The Cost of Assumptions: How Contractors Can Quantify Risk When Estimate and Schedule Diverge

David Chigne:

Well, hello everyone and welcome. My name is David Chigne. I’m a member of the AACE International Board of Directors and Operative Controls League with Toscano Clements Taylor in New York. And of course, it’s great to have you with us and I will be your AAC host for today’s webinar. And as everyone joins, please take a moment to let us know where you’re joining us from. It’s always great to see how many different locations are represented at these events.

Before we begin, I would like to quickly cover a few housekeeping items. To help minimize distractions and maintain the quality of the event, please disable any AI chatbots, or meeting assistant that may be connected to your account. Of course, today’s webinar is being recorded and is eligible for CEUs, continuing education units. So within the next 40-hours, all attendees will receive a follow-up email containing the recording, the presentation slides, of course, your certificate of attendance.

Okay. What else? Our presenters will be taking questions live. So if you have any questions during the presentation, please submit it using the Q&A box at the bottom of your screen. You can see it now. You can also upvote other attendees’ questions by clicking the thumbs up icon. The questions with the most votes will be addressed first. If we are unable to get your question during the session, I’m pretty sure the InEight team will attempt to answer your question in a follow-up email of course.

And by the way, before we continue, we’d like to hear from you also. We’re going to launch a quick poll with two questions related to today’s topic. So the poll should now appear on your screen. I can see it now. Please take a moment to answer both questions. Easy questions related to today’s topic. Of course there are no right or wrong answers. We’re simply interested to learning more about your experience about this topic.

Before I introduce today’s topic, I just would like to leave you with a quick thought. A PRET may begin with a solid estimate and a well-developed baseline schedule, but if the assumptions we find those two documents aren’t online, the PRET may already be carrying risk that no one can clearly see. Those freedom disconnects can later emerge as a productivity, shortfall, scale delays, margin erosion, and of course even contractual disputes. So I’m pretty sure more than one is related to this situation on a daily basis maybe. And that is exactly what today’s webinar will explore, how PRET controls professionals can identify and quantify the risk created when the estimate and scale begin to tell different stories, and how quantitative risk analysis and Monte Carlo simulation can help produce more realistic risk adjust outcomes.

And you can see on the screen today’s webinar, the cost of assumptions, how owners and contractors quantify estimate scale divergence. Our presenters today, you can see Jordan Brooks, Product Director at InEight, and Dominic Cozzetto, Estimate Director at InEight. Jordan, Dominic, thank you so much for sharing your knowledge with us. Without further delay, please, the floor is yours and take the presentation.

Jordan Brooks:

Thank you, David. And based on that high level overview, you could have done the presentation for us. So thank you for that.

Dominic Cozzetto:

David, just keep going with my part and I’ll look and watch.

Jordan Brooks:

Like David said, I’m Jordan Brooks, product director for Schedule and Risk at InEight. Member of AACE, have a couple certifications through AACE, so always like coming to these events, like giving back as much as I can. I’ve been at InEight now for going on five years. Previous experience in the construction capital project industry. And I’m looking forward, this is I think my third or fourth with Dom. It always goes well, so it’s always good having him here by my side. I’ll let him introduce himself.

Dominic Cozzetto:

Yeah, and thanks, Jordan. I’m Dominic Cozzetto. It’s actually my ninth year now at InEight. I had 12 years at TIC before that. I love doing these with Jordan. It’s fun to see a room full of people from all over the place. And then I have a friend I haven’t seen for nine, 10 years, just say hi. So hi, Eric. Great to see you. Slightly nervous now that Eric’s on here because we learned how to estimate together in 2012. So really good times there. But other than that, yeah, I’m coming at this from an X-estimator project manager approach from a heavy industrial side. So that’s where my experience and my talking points will be today. But I do work with different owners and contractors from all different industries now. So I have some experience with third-party experience with this too. So yeah, Jordan, go ahead.

Jordan Brooks:

Thank you, Dom. Real quick, for those who may have not heard of InEight, the company Dom and I work for. InEight is a platform solution. I work on schedule north side. Dom works on the estimate side. We have a whole suite of different products out there that work together, either together or you can actually buy them very modularly one at a time. You can buy schedule, it’ll work, you can buy estimate, it’ll work one-off. But we were founded in 2014. To date, we’ve managed over $1 trillion globally, you can see. And we’ve been on projects across the world in 60 countries we’ve worked. And that InEight platform is really going to be the focus of what we think is an important part of connecting data within a suite or within your systems that you use, why that’s important, some of the benefits you get from it. That’s a little bit about InEight. If you want to learn more, there’ll be some QR codes and information at the end that you can go to as well.

What are we talking about agenda-wise here? David covered it very well upfront. Cost of assumptions and some of the risks that come along with that. When we start digging down to exactly what we’re going to talk through, we’re going to go through the two worlds that we’re really talking about here, which is estimating and scheduling and where we see a lot of that risk pop up, where that divergence happens between these two, why it happens, and hopefully how users can decrease, mitigate that risk that you see come from those two separate systems that are done separately in silos typically, and then brought together.

