The effect of ‘scope creep’ on budget.
At DFA, the successful navigation of budgets and schedules is a cornerstone of successful relationships. To maintain transparency and accuracy, we base our budget recommendations on our historical analysis of the actual expenditures of comparable projects. We use the same process to estimate project durations. Each project we complete provides additional data and makes us better forecasters, and we include budget and schedule discussions in our earliest consultations.
Yet, even with rigorous estimating, project budgets and timelines often expand, sometimes meaningfully so. Numerous factors contribute to budget overruns and delays, but without question, the number one catalyst is ‘scope creep.’ Wants and needs arise after construction commencement, as new conditions and opportunities come to light. The most thorough architectural plans set forth known project requirements, but can’t anticipate developments of the site or program additions post-construction commencement. If architects were to prepare plans with a worst-case or anticipatory bias, clients would find themselves paying for unnecessary work – with little expectation of a full-value refund for unperformed work called for by overly conservative plans and specifications.
From the time parameters and budgets are established, projects predictably evolve, and typically costs increase and schedules extend. As a point of reference, DFA’s projects average an increase of ten to twelve percent after construction commencement – a record we are proud of when discussing and comparing industry norms with our colleagues. While it is hard to accept that ten to twelve percent cost escalation represents an accomplishment with regard to controlled execution and disciplined project management, our data supports the universality of ‘scope creep’.
Not surprisingly, clients receive reports of significant cost escalations and schedule extensions with the opposite of enthusiasm. While ten-percent escalations and reasonable schedule extensions are well anticipated and are well tolerated, some projects escalate in excess of thirty percent, and schedules drag on seemingly endlessly. Frustrated clients demand explanations. Performance evaluations trend towards grades of failure. Contractors feel under-appreciated, and architects move into damage-control mode. But, these emotional responses only tell part of the story.
Large-scale escalations and schedule extensions most frequently come from design opportunities that arise after construction commencement. A popular expression of project evolution and escalation is that the ‘goal posts have moved.’ While I like the football analogy, I prefer the golf metaphor of ‘playing extra holes.’
An established budget is very similar to a golf course’s par and difficulty (slope) rating. In theory, a scratch (professional) golfer should be able to play the course in a specific number of strokes, or ‘par.’ The rest of us will take more strokes than par, and carry handicap indexes that establish our individual par expectation by adding strokes to the professional’s allotment. Metaphorically, construction contracts establish a project’s par, and every contractor invoice tracks performance relative to par. As construction costs and when schedules change (increase) along the way due to site conditions and scope creep, par (project cost statements) needs to be adjusted.
Project budgets and schedules often escalate. Knowing that clients will be resistant, contractors are often hesitant initially to fully document that client requests and site conditions have occasioned costs to rise, in effect, lengthening the course (often, by many holes), and to adequately enumerate the magnitude of changes (increases) and to reset the expectations of the owner. Contractor timidity is understandable, as cost escalations and schedule extensions make clients upset, and since this information is usually shared at the time of invoicing, contractors fear that payments will be withheld. Instead of re-setting par for the course, they try to accommodate an increase in scope while maintaining the original cost estimate and schedule, effectively kicking the can down the road while setting an un-accomplishable course. In the end, this attempt to skirt confrontation fails, as costs are real, and an honest assessment of changes (increases) is unavoidable. Clients need to realize in real time the impact of decisions and discoveries if they are expected to embrace a redefined project budget and schedule.
ADDITIONAL WORK AUTHORIZATIONS, not CHANGE ORDERS
As project managers, it is our role to reassure builders and owners that cost escalations and schedule extensions are not failures; they are the necessary result of discovered conditions and additional scope requests. One arrow in our quiver is to re-characterize scope creep from unsettling ‘change orders’ to ‘additional work authorizations.’ While this distinction may seem semantic, the differing and more affirmative reaction to additional work is palpable. So much so, that we are working to remove the term ‘change-order’ from our vocabulary entirely.
Evaluating performance accurately only occurs when comparing to an increased par. While this sounds simple, re-setting par is contrary to the emotional fabric and institutional history of construction. Clients are always frustrated by cost escalations and schedule extensions and look for accountability – too often in the wrong place. Contractors (and architects) want happy (not frustrated) clients, and want to deliver on their original promises. “We build on time and on budget” is the hallmark of every successful architect and builder. It is not spin when I validate the concept of on-time on-budget delivery, as long as the budgets and time frames are properly re-set to match the invariable scope creep that occurs.
It serves the best interest of all parties to recognize that playing extra holes is not only OK, it can be done with enthusiasm. Let’s tee it up, and play another nine.
DF, 12-1-2017