Project Management 1.1 - What, Why, How

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What is Project Management?

Project Management goes beyond the traditional Construction Management approach. The Project Management team assists the owner from the very inception of the project to the completion.

The Project Management team is composed of individuals who have training and experience in planning, architecture, engineering, cost estimating, general contracting, accounting, and business, all of the disciplines necessary to determine: (1) if the project is feasible; and (2) to manage the process to a successful completion.

The PM team will assist the owner in developing realistic budgets that include all of the elements required to complete the planned capital project. Some of those elements are:

-Direct Construction

  • Building Cost
  • Site Development
  • Off-site Utilities

-Architect/Engineer

-Equipment

  • Fixed Equipment
  • Movable Equipment
  • Furnishings
  • Interior Designer
  • Equipment Consultant

-Administration

  • State Review Fees
  • Soils Reports
  • Testing - soils, concrete, steel, fireproofing, etc.
  • Project Manager

-Land Acquisition and Development

-Finance

It is not fair to an owner whose daily business probably has nothing to do with design and construction to suddenly be an expert in design and construction. The Project Management team provides an owner with that expertise thus allowing him to make the right business decisions, in a timely manner, as they relate to the operation of this business.

The Project Management team performs its service for a fixed fee based upon hourly justified time spent on the project. The PM team does not receive additional compensation for completing a project under budget or any other "gimmicks" that have been developed to gain additional fees.

Often, Construction Management will be based upon a percentage of construction costs; thus, leaving the owner in doubt whether the construction manager is really interested in reducing costs since the CM's fee is reduced if he does so. Construction Managers also like to suggest that they (the CM) share in savings that might be developed on a construction project. It is ironic that the CM would share in the OWNER'S savings especially when the CM probably set the budget in the beginning.

As stated earlier, the Project Manager represents the owner's interest to ensure that the owner's objectives are met at the least possible cost, in the shortest amount of time, with the best quality possible. The Project Manager's fee is identified as a "not to exceed limit" with the understanding with the owner that if less time is spent as a result of fewer problems, then the savings will accrue to the owner.

How does Project Management work?

-Cost Model

Once a program description has been developed, the Project Manager is responsible for developing a Cost model which identifies all of the anticipated costs for the project. The owner determines if the project is feasible. Assuming the project is feasible, the owner approves the program and budget (See Sample Document "A").

-Design Team Selection

The Project Manager next proceeds to assemble the design team either by soliciting competitive proposals from invited firms or by direct negotiation which ever the owner prefers. If it is by competitive proposals, the Project Manager will prepare the Request for Proposal. The PM will receive the Proposals and will assist the owner's selection committee in scoring the responses. A "short list" is usually developed after which the firms are invited to give presentations to the selection committee prior to a final selection being made.

The PM will develop the contracts with the architect and consultants which are under direct contract with the owner.

-Master Schedule

As soon as the program has been defined and the project scope has started to take form, the PM will develop an overall Master Schedule which will address timing for such items as:

  • Design Stages (schematic, design development, contract documents, etc.)
  • Stage Estimates
  • State Reviews
  • Construction
  • Purchase of Owner Furnished Equipment
  • Delivery of Owner Furnished Equipment
  • State and Local Inspections
  • Building Enclosure
  • Substantial Completion
  • Punchlist and Occupancy

A Master Schedule is essential to the owner to ensure that all members of the "Project Team" understand what is expected and plan accordingly. The owner interacts frequently with the design and construction process in order to meet schedules and cannot afford to be responsible for delays. Generally, when team members know what is expected, performance is achieved; hence, the Master Schedule identifies when each member is to perform (See Sample Document "B"). Periodic updates are made to the original Master Schedule to ensure that the owner's overall objectives are being met.

-Stage Estimates

As the design begins to mature, the PM will complete detailed cost estimates at the end of Schematic Design, Design Development and, if necessary, Final Construction Documents. Schematic and Design Development estimates are critical to the Design Team to ensure that the design is being completed within the approved budget.

The architect, engineers and owner will review the estimate in detail to identify any differences which they may have with the estimate. A "Value Engineering" session is typically conducted at the end of Schematic Design and/or Design Development. (See Value Engineering below). Recommendations are reviewed with the owner after which the owner will give direction with respect to those items which are to be incorporated into the design.