Then we’ll go through assumption risk exposure. we’ll go through what exactly that is. Dom’s going to define that and talk through where he’s seen it in his career. I’m going to go through the golden thread. I don’t know if everyone on the call has heard of the golden thread. I think it’s been around a while. I’ll quickly describe what the golden thread is and then go into how that golden thread is important.

And then we’re going to give one way that we see as a good solution to handling that risk exposure you get from trying to mesh estimate and schedule together, which is through quantifying divergence with QRA. We’re going to walk through how our system handles that. And again, one thing to note here is this isn’t a sales call, so this method we’re going to give can be done with other systems. We’re just going to walk through how we’ve seen it best been used in our system and why we think it’s important to do that.

And then last but not least, we’ll go through the governance and outcomes. How can owners and contractors govern this solution and outcomes they could expect by following those processes and governance.

The first thing to talk through here, estimating and scheduling. As I’m assuming most of us in this room who are on an AACE call know, oftentimes estimating and scheduling are done in silos. From my experience, estimating is done with a lot of forethought, but it has typically been done with a deadline in mind, so it has to be done quickly. Scheduling oftentimes is an afterthought. At the very end of the estimate or close to the deadline, “Oh shoot, we’ve got to get this schedule put together as well with this estimate deliverable.” So you go find someone who can quickly put a schedule together, run some type of software that they quickly spit out something that makes some sort of sense. And then at that authorization time, you bring those together, you submit them. But oftentimes the assumptions that’s used when you’re doing that estimate and the assumptions that are used to make that quick schedule aren’t validated by anyone. They’re just assumed that both sides talked to each other, that you validated what each was doing, that the left hand talked about what the right hand was doing, and you submit it and you hope it’s good.

Owners oftentimes are out there just saying, “Yeah, I want to look at that cost, that bottom line from estimate. What’s it going to be? We’re going out there and we’re going to approve those capital programs based on the cost we’re seeing.” And contractors, at least within that schedule world, they’re trying to put together under a deadline constraint, a quick execution plan that they think is at least somewhat viable oftentimes. Yes, granted it’s typically done quickly, but it’s done with some sort of though that I’ve seen at least. And again, like I touched on earlier, alignment, it’s assumed, it’s not validated. And what’s the hidden risk behind this? It’s going to create those assumption risks, we call them, or hidden baseline risks that you see at baseline time in that estimate and that schedule.

Dominic Cozzetto:

All right. When we start talking about assumption, risk, exposure, what we’re really talking about, we’re actually talking about the gap between what was priced and what gets built. As an estimator, I have a path of construction in my mind, means and methods in my head, and I’m not just pricing quantities and pricing numbers. I’m actually going through and building the job inside of my head and pricing it that way. What we see more often than not is that that never gets translated to the execution team. That’s really where we’re at today is it’s really the total vulnerability that project faces when planning relies on either uncommunicated or unverified assumptions from the estimate team.

So where is the gap in between the assumptions of the execution plan? It really is not just simply the presence of assumptions. Every estimate has assumptions. Every project has assumptions. The exposure arises when the assumptions that are embedded in the estimate, those that are valid to the pricing of that estimate differ from those that are put to use in the plan of execution. The problem is it’s very vague. It’s very hard to find these assumptions and where this risk is actually living because there’s no single risk register entry that captures all of it. This is spread throughout the entire estimate. Many projects treat risk management in general as something occurs after the estimate and scheduling from the estimate occurs, probably after key productivity assumptions, crew makeups, calendars, constraint assumptions. They’ve already been established. So that risk and contingency is often calculated after the exposure has already been embedded in the estimate and embedded in the baseline of the schedule.

One of the main problems is here, no one owns the assumptions. If you think about it in an org chart personnel-wise there’s no one individual that owns those assumptions. My scheduler is making assumptions. The person who is doing my pipe takeoff is making assumptions. Whoever’s doing my crane plan is doing assumptions, but all that gets captured and no one person can speak to all of it. I could actually say the largest risks on some projects that I’ve been involved with aren’t actual project risks at all. They’re these assumptions that were never either validated, disproved, or if they were validated, they’re not communicated properly between the estimate team and the project execution team.

Invisible at baseline approval, the exposure exists before that construction ever starts. This is hidden somewhere between the estimating team, the scheduling team, operations and design. In reality, some of the largest risks exist before that execution ever even begins. So they’re embedded within that estimate and within the schedule, even though they’ve never even been tested or converged against each other or with each other in one application or field. And like I said before, it really doesn’t have one singular owner. Most organizations have estimate reviews, schedule reviews, design reviews, risk reviews, but few ever mesh those up and do them at the same time. The best projects I’ve been a part of, that risk review and those assumptions somehow has weaved its way between all four of those industry or parts of the organization.

