Over the last decade we have seen most Engineering & Construction companies make significant investments in technologies.
Tools such as CAD/Building Information Modeling, Geospatial systems, Common Data Environments, and other tools and processes that improve the front-end design and specification of a constructed asset, whether it be a building or piece of infrastructure. Investments have also been made in Project Controls and the way the project is planned, scheduled and delivered, as well as accounting for its actual cost.
Still spreadsheets everywhere
However, in the middle ground the processes for estimating costs have so far by comparison been overlooked. It’s surprising how many companies still rely on huge unwieldy spreadsheets for estimating the cost of their projects. It is fair to say that several sector-leading companies have realised that they need to significantly improve the estimating processes and supporting technologies. Some have quickly recognised that better estimating helps to give them a competitive edge. But there are many that have not yet considered the gains to be had.
Same, but different
Everyone needs estimated cost information, but depending on where you sit in the asset lifecycle generally dictates what you do and how you need to work.
If you are an asset owner/operator it’s often important to gather estimated costs from multiple contractors, try to standardise the data and then benchmark the results against similar project cost profiles at different stages within a project. However, gathering data in multiple formats, consolidating and making sense of it is generally troublesome and very time consuming, so many simply just don’t try. Many owners are also undertaking their own estimating on a project in order to validate the costs quoted by contractors, or to manage risk.
As a main contractor, gathering design and quantity information, defining work packages and gathering pricing, and then pulling everything together in order to prepare a winning bid is a real challenge. Being able to quickly check completeness and accuracy of the bid is a key part of the process, as is being able to work efficiently across multiple bids at the same time to raise your chances of producing a winning bid and increasing your win rates. For many companies the cost of bidding on a project represents a major commitment of company resources, and with win ratios as low as 1-2/10 it’s a significant investment where better ‘cost intelligence’ can help.
If you are a subcontractor then perhaps it’s more about quantity take offs from someone else’s design and creating a BOQ that you can estimate against. It can take weeks of significant effort, and often its like hitting a moving target as things change and details get firmed up, so its really important to be in control of a process that sees multiple cost engineers working on the same information simultaneously and collaborating to get to an accurate, reliable and defendable estimate. Again the bidding process is key. Some companies choose to sub-contract the production of a Bill of Quantities and regularly spend large amounts of money to get the information as they may not have the skills or resources to do it themselves.
Risk or reward?
Wherever you sit, the reality is that companies that ignore estimating as part of their digital transformation risk a great deal. It’s obvious that getting estimates wrong can be devastating to the health and credibility of the business.
Losing bids that you should have won can seriously impact revenue, and missing items out of a bid or using incorrect pricing can seriously erode profitability.
In an industry with extremely thin margins and high risks neither scenario is acceptable.
In most cases the value of transforming the estimating process can be justified by a single project, either winning an additional piece of work, or just by protecting and improving your margins.
From past case studies we also see that major savings can also be made in terms of effort and number of staff required to support the processes (75% savings), and improvements in speed and efficiency (80%). That’s right…80% faster with 75% less effort! Another way of looking at this is being able to do much more, much faster with less effort. Add to that the potential to increase accuracy and reduce risk.
Overcoming the inhibitors and nay-sayers
With such good value to be had, there are obviously factors at play that can stop companies rushing to transform their estimating processes:
Fear, uncertainty and doubt
One of the challenges of addressing the estimating processes is fear. The cost information in a company is often seen as sacrosanct and the cost ‘database’ and spreadsheets protected and defended by everyone. However, in the age of digital transformation the loading of the companies cost information into the new solution has been an area of focus for solution providers in order to quickly migrate to a new world order.
Change is dangerous!
People can be ‘set in their ways’ and reluctant to change how they work, even when it is demonstrated that there is a more efficient and accurate way of achieving the results, preferring to stay in their comfort zone. In some cases, management cave in to this and either delay or even forego the savings to be had. Others take a much stronger approach saying ‘if you can’t change the people, change the people’ and force through change. It’s also true that sometimes a big project client forces change on a company by demanding that estimates are provided in a specific format which in turn requires process and technology change.
However, it comes about, the best implementations come from showing people that their requirements can be met and finding the best way to take everyone on the journey together so that they own the value and claim the success. Change means progression. Different doesn’t mean bad.
How do you measure success?
You certainly need to know that your estimates are accurate and produced efficiently and these benefits can be measured. However, historically it has been very difficult to make comparisons between projects, typically because the data is scattered and in different formats. More recently, Benchmarking tools have started to help companies, collect, normalise and compare the cost information across multiple projects and this topic is now gaining increasing interest. As this approach gathers momentum it is expected to become transformational in many companies in the near future and a goal which may trigger a review of the entire cost management process.
Digital transformation – the missing piece
How many companies have examined and transformed their estimating process rather than relying on spreadsheets? Of those that have, how many have driven this transformation across their organisation on all projects or on a global scale? The numbers are increasing but transformations could be much faster. If you believe that there is considerable value to be gained, perhaps more companies need to consider unlocking the value.
It seems clear that as the most widely used estimating tool is still Microsoft Excel, this needs to be addressed as part of a holistic digital transformation strategy and whatever the size and mission of your company the time is right to start.