Tom Koulouris brings us his 3rd installment of the blog series, Lowering Capital Project Costs.
As I travel about the country assisting owners with their Design & Construction departments, I often ask owners why one delivery model was chosen over another model. More often than not the response is something like, “We think we are getting the lowest price”. Conversely, when owners ask me how to go about choosing one model over another, my response is, while the choice has profound effects on the project as a whole, costs included, it has more to do with the Risk Tolerance of the overall organization. Simply put: Risk tolerant organizations will pay a lower final cost than Risk adverse organizations. The reason is Risk Shifting as described here.
Delivery models that tend to place more cost risk on the owner will yield a lower final project cost than a delivery model that shifts the risk to the Construction Manager (CM) and Architect/Engineer (AE) teams. (There are a few exceptions.)
Two factors affecting the outcome of this include department organization, discussed in the last blog; and construction manager skill set and ability to execute effectively.
A second element in choosing a delivery model has to do with overall project success. After polling various owner stakeholders, I learned that they each measure success in different terms depending on prior experience, point of view, and job responsibility. Common descriptors include: On-time on budget; no change orders; no disputes; no accidents; quality construction; and regulatory approvals. All have valor and are well-meaning. Actually achieving all of these goals within reason is considered a successful project. A project that had very low cost but suffered badly in the other areas is not a successful project. Capital projects are team efforts and therefore the whole team must be successful, not just one or two stakeholders. The chosen delivery model will greatly influence the overall outcome and success or failure of a particular project.
The third element in choosing a delivery model has more to do with the execution of the model rather than choosing the model. The manner in which the delivery model is administered, and the rules agreed upon, has much to do with the success. For example, the department must understand and be trained in the various nuances of the model, and the CM and AE teams must have early buy-in on the manner in which it will be executed. Closely tied to the delivery model execution is the manner in which the project budget format synchronizes with the model, which we’ll discuss in the next blog. The right model administered badly or a disagreement on how the model will be carried out can ruin an otherwise successful project.
Tom Koulouis is recognized as a dual subject matter expert including hospital operations and capital investments. As a General Contractor, former senior construction manager with HCA, and Capital Project and Infrastructure advisor at Price Waterhouse Coopers (PwC), Tom has developed and practiced many key components to drive down project costs. One process that Tom has used to save significant capital is his ability to understand and implement process improvements leading to higher capacity and increased patient through-put. Tom has also developed and practiced many other techniques for owners to lower project costs. To read more from Tom, visit www.tomkoulouris.com.