between designer and builder is eliminated – especially as nuances are tweaked or potentially eliminated. Client needs, design aesthetics and the budget stay at the forefront, without the friction.

Revising the estimate.

Besides time and money, variables such as task duration (which pushes labor costs) and raw materials impact the estimate and budget. Once initial figures are presented, it’s up to the CU whether the estimate is in line or needs revising. Variables will be reviewed and tested again until the firm reaches a conclusion on which method to employ. 

Some firms use further analytical tools, such as a decision matrix, to weigh factors against client priorities. By studying each variable’s cost impact, and planning for contingencies, the steps become clearer, and decisions are easier to make. With experienced firms, you can also rely on ‘tribal knowledge,’ information that is inherently understood within the confines of a team to account for a variety of project data, both historical and real-time. The firm should also offer a level of experience that matches the job. Many times, it’s the intangible knowledge and team synergy that make a final difference.

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