Depending upon the number of changes that are incorporated into the design after the Design Development review, a Final Estimate may or may not be required. If few changes are made, the DD estimate should reflect final bids. The Final or DD estimate will be used to compare actual subcontract bids should there be a variance with the budget.

Detailed estimates with material quantities individually identified are essential to ensure that proper value is being received for dollars spent. If there is a budget problem, the "offending" trade or material item can be identified without having to redesign whole departments. Too often budget cuts are made in areas such as landscape or finishes when the real budget problem may be in other areas such as glass or mechanical systems, etc.

Construction Managers often use subcontractors to provide stage estimates. Subcontractors are not accustomed to doing detailed quantity estimates from drawings which are not complete. Given a final set of drawings, they will be able to provide a solid fixed price. Unfortunately, the architect and engineers need the detailed estimate during Schematic and Design Development to ensure budget compliance. The Project Management team is accustomed to working with pre-final drawings.

The detailed estimates provided can also be used as a basis to justify "Component Depreciation."  The IRS allows for building components to be depreciated faster than the average life. The owner can realize benefits in reduced taxes or additional reimbursements from Medicaid based upon the information contained in the detailed estimates (See Sample Document "C").

-Value Engineering

At the end of Schematic Design and/or Design Development, a formal "Value Engineering" review session is conducted. The PM will make arrangements for outside consultants which will include an architect, mechanical engineer, electrical engineer, structural engineer and. others as the owner and PM feels should be included, to review the plans and specifications in detail. This group which is often called the "Cold Team" (cold because they are seeing the plans for the first time) will review and make recommendations which may; (1) reduce costs, (2) improve function or use, and (3) benefit the owner through a life-cycle analysis. The goal of value engineering is to optimize value to the owner.

Recommendations will be listed by the PM and appropriate costs will be identified with each recommendation. The owner will identify priorities after which each recommendation will be assigned a certain value based upon priority. A selection matrix is then developed which will assist the owner in identifying those recommendations which will be incorporated into the design.

The project architect and engineers will also participate in the review in order to assist the "Cold Team" and the owner in identifying the most cost effective systems for the project.

Cost savings in excess of 10% are often realized without compromising the owner's objectives. The project architect and engineers are making every effort to design the most cost effective product possible, but having other professionals looking at the project from a different perspective will always identify some benefits which were not considered before.

-Pre-bid Qualification of Contractors

The PM will develop pre-qualification information as it relates to the project needs. Hospital construction is unique, especially as it relates to additions which involve remodeling and/or disruptions to hospital services. It is important that the firm as well as individuals assigned to the project (superintendent) have proven hospital experience. Key subcontract trades such as electrical and mechanical must also be able to demonstrate proven performance in similar hospital construction assignments.

Contractors will respond to the "Pre-qualification Form" after which the PM, under the owner's direction, will review in detail the information submitted.

Scores will be assigned to each question with a minimum qualifying score determined before the review takes place. The PM will follow up with noted references to determine if the contractors stated performance record agrees or disagrees with the previous client's perception of that performance.

Scores will be totaled and a list of the Pre-qualified Contractors will be submitted to the owner for final review and acceptance. Only those contractors listed will be invited to submit bids.

-Bidding Process

Early in the design process, the construction methodology will be determined. The construction may be bid by one of the following formats:

  • Lump Sum General Contractor
  • Fee Bid General Contractor
  • Phased Lump Sum
  • Multiple Prime Contracts with Owner
  • Multiple Contracts Assigned to Fee Bid Generator Contractor

A determination will be made with consideration given to current market condition, weather, occupancy requirements and other owner constraints, etc.

Once the pre-qualified contractors have been identified, the PM will notify both successful and unsuccessful applicants. Final Bid Documents are submitted to those pre-qualified contractors and additional documents are placed in local plan rooms for bidding. Notices will be placed in area trade magazines and documents will also be made available to Dodge Scan.

The PM will make sure that ample notification is given to suppliers and other trade contractors to provide maximum coverage in all areas. The owner can be assured of obtaining the best possible bid if suppliers and other sub trades are aware of and are interested in submitting quotes.