These often materialize during delivery. The assumption risk exposure is often not visible in traditional reporting. It’s not inside my cost controls. It’s not inside my schedule. Projects typically monitor this cost variance, the schedule variance, maybe the risk register movements, maybe you have a contingency drawdown report, but few monitor where those assumptions are changing, where those assumptions are maturing, where they’re traceable, whether it be the path of construction or whether it be just assumptions on whether you’re going to field fab pipe or fab it in a yard. This can happen because systems may not be talking to each other. Field execution staff are onboarded later into the project, so they’re coming on way late. Or staff that we’re familiar with those are offboarded from one project to the next. I can talk from the estimating side. I’ve probably done five, six other estimates before this one even kicks off. I have hard enough time keeping my own thoughts straight. Maybe I kept this all straight in one place. It gets translated or it doesn’t.

So these assumptions and this risk really drives costs. It drives delays and it drives the thing I hated the most is claims or change orders. So it really is the difference between the project that everybody estimated and approved and the project that everybody is actually planning to build. So the less communication and the larger that gap becomes, the higher likelihood that cost is going to grow, that schedule is going to change, or you’re going to get that schedule pressure. You might have some funding uncertainty if you’re looking from an owner aspect on that as well. And you’re going to probably end up with a lot of claims during execution.

Go to the next one, please, Jordan. What really are the sources where we start diverging from that estimate and schedule? The first one on here really blows my mind. It’s those durations that are in the schedule aren’t tied to the quantities in the estimate. I see this quite a lot more than I would like to admit because as an estimator, as a numbers person, not a word person, this doesn’t make any sense to me. My durations are based off my crew composition, my productivity, and my quantities. That’s going to tell me how many days this should take. A lot of times that’s not what’s happening when these schedules and estimates are being built. They should be being built together, they’re not. You’re going to have, I don’t know, Jordan, maybe some historical durations that some people put on there and they never adjust these durations based off quantity increase or decrease on some of these very key items.

Crew and productivity mismatch. This happens because you have a lot of detail in your estimate. You might have a foundation is broken down by fine grade rebar installation, form work, pour, and that scheduler is rolling up all of your crew into making sure that maybe he’s assuming a finish to start relationship and all that. So that crew is just being one crew throughout that whole thing where in likelihood my means and methods are saying, no, a lot of this is happening in parallel. So that actually should have a larger crew and my durations are probably not nearly as long as what the schedule has inside of it.

Missing or late constraints. These are usually originating outside of estimating, but materially affect the costs and the schedule outcomes. They’re extremely important and often feed knowledge from the scheduling team to and from the estimating team. We’re talking things like permitting, material availability, utility relocation, maybe some environmental stuff. We could have a whole talk about a project I was on that had some tortoise fence in the desert. That’s a whole other thing that was never put into a schedule. And we spent a lot more time doing turtle fence management than anything else we’d ever had in the estimate. Things like that we can talk about. But these are really nuanced constraints that probably add duration to a lot of your indirects, but might not have anything to do with the install the units you’re actually putting in on the project.

Calendar versus labor assumption mismatch. I would say calendar versus calendar mismatch is also something I’ve seen on here. Maybe the estimators thinks they’re going to be running 5-10s. You might have something happened to the calendars inside my schedule where they’re all of a sudden on 5-8s. That’s going to have a huge implication on the durations of the schedule where they’re going to be completely a mismatch.

Yeah, Jordan, do you have anything else to add to this one? I know you have some scars and some war stories on this stuff too.

Jordan Brooks:

Yeah, no, you covered a lot of things scheduling-wise, but I mean I will say that I’ve been involved in estimates and building the schedule. And I go do my due diligence of going and finding subject matter experts, people who’ve done it in the field to get their input on how are we going to drive these piles? How are these foundations going to be poured? What’s the sequence on a specific laying of track from segment one to segment six? What order should we do it in?

And I go do my due diligence. I get that information from that SME, but oftentimes that information isn’t passed back to the estimator. It stops at that SME’s giving that detail to the scheduler. It stops at that scheduler. It’s never captured anywhere. You’re not telling the estimator, “This is how we see it going.” Oftentimes that estimator’s asking the scheduler, “How long is this operation going to go just so I can cover my indirects?” And that’s really it. It often stops there and you can see why a lot of those assumptions that may not happen in the field that way or weren’t estimated that way, you can see where that divergence can naturally happen.

All right.

Dominic Cozzetto:

What happens when that thread between the two breaks? Those assumptions that you’re making, they start becoming unquantified risk. So risks that we’re not accounting for, risks that we’re not communicating, that risk exists, but if it hasn’t been identified, measured, or even assigned some contingency to it it’s going to start to become a problem. My argument here is that the risk and contingency cannot solve that known misalignment or that unknown misalignment. So that breakdown in communication isn’t going to be solved by throwing an extra percentage or extra million dollars in your contingency pool. This is critical for your projects to perform correctly.

From an owner side, you’re often overpaying for that uncertainty. So if there are assumptions that that owner doesn’t actually address maybe during some RFIs during estimating, your contractors are putting contingency dollars inside their bids to make sure that they’re covered on their risk side, but they’re not covering on their own. As a contractor, if I’m not seeing those risks or communicating those, I’m probably underpricing that job. I’m absorbing that risk and that contingency on my own. The key thing there is this diversion creates only two outcomes. Either the owner is funding that uncertainty that may or may not materialize, or the contractor is absorbing that cost when they didn’t intend to. So it never really creates value for the projects.

