How do professional estimators deal with scope creep in real-world projects? 1

[albertjani]

I'm a civil engineering student currently learning about cost estimation, and I’m trying to understand how things work in practice. In school, we deal with fixed project scopes, but I’ve heard in the real world, things often change mid-way. How do professional estimators manage these changes without throwing off the whole budget? Any tips or resources would be appreciated!

 

[IRstuff]

It's the project manager's job to manage the customer. Scope creep should incur an new estimate, if it's truly an addition to the original scope. Additionally, while the project manager will beat up the engineers to lower their bids, they will often maintain a "management reserve" for "I forgots'" where the original estimate was incorrect or missing bids.

If the bid is done solely by a single estimator, their only recourse is to "overbid" i.e., pad their bids with extra slack, both for negotiations and for management reserve. In some cases, if the customer has their own negotiation team and estimators, one approach is to increase the granularity of the bid estimate, i.e., bid at the smallest possible time increment, since it's hard to argue cutting 10 minutes off a 2 hr task than cutting 10 hours off a 100 hour task.

 

[Ron247]

It's the project manager's job to manage the customer. Scope creep should incur a new estimate, if it's truly an addition to the original scope.

These 2 sentences sum up the reality. The primary word to remember is "manage". Most projects have a design team, construction team and an Owner. They are interrelated in some manner such as Owner states who the Contractor is from the start, or the design team and construction team are a Design-Build team selling themselves to the Owner. You must consider these relationships.

Also, who is creating the "change"? Who creates the change affects how you might handle it. What is the change? Is it an increase in scope or wanting to use a lesser product because they bid it that way even though the design specified a higher cost product. Also, what are the repercussions or the change (i.e. Time-Cost Quality). These are generally the minimum considerations but there are others.

There are not many tricks that can make additionally needed money disappear or will add 2 weeks to the schedule. We do generally stuff a little money in the bid for items we may have missed or as IRstuff noted, be more granular, but in the end, these cannot make up for noticeable changes in scope. That is when you have to "Manage the Situation".

 

[waross]

Change in scope or extra costs for unforeseen work to complete the original scope.
A good contract will have provisions for extra charges for extra work. There will often be a "Time and material" rate for change orders as part of the bid process.
Added scope, may be done by change order but major changes may be a new bid.
It is not unheard of for a bidder to recognize poorly engineered bid documents.
He may bid very low on the fixed price portion of the bid but bid very high on the "Time and material" formula.
He may then lose money on the fixed price portion of the contract but laugh all the way to the bank on change order charges.

 

[3DDave]

Yup. Give the customer what they want and then they discover that what they want isn't all of what they needed. I usually felt bad a bit for the most of the customers - DoD work and they rarely had the support to get the analysis right to begin with, but every so often one would hit that wall and it was glorious.

Usually the type of problem is like this - they want a bridge. So we design a bridge. Now they didn't mention they would also need the approach ramps to get up to the bridge. Then it becomes "Are you gonna tell them? I'm not going to tell them." Then come the day for the sign off on the completed project or some major completion milestone and the customer is looking way up in the air and lets out the sigh of realization that it's going to be more costly to start a new bid process and get all through all the hoops and hurdles than it is to beg for more money to complete the project they have in hand with the contractor they have under contract. Somehow the sole-source pricing was more profitable.

The good customers suck it up and realize the original spec was lacking and iron out the cash flow to make up for it. The bad customers go rocketing about the room screaming and throwing things. The best customers first let a contract to develop a specification for what they need and then look at the results of that before letting an RFP for the design work. This gives everyone time to start to make long-range agreements on long-lead materials rather than the "We have 1 year to deliver and the stuff it's made of has an 8 month lead time."

 

[LittleInch]

Huge number of variables here makes any one answer impossible.

It can depend on things like;
History of working between client and contractor
Future potential workload
Level of competiotion between the bidders
Workload in hand and in general ("hot" market or "cold" market)
Quality of the design and bid documents
Contract conditions
Personal relationship or not between the two parties
Cultural issues
Amount of "slack" in the budget, or not.

Many projects end up being very "contractual" with any minor change or amendment resulting is a change order. Then it's a battle to see if the work can be done before that is approved....

It used to be the case that large EPC contracts would be bid at cost or even below and the contractor would make his profit on the variations and additional work. They were hard to work on from the client side.

in general get a good design with high quality and detailed drawings, scope, specifications, bid docs and a decent client management team and scope creep risk is reduced.

The opposite and it can runaway with you.

 

[GregLocock]

"It used to be the case that large EPC contracts would be bid at cost or even below and the contractor would make his profit on the variations and additional work." One company I worked for had this down to an art form. Bid at almost zero profit, then encourage the customer to upgrade the design once it is under way, charged at $300 ph for an engineer.