Bids are received and opened publicly or privately depending on the owner's preference. The bids are evaluated with respect to the last estimate. If all areas of the apparent low bid are in line with the approved budget, the PM will recommend to the owner that a contract be consummated with the successful low bid.

Approval will be given by the owner to proceed after which the PM will arrange a pre-award meeting with the successful contractor to review all aspects of his bid. Once the PM and architect are assured that the successful contractor's bid is complete and responsive, the PM will develop the contract for signature. The PM will also make sure that the contractor submits records of insurance certificates and required bonds for the owner's file prior to work commencing.

-Contract Administration

Regular on-site project meetings will be scheduled with the PM, contractor, architect and owner to review:

  • Work Complete
  • Work Planned
  • Work Completed as Compared to Schedule
  • Review of Previous Meeting Minutes and Assignments
  • New Questions and Items for Discussion
  • Pending change orders and Status

The PM will develop meeting minutes from the Project meetings which will reflect the items noted above. Specific assignments to the architect, engineer, project manager, owner, contractor or other consultants will be documented and recorded (See Sample Document "D").

The greatest protection that an owner has with respect to avoidance of claims is to have a clear record of responsibility. The Project Meeting Minutes provide the owner with that protection. The General Contractor or Construction Manager and the architect are trained to keep records which protect their interests; however, the owner is usually the most unprotected. The PM's job is to protect the owner and represent the facts as they are.

In addition to the regular Project Meeting Minutes, a periodic Management Information Report (MIR) is also provided. The MIR relates to:

  • General Review
  • Delays
  • Problems Recommended Action to Overcome Delays and Problems
  • Assignments to architect, engineer, owner, project manager or others

The MIR is intended to provide a summary overview of the project which can be made available to Governing Boards or Complete Personnel in charge of the project.

-Change Order Review

During the course of construction, it is anticipated the owner may have some changes which are desired, or review agencies may mandate requirements, or the design team will have additional minor refinements which will be required after a contract has been initiated with the General Contractor.

The PM will review the merits of each change and determine if proper value is received. The cost of each change is discussed with the owner and the impact of that change is identified with respect to the overall budget including contingency funds. The owner provides direction with respect to its inclusion or exclusion after which a change order is initiated on those changes which are approved.

The Project Management team provides a wealth of cost information relative to change order review. Current materials and labor cost information are maintained on computers. Costs reflect current market conditions for the project area; hence, providing the owner with an assurance that value is being received.

-Budget/Actual Reports

Detailed Cost Reports are provided which compare the Actual Cost or commitments to the Approved Budget amounts. Invoices for all budgeted categories are tracked on the Budget/Actual Report. The report will provide the owner with a single document which has accounted for every commitment (contracts, purchase orders, etc.) and every payment made against those commitments.

The owner is updated monthly with response to additional commitments on payments and the effect those commitments have on the approved budget. The Budget/Actual Report provides additional documentation for the owner to justify accelerated depreciation on building and equipment components which will be beneficial for tax purposes or Medicaid reimbursement.

The Budget/Actual Report represents the tracking document that will keep the project on budget. Having a project completed within budget does not happen by accident but only by careful tracking of all budget categories thus allowing for responsible decisions to be made throughout the project life (See Sample Document "E").

Why Project Management?

The Project Management process allows the owner to obtain specialized expertise which encompasses all descriptions of planning, design and construction, without making a long and binding commitment. The PM team can assist the owner in the development of concepts and programs thus permitting cost estimates to be developed that are essential in making good business decisions.

The Project Management team can assist the owner in the selection of other team members such as architects, engineers, interior designers, equipment consultants, testing firms, general contractors and subcontractors, etc.

Once the owner has approved the written program and associated budget which include all aspects of the project, the Project Manager's responsibility is to make it become a reality. Neither the architect, engineers, contractor, project manager nor anyone else on the project tea is authorized to change the program or the budget without the owner's prior approval.

Only with the Project Management process does the owner have the assurance that the total project is under control as the management board or committee who approved it. Construction Management Services usually deals only with construction thus leaving the owner to fill in the gaps where his training usually is not sufficient.

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