Jordan, where does this hit on the schedule side?

Jordan Brooks:

Yeah, so the one thing I wanted to cover here is how this often leads to disputes and re-baselining of your schedules. And oftentimes that re-baselining happening way earlier in the project than you hope or it should because those assumptions that weren’t talked about upfront happen and the plan is at that point basically meaningless because those assumptions are changing it entirely. So where oftentimes I see those impacts come in is once that cost or schedule performance, it begins to deteriorate on the job and people tend to want to at that point get involved. They take a little bit more interest once you start falling behind schedule, incurring more costs. So owners saying, “You priced it this way.” Contractors saying, “The assumptions changed based on what we assumed at estimate time or baseline time.” Designers sitting there saying, “That wasn’t the intent.” And the scheduler’s sitting there saying, “That wasn’t the plan.”

So you have all these voices in the room as soon as something goes wrong. You know that famous quote from Mike Tyson, “Everyone has a plan until you get punched in the face.” As soon as you get punched in the face, people oftentimes have an excuse why. And those start coming up quite often. And where this leads to is again, I touched on them, but you’re going in, you’re having to reforecast the job, you’re having to re-estimate the job, you’re re-sequencing the job, which is leading to a re-baseline of schedules. And this is going to consume a lot of time, a lot of energy, a lot of overhead to go get all of these things done and back on track. And then oftentimes this is going to result in, it leads to a discussion on the assumptions that should have happened early on in the job. That’s what it usually comes back to.

At that point, it leads you to what do you do about these assumptions that are coming up on the job? And what we’ve seen through our careers between Dom and I and something we’ve worked into, honestly, into our software to hopefully defend against is being able to quantify these assumptions upfront, track them through a workflow within a system, and then somehow validate and put either a duration or a cost to those assumptions so that you’re covered at estimate and baseline time.

And I do want to say that this should be something that not only a contractor is doing, but a contractor is doing in conjunction with or in a partnership with an owner to say, “Hey, these are the assumptions that we’re putting in here. Do you agree with these assumptions? Or at least you know which ones we’re covering and we’re going to put into our price or into our schedule so that we’re covered at baseline time when we move into execution.” The way we view this is those assumptions or those gaps as Dom was talking about, those translate into some type of risk driver.

They may oftentimes translate from estimate into a longer duration in your estimate schedule, and that’s fine. That needs to be called out. You definitely need to make sure you’re not double dipping by building those into your duration or your cost, and then also having those as a risk driver that you’re running a quantitative risk analysis against, but you want to make sure you’re covered one way or the other. That’s one thing to keep in mind. But if you’re capturing those as risk drivers, you can put those into your risk register early on. The project can see them. You have a shared risk register, hopefully. Everyone’s seeing what assumptions are made. And then once you get to that estimate, you’re getting close to closing that out, you’re getting close to closing out that schedule baseline, you can run a quantitative risk analysis with those risk drivers, generate a P50, P80 outcome, identify some sensitivity drivers in there, make some mitigations where you need to, and then build that into, again, either into your schedule or into your estimate so you’re covered.

And again, if there’s a transparency on the project team, this should be a non-issue even for the owner. The owner wants to know that the cost they’re seeing at estimate time is the cost they’re going to pay or hopefully something around the cost they’re going to end up paying for that project. This is something that we’ve worked into our workflow within our software, and I started out with this early on. There’s many different softwares out there that can do this similar thing. I think the importance is that you’re doing it upfront early on before estimate and the schedule get locked into a baseline, and now you’re stuck with those assumptions never being validated and you have to go execute on those. And the previous issues that came up are going to arise at some point. That’s one way we see, one method we see that’s a good route to handle those assumptions at an early baseline time.

And again, this one leads back to something that you can have in all systems. We like to think that a suite can handle this very well, and that is the golden thread. I didn’t go into what this is early on. I’ll touch on it briefly here, but essentially all of the golden thread is, and Dom, if you have a different outlook on this, by all means, share it. But I mean essentially all a golden thread is being able to track a piece of data through different systems. So from your estimate to your schedule or to your risk register or to the control budget, whatever it may be, it has a common piece of data or golden thread that can be tracked between all systems and can be tied back to where those assumptions are coming from. Where is this cost coming from? Where did this duration derive from?

And you can see right here how that golden thread would typically flow between systems. You’re going to have a cost item. And typically Dom loves this one because he likes to point to account codes. Account codes is his favorite piece of golden thread data. You have an estimate cost item, it’s going to flow into your control budget when you go conform your budget in for execution. And then that’s hopefully already flowing not only from estimate to schedule, but now from your conformed budget to your schedule. So it all ties back to what was my productivity factor that I used to estimate on this quantity? Oh, that’s where that duration’s coming from. That’s where that cost budget’s coming from, and it all ties back together.

And again, right below that, the quantities to that productivity to the durations, all of those should be able to be traced. You should have an idea of where assumptions came from. A lot of times, are we using our best productivity factor? Yes or no? I mean, that’s an assumption. Where did that assumption come from? Why are we using our best productivity factor? There’s got to be something around a reasoning why that estimator used that. But again, you should be able to trace that with that golden thread theory.