 

[Latexman]

On controlling project cost, a wise, old Project Manager once told me, "there's a time in a project where you have to shoot the Engineers, and begin construction".

 

[IRstuff]

On controlling project cost, a wise, old Project Manager once told me, "there's a time in a project where you have to shoot the Engineers, and begin construction".

OK, that's just rude, my program manager used, "Time to take away the pencils"

 

[Ron247]

On controlling project cost, a wise, old Project Manager once told me, "there's a time in a project where you have to shoot the Engineers, and begin construction".

Where they also the inventor of the Climate Controlled Warehouse concept, it is cold outside, so it is cold inside, it hot outside so it is hot inside, and it is raining outside, but thanks to our permeable roof covering design, it is raining inside?

 

[dgeesaman]

I'm a civil engineering student currently learning about cost estimation, and I’m trying to understand how things work in practice. In school, we deal with fixed project scopes, but I’ve heard in the real world, things often change mid-way. How do professional estimators manage these changes without throwing off the whole budget? Any tips or resources would be appreciated!

Step 1. Know what you sold. In complete detail. Make sure that detailed scope is part of the final contract and not brushed aside with final PO edits.
Step 2. Track what is happening, compare to what was sold. Offer change orders as required. Every time a document submittal is returned with comments, it's necessary to compare the comments against the specs, clarifications and exceptions, etc. Some customers will write in comments that have significant cost/lead time impact and its up to you to hit pause and start the conversation about change orders. On many of my orders I've found that it take significant hours to keep referring to the specs, clarifications & exceptions, etc.

If anything the hardest (or at least, least-well-executed) part is knowing what you sold and ensuring that the clear and detailed scope of the offering is actually part of the written contract. There are a variety of reasons but as the supplier, ambiguity is very much to your disadvantage.

The actual art of estimating a cost varies greatly from business to business. If you're building a bridge, it could be as simple as interpolating a larger and smaller bridge of similar design and factoring that with raw material cost escalation estimates. In my business, which is mechanical equipment, we roll up the expected cost and lead time of each component and add costs for engineering, PM, and production hours. Most of our components are pretty well understood. The highly unknown components may need to be pre-designed and quoted from our vendors or simply estimated using judgment. The choice between those two options should be based on total order margins and the significance of that component cost to the entire project.

Sadly, the customers who are most difficult to quote to are typically the most difficult with which to execute the order. Sales teams have rosy glasses that love to believe the hard part is over once the C&E are settled, scope seems clear, and the PO arrives. Occasionally that's true, but usually customers who are messy before the sale are a mess after the PO and their disorganization hurts your ability to execute. If your business model involves an estimate of PM/Eng'g hours required to execute an order, and/or you're projecting ship dates (which is when the revenue can be claimed), then I personally believe that these customers should have a factor added to that number for the simple fact that those customers find a way to make everything painfully time consuming. Or just do what most businesses do, which is to ignore that reality and complain when ship dates and margins slip off plan.

I didn't address pricing. Cost is cost. Margins are a whole other and very important topic.

 

[dgeesaman]

On controlling project cost, a wise, old Project Manager once told me, "there's a time in a project where you have to shoot the Engineers, and begin construction".

Sounds like a company where the execution engineers and estimating team were poorly aligned. I've been doing my role for enough years now that I can warn the PM when an order scope looks squirrely and likely to creep and overrun. Our business improved quite a bit when we implemented a 'hand-over' meeting where the Engineering and PM get to review the new job and ask questions from the Sales/Estimation team who carried the order up until that point. Without it, Sales could toss the new order over the wall and everyone struggled to execute and not lose money or deadlines.

That said, if your business is highly custom work and the scope is not crisply defined during the quoting phase, then yeah Engineering hours can spiral quite a bit, and quite a bit more if the Engineering team lacks accountability. Hard to know which problem drove that guy's perspective.

 

[IRstuff]

Sounds like a company where the execution engineers and estimating team were poorly aligned.

That's not always the problem, unforseen problems, "I forgots", untested designs, etc., can all contribute to unexpected scope in design. And, of course, there's the "winning" bid that might have little correspondence to reality; for aerospace, the estimators are the engineers, but the GM and marketing have the final say-so on bids, so estimators and engineers were aligned, but monkey wrenches abound.

 

[Latexman]

Sounds like a company where the execution engineers and estimating team were poorly aligned.

The engineers, PM, and estimators were one and the same. We wore many hats!

 

[pierreick]

I believe this document will help you to understand "Project Management"
Pierre