By

Bob Prieto
Senior Vice President
Fluor Corporation

The lessons learned that follow are based on experience in the infrastructure, buildings, government, power and industrial sectors on "mega-projects". "Mega-projects" are those projects which are complex in nature (technically, logistically, politically, etc.) and have total installed costs in excess of $1,000,000,000.

This is the second part in a Series of such lessons learned. This part addresses lessons learned in:

• Cost Estimating
• Cost, Schedule, and Status Reporting
• Cost Containment
• Project Personnel

The first part of this series addressed lessons learned with respect to:

• Project Management Plan
• Finance Plan
• Safety
• Schedule

These lessons learned are not intended to be comprehensive in nature but rather represent a compilation of such lessons that the author has, through his various professional and industry experiences, identified as important to the success of "mega-projects". Many represent nothing more than the fundamentals of good project management, but because scaling effects are non-linear, they take on special importance on "mega-projects".

The lessons that are described apply across a full spectrum of delivery and contracting approaches.

Part 2

Cost Estimating

• cost estimates prepared in year-of-expenditure dollars with some Allowance for schedule slippage taken into account.
• reporting the costs in year-of-expenditure dollars will greatly reduce the media and public perception of "cost growth"
• evaluate escalation indices on an annual basis
• reasonable contingencies should be built into the total project cost estimate
• construction unit cost growth during construction
• design driven cost growth based on different levels of design completion;
• management contingency for third-party and other unanticipated changes
• other contingencies for areas that may show a high potential for risk and change
• contingency should reflect risk in project and be reassessed as major risk milestones are accomplished
• cost estimates must reflect the economic impact of the mega project including adjacent or related mega project on the local area.
• material manufacturer and supplier impacts
• efficiency of large packages for construction must be balanced by capability of local contractors(agency inherently maintains interface risk) or ability to attract one or more large project GC’s who will integrate local resources (preferred)
• a value analysis should be performed on the project to determine the most economical and advantageous way of packaging the contracts
• adequate cost estimating skills and resources are required to develop timely independent estimates of contractor claims
• utilize an integrated project cost estimate incorporating cost, schedule, and risk contingencies
• prepare a comprehensive risk analysis identifying risk contingencies
• BE REALISTIC
• use certified cost engineers (CCE)
• continue with on-going cost risk analysis
• emphasis on productivity rates in consultation with construction field staff
• clearly defined Basis of Estimate
• maintain a strong QA/QC oversight of the cost estimating process
• QC check lists are used
• QC check sign-off….getting commitments
• Overall reliability checks to ensure estimates “makes good sense”
• construct a overall integrated project performance reporting process
• identify potential impacts on total project

Cost, Schedule, and Status Reporting

• ensure all managers have read contract and understand requirements
• cost, schedule, and status reporting should be done on a frequent basis with daily and weekly milestones
• must provide early warning of potential cost changes, schedule delays, and other significant project issues and communicate clearly and broadly at the earliest possible date.
• potential impacts under various mitigation scenarios must also be considered and outlined to foster management rather than just acceptance of impacts.
• potential impacts on contingencies and project flexibility must also be identified.
• must include initiatives being analyzed or implemented in order to recover any cost overruns or schedule delays. Acceptance of variance without an attempt to recover must not be allowed to become the norm.
• additions to or utilization of cost or schedule contingency need to be thoroughly understood (avoid end of project surprises)
• reasons for variance in cost and schedules need to be analyzed and lessons learned developed at the earliest possible point in order to incorporate in subsequent estimates, schedules and project execution plans (lessons learned are not an end of project exercise)
• master program schedule must be fully integrated such that delays occurring in one activity will be reflected in the overall program schedule.
• cash flow forecasts and reconciliations performed weekly as a forecasting and control mechanism
• exception reporting must clearly define current situation and root causes
• use earned value methods for quantitative performance evaluation
• validate performance controls for reporting
• define project status in terms of its milestone accomplishments, parameters, progress
• provide a list of significant events that have occurred during the reporting period
• ensure everyone understands the implications (good and bad)
• identify issues that have arose and have potential to impact the project
• ensure timely reporting, consistency and accuracy
• RELIABILITY of reports is the most systemic issue…..loss of credibility is very difficult to recover
• be brief but specific on important issues
• measure against baselines

Cost Containment

• agencies control and document project scoping issues
• establish a control review board (upper management)
• value engineering and constructability reviews must happen early and continuously throughout the design and construction process
• focus preconstruction should be on completeness, coordination of drawings(internally and with specifications) and clarity of design as well as provide value engineering suggestions to facilitate construction utilizing particular means and methods
• lessons learned from early packages bid should be reflected in subsequent construction procurement packages including contract terms and conditions
• emphasis on functional analysis without compromising quality
• lessons learned from early construction activities must be reflected in project procedures and practices in a structured way
• value engineering alternatives must be heavily weighted for acceptance
• value engineering workshops facilitated by certified VE specialist (CVS)
• contract documents must be clear and unambiguous. The responsibilities of the contractors, owners, and third parties must be clearly understood by all involved parties.
• interfaces between contracts must be clearly established
• mechanism for dealing with potential conflicts between contracts in terms of access, use of common materials or services must be clearly spelled out.
• approach to dealing with site wide resequencing of work and contractual mechanisms for dealing with any associated changes must be clearly developed.
• contractors should be brought into the project early via outreach meetings.
• all drawing revisions must go through transmittal process and acceptance clearly signed off by all required parties
• Establish a technical review board/committee
• may be done on expedited basis but cannot be shortcut
• adequate project control capability that includes:
• experienced staff
• sufficient staff positions
• strong control over project scope changes.
• timely Acknowledgement and response to project issues
• use of partnering techniques and quickly resolution of disputes.
• timely decision making relative to change orders and other project issues
• rapid project execution represents best cost containment strategy (tempo)
• management actively engaged in day to day management of project
• sunrise meetings to review progress from previous day
• review game plan for the day
• identifies potential conflicts
• items requiring expediting
• reinforce project values on safety and execution excellence

• cost savings opportunities to be included in the risk register
• alternative cost saving opportunities prioritized by realistic evaluation of potential cost impact X probability of occurrence

Project Personnel

• experienced key personnel must have the requisite technical, managerial, leadership, and communication skills needed
• recruit overqualified staff
• identify early those with potential team leadership (great groups perform under great leaders)
• high ethical integrity is a must

• regular meetings with defined agenda (not just crisis)
• deliverables should include feedback to client for select items

• emphasize core values – safety/execution excellence

• not just window dressing
• management by walking around “the project”