And then what this gets you, what the golden thread gets you is aligned logic and constraints. You’re going to have a lot of assumptions upfront figured out. You’re going to understand why the job schedule was built that way, hopefully. You’re going to understand why there’s specific constraints in the schedule. You’re going to understand what the estimate’s using. Again, like I said, productivity factors. Well, maybe that piece of work was getting done in the winter. So we had a lot of assumptions on possible winter work happening that’s going to slow you down, and hopefully that’s built in through those assumptions.

And then the final point here is that traceability is maintained across the life cycle. So I’ve already touched on this with the systems and how it tracks through the systems, but hopefully what that enables is traceability from estimate even early, earlier than estimate possibly, but from at least estimate through the lifecycle, from baselining execution. If you do have to go re-baseline, hopefully that golden thread with your system is able to be tracked back to the same thing. Even though you have a new baseline schedule, the idea is that it’s capturing those same assumptions no matter what.

Dominic Cozzetto:

Yeah, so here is my example of a validation workflow. I know a lot of people will have a lot of different experiences on it. This is what worked for me really well in the past. This is what works for a lot of our customers. Also, the verbiage in some of this is going to vary from what you might use. I call it account codes. It’s called the phase of accounts, the cost code, whatever you want to call that. But we need you to align your WBS, your CBS, your activities, your account codes, whatever level of granularity you want there has to be assigned a consistent numeric code. I want this as an estimator to go forward, get my actuals against and use for future estimates for benchmarking and historical numbers. That’s where I want it from. But it also gives you a backbone across the estimate and the schedule.

So if I have assigned repeatable activity codes that I can see every job, this is when I pour a [inaudible 00:31:40] foundation, if I’m doing power plants over and over again, I can see that I assigned consistent numeric code across all of them. And what does that help me do? That helps me trace my quantities to my work. So when those quantities increase, those quantities decrease, I can actually see what that’s doing to my schedule.

Have break quantities to schedule granularity. That really depends on who you are in this process and what you’re trying to get out of it. I might want to use a total cubic yards for a foundation on that. I might want to break that down to every adobe underneath the piece of rebar inside there. I don’t know. What do you want to get out of it? The thing that you have to do though, if you’re doing that, is set those capture rules before takeoffs. We’re talking about rules of credit, whatever you want to call that, so you’re not going from zero to a 100 on, “I’m not complete, not complete, not complete. Cool. I’m done with three weeks worth of work.” So there should be little intermittent chunks there because if you don’t know where you’re actually at on a project, you don’t know where you’re going to end up on a project.

These are very basic theoretical things I’m saying. When they’re put into action in the proper way, they really help out your entire project, not just on the estimate and the schedule side like we’re talking here, but on the cost side as well.

All of this helps me align those production assumptions. I’m carrying the right crew makeup. I’m carrying the productivity that I had in the estimate. I’m actually reflecting that in my schedule to show those accurate durations inside the schedule as well. And then I’m going to make sure those are recorded at the basis time, the time of estimate. There’s a lot of talk going on right now. I talk about it a lot. The granularity you have inside your estimating system is not the same level of granularity you have in your cost control system. So to have that as an artifact from the time of estimate will help you actually have those recorded at the time of the estimate, at the time of the original schedule being made, and throughout the entire project.

The fourth thing here is embed those, call it stage-gate governance. This is basically going back to my work packaging days when I put this inside here. It’s a really good idea to get a pre-plan approval gate at milestone intervals along the way. Formalize these, include the estimating team, the scheduling team, the operation team, the designers, the owner, the risk team. Make sure everybody has that information they need and understand the nuances to it. I’ve seen crane plans go completely different and the pricing is completely different from the estimate to the execution. That estimate turnover from estimating to operations is a giant opportunity for you to communicate correctly or have one estimator who doesn’t have the time to try to communicate what they were maybe thinking and completely have the execution team make their own plan. It basically blows the whole estimate out the window and you’re kind of just operating in hopes and dreams at that point.

I’m not saying you won’t be profitable because there’s a lot of really great execution people out there just saying that’s not what the basis of the estimate was. So you’re kind of in a crapshoot there.

I have to say it in this time of virtual meetings while we talk to over 400 people on the internet right now, in-person meetings help facilitate this probably better than I’ve ever seen. You get that buy-in, you get the acceptance of the workflows, you get the communication, you meet maybe a person you never had before that will be a resource throughout your entire budget setup on that project, your work packaging on that project. So that face-to-face, this might be super subjective, but it seems to create just a better work environment that helps everybody out. It helps you understand every other person in the room, and you can commit more to deadlines and obligations because things just feel more bodied, more personal at that point.

That’s it. Jordan, if you want to jump to the next one.

Jordan Brooks:

Yes. All right. Maintaining the golden thread with connected data. What’s this actually look like? What does it mean? Again, I’m going to touch on it again because I know it’s something that’s near and dear to Dom’s heart. When I talk about this, I’m going to try and relate it as much as I can back to account codes. It’s a big thing in his world that, and again, this is a prime example. I’ve been in multiple organizations, ones where account codes weren’t standardized, they’re all over the board, and I saw the misalignment that happens from that. And then going to an organization that has a much more standard account code structure, it does wonders for a golden thread traceability standpoint. You can’t even imagine what type of benefits you get from having that standardized account code.

