When talking with construction professionals our team often asks a simple, yet revealing, question: What keeps you up at night? One major trend—and sleep depriver—is not having visibility into a project’s cost to complete. This common occurrence among executives managing capital construction programs is often coupled with the notion of not being able to react to potential cost overruns until it’s too late. In other words, there isn't an early warning system in place or any cost control tools for projecting the future course of a project. So we thought: What if this early warning could be achieved by efficiently forecasting project costs?
I posed this thought during a conversation with a director of construction and the reply was essentially this, “I need to spend my time managing issues, not trying to track them or figuring out where I stand.” A valid point, I thought. What if you could forecast these potential costs without spending an inordinate amount of time? To this the reply was, “Go on.”
Just to be clear, by "early warning system", I’m describing project cost forecasting and by forecasting, I mean knowing at any time during a project what it will cost to complete it. Simply put, a forecast is a list of the anticipated project costs compared to what has actually been spent to date. By continuously reviewing and analyzing this data, trends can be recognized early enough to allow time to react and correct these trends for a positive outcome on the project. You’re able to see what you’ve spent and what you expect to spend over the life of the project. A detailed and well-executed forecast will alert you to a potential cost overrun before it happens so you can take corrective action. This early warning system keeps the focus on managing the issues before they actually happen.
There are many ways instituting a forecast process would be invaluable and it's interesting that it’s not as prevalent in the construction industry. It seems organizations are either forecasting or they’re not, and if they are, they do so with more effort than necessary and eventually stop altogether.
I consider the following challenges what organizations typically face when forecasting project costs today: using multiple spreadsheets and databases, not having visibility into their project (changes and commitments) and not having real-time reporting. I’ve heard numerous times these challenges keep them in reaction mode, or managing their projects in the rear view mirror.