Advancing the decision-making process through conceptual cost modeling
One of the most critical success factors for a healthcare facility manager's career is the ability to successfully deliver a major construction project. “Successful” is typically defined as delivering the project on budget and on time. If you have not properly estimated the total project when it was still in the conceptual stage, typically when little more than the gross area is known, you may have missed the mark. The last thing you want to do is go back and ask for more funds, so how can you be sure your preliminary numbers are accurate?
Importance of setting a realistic conceptual cost
When a healthcare system is developing its capital plans for the next year, or sometimes the next three to five years, the organization needs to have accurate total project costs for its “wish lists” of needs. With the exception of major construction projects, these lists are typically divided into three buckets: Clinical Programs, Information Technology, and Facilities. Each of these requests is evaluated against the others for its financial and nonfinancial contributions to the system, and then tradeoffs are made.
When major construction project costs are submitted for approval, the funds often times compete with the ongoing capital needs of the organization. Since the initial request almost always gets set in stone, accuracy is important. If more funds are needed later on, anything additional will be taken away from other approved plans. As a result of this process, the initial conceptual cost for a major construction project is the approved level of funding by the Board, with the understanding that no more is going to be given. It is critical for the conceptual estimating process to set the stage for success on a project. No one wants to go back and ask for more money!
Traditional estimating process
Estimating a project progresses through the same steps as the overall project development; getting more and more refined along the way. As major milestone estimates are developed, accuracy improves because more decisions are being made and contingency correspondingly declines. Contingencies are necessary to account for those unknowns still to be developed through the design or site conditions that have yet to be uncovered.
The traditional project estimating process is one where the architect provides drawings and specifications that are “taken off” by estimators, who assign a unit price to each element shown on the drawings or described in the specifications. It can take up to two weeks for the takeoff to be complete and another one to two weeks for the actual estimate to be made, compiled, and summarized. This process is time consuming and often delays decision-making while numbers are being compiled.
On today's fast-paced projects, accurate conceptual cost models are developed through a collaborative team approach that accounts for everything and relies on the contractor's inference of items not shown on the drawings or in the specifications. There's less time to wait for takeoffs but if items are not accounted for in your plan, you end up spending more in the field to solve resulting problems. This collaborative process between the entire project team can be called Value Management, since early discussion and evaluation of cost and tradeoffs are discussed to manage the total value of the project, rather than looking at only the costs of items.
Collaborative estimating requires early selection of the construction manager (CM) and his or her inclusion in the design meetings. The CM's focus at this time is to ask questions and identify all potential costs associated with the project so that they can create budgets for the design to target. Timing of these budgets is important as to avoid impacting the design process. Putting parametric values around the major cost groups allows the architect's team to design to a budget, using target costing to evaluate the impact of all options. A Value Management Log is used to track the budget status and decisions made.
Experience has shown us that real-time feedback on the cost of ideas early in the project can help advance the decision-making process. The ability to make early decisions, even based on order-of-magnitude numbers, keeps the project moving and allows clarifications and adjustments to be made during design. By nature, some adjustments will raise costs and some will reduce costs, so the overall net effect will be balanced at the speed of decision-making.
One example of this process is Gilbane's early involvement as the CM on Mercy Hospital's Fore River campus in Portland, Maine (figure 1). Through collaborative estimating, Gilbane, Francis Cauffman, and the rest of the project team was able to develop a conceptual cost model extremely early in the design of the project. Fifteen months later, after traditional estimating was complete and buy out occurred, the cost model remained within 1.5% of the value of the project. Having the early conceptual cost model allowed the owner to evaluate early program and design options and see the impact of those decisions in real time. The accuracy of the cost model allowed the team to make informed decisions with predictable outcomes, and the experience has been a near-exact match.
Mercy Hospital's Fore River campus in Portland, Maine. Courtesy of Francis Cauffman
Another example is Houston Medical Center in Warner Robins, Georgia (figure 2). Through early involvement, excellent teamwork with HKS of Atlanta, and accurate cost modeling, the budget for the project was within less than 1% of the original at each design phase (i.e., SD, DD) arriving on budget at time of GMP, even though the budget had been developed 22 months prior. Together with HKS, Gilbane used its cost-advisor tool to evaluate almost 40 different addition/renovation scenarios for the owner. The process helped the owner make sound decisions concerning the healthcare system's facilities development plan and provided the necessary documentation to secure approval from the hospital's Board of Trustees.
Houston Medical Center in Warner Robins, Georgia. Courtesy of HKS Atlanta
Conceptual cost model development
The major cost groups of a healthcare project include Departmental Fit Out, Building Core and Shell, and Site Work. Developing the model along these three groups is important because the department type is what makes hospitals unique. Without the departmental clinical needs, the core and shell of the building could house a university, office, or any other type of facility. The building core and shell elements are important for the architect to create the aesthetic appeal and functional size of the building; the site work costs reflect the unique conditions of the project location.
Having historical data for these groups is essential to planning for future projects. However, you must use historical data with caution. The cost data needs to be normalized to the current time period to reflect market inflation. It also must be normalized by location, keeping in mind the location of where the subcontractors will come from to build the project.
For example, on a recent project, Gilbane worked with the rest of the team to normalize costs to the specific location of the project, which was a suburban/rural area. However, since the subcontractor's trade forces in that community were unable to handle the size of the project, larger contractors from a more urban area bid on the project. As such, prices were higher than anticipated and should have been normalized to the nearest urban center. Through teamwork, the project was brought back within budget very quickly and design progressed.
A proactive approach
Time permitting, the traditional estimating process has been proven be successful. However, today's fast-paced market demands a proactive change in approach to estimating. We have found success with a collaborative estimating approach that specifically focuses on Conceptual Cost Modeling to develop an accurate and thorough model of potential projects costs earlier than traditional methods. This model has proven to be a valuable roadmap throughout the design process to help avoid costly surprises later on. TCV
Brian Garbecki, LEED AP, PE, is Director of Healthcare Services for the New England region of Gilbane Building Company. Garbecki has approximately 20 years of experience as a designer, owner, and builder of healthcare facilities and is a current member of ASHE and the Association of Energy Engineers. He can be reached at 617.478.3316 or
For more information on Gilbane, visit http://www.gilbaneco.com.
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