So I’m going to relate this back to that and keep that in mind. But really what does maintaining the golden thread with connected data, what does that mean? It comes down to a common way of organizing your data so that multiple systems, teams, processes can use it consistently. How it’s structured becomes a very important part of this golden thread theme, this process as you go through it.

And then the question comes up is how are these data structures shared? As we know, Dom pointed out, estimating is done at a different granularity than cost control, which is both of those are done at a different level of granularity than scheduling oftentimes, which if you go even further, that’s often done at a different granularity than going in and claiming quantities on whatever software you’re using to do claims. So all of these structures are done at a different level of granularity, and it does become somewhat of a maintenance burden to go in and maintain those structures. But the idea is to have a way to tie those together. You’ve got to have a common piece of data between all of those systems, all of those structures, all of those different softwares that can tie it back to each other.

Obviously, we think that having a program, a suite of products that is sitting on the same platform, it creates a very easy and viable way to do this. But again, it’s not something you can’t do with point solutions out there in the world today. It’s just something you have to go maintain. There’s a little bit more burden in that sense. But making sure, for example, like you see on the bullet point here, that an estimate schedule and your risks are aligned possibly at a CBS line item. Maybe you have schedule activities that relate to an account code in your estimate, and then you have risks that fall back into a specific account code in your estimate, and you have an idea of where those tie in together.

I think the important part, it touches that towards the end here, is that there’s transparency across stakeholders and auditors. I think Dom would agree with this as well. It’s having that transparency with owners upfront and then even subcontractors, your risk management, your schedulers, your estimators, the people who are going to be on job and execution personnel. All of those people have some sort of transparency to what structures you’re using, how they’re tied together. And then that’s going to open up the assumptions that are being made in all of those systems that are happening in processes. And again, it ultimately comes down to being able to have supportable, defensible decisions that are being made. Why did I use that productivity factor? Why is my duration this long in the schedule? Why is this risk factor being accounted for in your register? Why are we running that in the QRA? Why is that a risk driver on this specific activity or this cost item?

All of those things need to have some sort of defensible decision assumption behind it that you can point to and say, “This is why I did it this way.” And then that just comes to, like Dom said, get in a room and agreeing upon it. Have a communication point, talk about it, make sure you agree, make sure people at least know why.

And then the final bullet point that we had here was going through that governance. So owner contractors being able to have governance through their baseline time. Governance keeps the baseline honest from authorization through delivery. Dom talked about it in a stage-gate approach. I think that that’s a very viable way to go about it. You have a baseline stage-gate that you go in and you make sure that your processes and your assumptions are traceable back to the estimate from the schedule and vice versa. You’re going into execution time. Can you take those assumptions and trace them into your control budget at baseline time? So there’s a stage-gate validation that happens there that oftentimes we think should be required, honestly, to get everyone on the same page and make sure you have validated these assumptions within the project. That is a big thing that needs to happen on the job, we feel like.

And then after you get through that initial baseline stage-gate, I keep calling it, you can call it even pre-baseline stage-gate, there needs to be a continuous alignment of these as changes happen. One thing that happens on a project, as we’ve talked about, is change is as it’s going to happen just like death and taxes. It’s definitely something that you’re going to expect to happen. There’s no way around it. Change happens on any project. It typically happens day one, even with the best plans and the best estimate. That’s just the way it goes typically. As long as you’re going through and as those changes happens, you’re having more stage-gates with your project team to continue validating those changes against assumptions, you should be heading in the right direction. And so that’s something that we point to as an important part of governance.

And then the last bullet point on here, baselines become the investment model. That is important to note that that baseline that you’re going into execution, schedule and estimate both, that’s an investment that you’ve gone into and you’re hopefully going to say, “This is the cost we’re aiming to, and this is the end date we’re aiming to.” Those expectations are hopefully aligned so that investment model isn’t too optimistic, isn’t too pessimistic. You want it to be as realistic as you possibly can get it.

Dominic Cozzetto:

Yeah. So what does this get me when I actually put these processes in place, get my stage-gate set up? What happens is I improve my predictability. If I put that shared coding structure up, those account codes up, and Jordan and I are working together on the fourth estimate in a row, man, we can probably identify some misalignment before it ever comes to cost growth. Not just in the estimate, but also on the execution. Those assumption changes become visible before they become impact. So if I’m planning a higher embankment number, Jordan sees that in his quantity growth over on the schedule side, that all of a sudden becomes more visible to him. We can talk about that in our assumptions and our means and methods.

It reduces disputes. So when I’m on the owner and contractor side, I expose those assumptions to the owner and the designer, the less likely they’re going to actually survive unnoticed until we get into execution. So we put those assumptions out on the table right away inside of perhaps a risk meeting and we all see them. We all know if they happen. Yeah, we talked about that. That’s accounted for over here. We keep moving forward. So we have that shared understanding between the owner and the contractor, and it really does reduce disagreements over the intent of how the project was being built. And because of that, you have higher confidence in those decisions. Those discussions shift from, “Hey, this is what we think was going to happen,” where they become evidence-based because those assumptions can be traced all the way back to day one. And the result of all that communication is that you usually get a better, more deliverable outcome for the project on both the owner and contractor side.

The whole point of this entire thing is you reduce isolating that data and you reduce hiding those assumptions, whether it’s on the estimator side, the scheduling side, the owner side, and it really increases the communication and the confidence in delivering hopefully on time and under budget for all your projects.

Jordan, anything to add there? I think I…

Jordan Brooks:

Yeah, I think you covered it. I think the one thing to keep in mind is just where we’ve seen this in the real world is I’ve been on jobs where, and I talked about it a couple times already, but day one, you go into an operation and the durations that are in possibly your CPM or your baseline schedule aren’t anywhere near accurate what you’re actually seeing in the field. And once that starts happening, if there’s no good reason why that’s happening that you can point to as the project team, one of two things or actually sometimes both starts happening, you start saying, “Oh, the estimate’s terrible. We blew the estimate early. We don’t trust the estimate. All of these budgets are going to be off going forward.” And it starts off the job with a lower confidence in what budgets you actually have to work with, which isn’t good.

And then the other side of that, the execution team already has to go in and typically have lower level of detail for their planning work, their short interval planning work that they typically do. And they try to align that early on with that CPM schedule or that baseline schedule. But if the durations don’t align, then they’re just going to stop looking at that schedule altogether and start going off on their own. And you see divergence even in just project plans from the master to the short interval execution plan, which you don’t want. You want to have some type of confidence in those plans that are put in place and how you’re going to build the job.

Dominic Cozzetto:

Jordan, you know what’s the best? Is being on the estimate team winning the job and then going and help build that project.

Jordan Brooks:

Agreed.

Dominic Cozzetto:

That’s the best.

Jordan Brooks:

Agreed. As long as you’re hitting your durations, right? Because then they’ll point to you and say, “Didn’t you estimate that?”

Dominic Cozzetto:

Yeah, I guess so. Yeah. Yeah. Those assumptions are nice though because they’re still stuck in your head.

Jordan Brooks:

100%. One thought to leave here with before we get into Q&A that I want you to at least think through. We’re not going to give you an answer, it’s just kind of a redundant question here, but think through, would you approve a project if you couldn’t trace the assumptions behind it? And when I was at AACE in the annual meeting in Vegas, I pointed to relate this to possibly a craps table. Are you going to go make a bet on a craps table that you don’t know what the risk is there? What’s the odds on putting a bet on a specific line item or number or whatever it is? I think some of us may, but hopefully we’re not doing that with our projects at project time. So I’m going to leave you with that thought before we go to Q&A here.

Okay. Dom, how do you want me to handle this? You want me to give you some? I found some good ones here.

Dominic Cozzetto:

Yeah. Throw some out there.

Jordan Brooks:

Okay. The first one, and we can go back and forth on this one I think but, “How can the owners prepare a reliable schedule and estimate when the engineering is not yet at least 60% complete and the scope has not been clearly defined?”

Dominic Cozzetto:

Yeah, no, I agree. How can that happen? The reliability of that schedule is going to depend on the experience of the contractors you’re selecting. Hopefully you’re selecting a contractor that has done previous work like this. It’s an indicative bid, it’s an indicative schedule. And the best outcomes I’ve seen, without getting too granular into this, is becoming a partner between the owner and the contractor instead of being a boss and employee relationship. That partnership on this is the best one because you are going to have to work together. Yeah, I mean the most successful job I ever helped bid, we were at 30% when I got on and we were in the designer’s office with an owner rep present the entire time, spent two months in an office before we even went to site after the bid was awarded. And we did really, really good with that schedule. Not just the schedule, but the cost on it too.

Yeah, that takes more of a partnership. That is more of a personnel thing than it is a means and method thing when it comes to the schedule, in my opinion. Jordan, you’ve done more schedules than I am, and I know you built a government job once that had 5% design complete. So any suggestions there?

Jordan Brooks:

Yeah, no, and you answered very well. I mean, oftentimes you’re hoping that you’re getting into a much more favorable contractual agreement or contractual style. Hopefully you’re working with the owner in a progressive design build contract that helps you through those stage-gate or those different percentages of engineering. But I think what it ultimately does is it points back to something we touched on a couple times here is assumptions. You’re going to have assumptions at 30% design, 60% design, 90% design. You’re going to have assumptions at IFC time. And capturing those assumptions and at least having an idea of how much in the positive or the negative those assumptions could swing based on where you’re at at that 60, 30% design, whatever it may be. I think that’s important. And as long as a project team you’re agreeing to at those stage-gates, that 60% design, this cost could swing 50% to the positive or it could swing 50% less. And agreeing on that and knowing that going in is something that I think it points back to having the right personnel in there as well and understanding that that helps out quite a bit.

I’ve got one here that’s going to be all you, so I’m going to let you answer this one. A question on escalation in bids. “Billion dollar projects extend typically three plus years. With the economy uncertainty, tariffs, unstable US government, specifically for steel, reinforcing bar, how do you price escalation from material suppliers? I see an unprecedented material escalation for future years. What are you seeing?”

Dominic Cozzetto:

Yeah, very volatile situations right now in the world. Yeah, you can’t. You can’t have super confidence inside this thing, especially for material suppliers because they’re the ones that are always on the hook for this. You can ask them to give you an escalation by year type thing. They’re going to be looking at the same charts that you are. The best thing to do with those big, big, long duration projects is to have an allowance for material pricing. So, “Here’s where we think it’s going to be based on X assumptions. We’ve been talking this whole time. Here’s my escalation assumptions. Here’s what I have for my current pricing. Here’s where I see it going.” And hopefully get to some agreement on that. “Hey, if it comes within a 10% bandwidth of this or if I’m seeing some super volatility here, what are we going to do as a project team to help mitigate the risks of this price increase?”

That being said, early material buyout is a huge thing I’m seeing now, which goes to another assumption that I have enough secure laydown spot to put all this material to. So that is a horribly hard question, Cindy, and I’m not the biggest fan of that question. But yeah, very difficult, tons of different tactics to do. I think the biggest successes we’ve seen from a lot of our customers that have these projects going on are proper communication on those assumptions at the time of bid win and those early material buyouts or trying to lock down a pricing structure with the vendors themselves. Yeah, good luck, especially with steel and copper right now. Holy cow.

Jordan Brooks:

Okay. I think we probably have at least one more here. I saw one in here that’s more for me. So disputes and re-baselining. Why failing to address schedule convergence leads to contractual friction claims and the need to reset baseline schedules mid-project? I mean, I think you answered the question in the question honestly, which is good, but I think the reason schedule convergence leads to this contractual friction is that baseline schedule and/or budget. I mean, they are contractual documents typically. And when contractual documents start being not followed, I mean that’s going to lead to claims and it’s going to lead oftentimes to a need to reset your baseline so you’re working towards a accurate contractual document that you can measure yourself against.

Most of the time re-baselining why is it important to have a realistic baseline and project or excuse me, milestones to march against is really comes down to measuring progress. The owner wants to know when the job’s going to get done. The contractor wants to know when they’re going to be done with it. They also want to know when they’re going to hit certain milestones, especially on, you think about road work, you have traffic switches all the time. When are we going to be able to open up this lane of traffic? And when are we going to be able to close this lane of traffic? All types of stuff. When is this bridge going to be reopened so that we can have commuters going across it? All of those things are project milestones that you want to be able to, at least in some way, some sort of confidence say, “This is when we’re going to be done.”

 And ultimately it comes down to cost. If you’re on a job longer or a milestone’s taking longer or your progress is less than you expected, it’s costing everyone more. That’s just the reality. So that’s why oftentimes it leads to contractual friction is not many people like spending more money than they thought they’d have to. I think that’s just human nature. That’s why it leads to those types of things typically.

Dominic Cozzetto:

I’ve got one more I want to answer here just because it’s a shameless plug. Oh, no, it moved away. There it is. “How do you track installation activities on site and how that impacts the schedule? How often are the onsite activities updated in the program? How soon are the onsite activities updated once imported?” Yeah, a shameless plug. InEight plan in progress do a wonderful job of helping you break down your installation on a granular basis, we have a lot of customers who claim what I was talking about those claiming schemes or those rules of credit on a daily basis. And we often see really fast communication between our systems, between those installations and the schedulers so they can claim progress on those. It takes a really disciplined field team to do that properly in general, even if they’re not using a nice system that talks to each other like ours. But the system definitely helps to try to get that communication across spreadsheets or whatever those meetings look like. When it’s inside one tool, it’s really nice to be able to claim and keep going.

 And like I said, you can’t tell me when you’re going to finish if you can’t actually tell me where you’re at on the installation. Sorry, a shameless plug, but a lot of really great things I see out there from people claiming daily to see where they’re at on these big projects.

Jordan Brooks:

Yeah, thanks Dom, for answering a lot of those questions too. If we didn’t get to your question, like David had said early on, we’ll come back and either answer them in the chat or we’ll answer them through email. Again, thanks for joining the webinar. If you want to learn more about InEight, by all means, go to our website, learn.ineight.com. We’ve got a survey here. If you don’t mind taking that, the QR code will take you right to that survey. And then I don’t know if we got the question that is typically asked, and hopefully, David, I’m not taking your thunder here, but we will provide these slides after the show so you’ll get a copy of this afterwards in an email as well.

David Chigne:

Perfect. No, thank you Jordan and Dominic for a very insightful presentation and thank you InEight for sponsoring today’s webinar. And of course, thank you as well to everyone who joined us and participating in the discussion. Like Jordan said, you will receive a follow-up email within the next 48 hours with the recording presentation slides and your certification of attendance. And of course on behalf of AACE International, thank you for being with us with today. We hope to see you at another AACE event soon. So have a great rest of your day, everyone. Thank you so much. Bye-bye.

Jordan Brooks:

Thank you everyone.